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March 23, 2013

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Week Thoughts: (Another) Year of the MLP Continues

MLPs posted their biggest weekly gain of the year since the first week of the year when MLPs posted a 7.0% gain on the Euphoria following the New Years Eve deal to avoid the fiscal cliff.  That week’s gains came when the S&P 500 went up 4.6%.  This week’s gains were against the grain of a flat market.

Weekly Review_3-22-13

This week’s gains (as far as I can tell) were the combination of higher commodity prices (including a welcome uptick in NGL prices, which remain woefully low), a low interest rate-friendly Fed release on Wednesday, and investors anticipating the money Neuberger Berman’s new MLP closed end fund will need to invest into MLPs once the fund prices its IPO (expected next Monday afternoon).  Last week, I wrote that after a 5 day shallow sell-off in MLPs, the bounce back that followed would probably be shallow as well  I was clearly wrong.  After 7 straight down days, the MLP index exploded with 3 straight 1% days to close at a fresh all time high.

AMZ_Last 2 Weeks
There were some headwinds in MLP land, like 5 follow-on equity offerings (STON, MEMP, HEP, CMLP, LRE), but the combined total gross proceeds of those 5 deals ($553.1mm) doesn’t even add up to one typical ETP, WPZ, or LINE deal.  So, a lot of press release, but not an overwhelming amount of new MLP paper this week.
Not sure what we should expect from MLPs next week.  I have been wary generally of MLP valuations recently, and so my bias would be for another dip next week, but it seems as though any momentum the interest rate spike crowd was starting to gain has been crushed for now, so maybe its smooth sailing as investors bid up MLPs in advance of the next seasonal catalyst: distributions in May.   MLPs typically get bid up as distribution ex-dates approach.
MLPs still represent a great alternative to other income-oriented securities, and so far this year, it hasn’t mattered much which ones you own or buy.  A year like this one is starting out as is hard on active managers.  If you aren’t fully invested when the index goes up 3% in a week, it can really hurt relative performance.  Not what you’d call a stock pickers market, unless you picked the top 5 performers this year to date, then you’d be up 30%+ compared to the index at 17.6%.
Winners & Losers
HEP was the big loser this week, pricing its equity offering at -3.5% from prior close and then dropped another 3.1% the next day.  Half of HEP’s offering was secondary units sold by parent HollyFrontier (HFC), which may have had something to do with it.  CMLP didn’t fare much better.  Other MLPs that executed offerings this week fared much better: MEMP closed the week up 5.9% from its offering price, STON up 4.9% from its offer price and LRE up 1.4%.  CPLP was the big winner this week after last week’s preferred private placement and acquisition.


For the year, just 4 MLPs are down, which is incredible.  Of the winning-est winners, GLP is still in the lead.  OILT and HEP popped up into the top five, displacing CLMT and HEP.


GPs on average have outperformed everything year to date, after a 3.3% average positive move this week.Variable distribution MLPs are under-performing the rest of the MLPs after a -1.1% average decline, led by a -10.8% down week for RNF and a 6.3% decline for ALDW.


News of the (MLP) World



  • STON prices upsized 1.4mm unit offering at $25.35, raising $35.49mm in gross proceeds
    • Overnight deal priced at 3.5% discount to prior close
    • Units traded up 3.7% the next session
  • MEMP prices of 8.5mm unit public offering at $18.35/unit, raising $156.0mm in gross proceeds
    • MEMP to receive gross proceeds of $156.0mm ($179.7mm including exercise of overallotment option), net of which will be used to partially fund drop-down acquisition
    • Overnight offering, priced at 3.7% discount to prior close
    • MEMP units traded up 2.6% from offer price in the session after pricing
  • HEP prices 3.75mm unit public offering (1.875mm primary units and 1.875mm secondary units owned by HFC) for $40.80/unit, raising $76.5mm in primary proceeds
    • Offering was half primary units and half units owned by HEP’s GP HollyFrontier Corp
    • Gross proceeds from primary issuance of $76.5mm, net of which will be used to reduce credit facility borrowings
    • Overnight offering, priced at 3.5% discount to prior close
    • HEP units traded down 3.1% from offer price in the session following pricing
  • CMLP prices 4.5mm unit public offering at $23.90/unit, raising $107.6mm in gross proceeds
    • CMLP to receive $107.6mm in gross proceeds, net of which will be used to reduce credit facility borrowings
    • Overnight offering, priced at 3.8% discount to prior close
    • CMLP units traded down 1.0% from offer price in the session after pricing
  • PNG files equity distribution agreement to sell up to $75.0mm of common units at the market (filing)
  • LRE prices 6.0mm unit public offering at $16.84/unit, raising $101.0mm in gross proceeds
    • LRE to receive $101.0mm in gross process, net of which will be used to reduce borrowings
    • Overnight offering, priced at 3.8% discount to prior close
    • LRE units traded down 0.5% from offer price in the session following pricing


  • PDH prices private placement of $365mm of 6.25% senior notes due 2020 at par
  • EXLP prices private placement of $350mm of 6.0% senior notes due 2021 at 98.4% of par


  • SUSP announces completion of 3 sale / leaseback transactions with sponsor Susser Holdings (SUSS) for $15.1mm
  • ETP announces acquisition of remaining 60% stake in ETP Holdco Corporation from Energy Transfer Equity (ETE) for $3.75bn of cash and ETP common units
    • ETP continues the process of simplifying the most crowded org chart in all the MLP land
  • LRE announces $38.2mm acquisition of oil and gas properties in Mid-Continent from its sponsor Lime Rock Resources
  • MEMP announces $200mm acquisition of oil & gas properties in East TX and North LA from its sponsor Memorial Resource Development


  • VNR announces monthly distribution of $0.2025/unit, flat month over month
  • MEMP announces $0.5125/unit quarterly distribution, an increase of 1.0% from last quarter
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