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September 15, 2013

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Week Thoughts: MLPs Still Out of Favor

MLPs on average were slightly above flat this week (+0.4%), while the S&P 500 was up 2.0%.  It was the second straight week that the S&P 500 beat the MLP Index by more than 1.5%.  The S&P 500 is within just 1.3% of its recent all-time high from early August.  The MLP Index is 7.5% away from its less-recent all-time high achieved on 5/22.
Positive domestic economic data and positive China figures (industrial production, retail sales, fixed asset investment and exports) helped push the broader stock market higher this week.  Recent S&P 500 gains have been much stronger for non-dividend paying stocks than for those that pay dividends, and we’re seeing similar weak trading from MLPs and other securities with significant yields.  That’s all part of the market prepping for tapering of the Fed’s bond-buying program expected to come out of next week’s Federal Open Market Committee meeting.  Not sure when MLPs start consistently outperforming again, but if equity offerings continue at this week’s rate, it may be a while.

Weekly MLP Review_9-13-13

There were 6 MLP equity deals this week, but the total was less than $1bn, or in other words, less than one or two WPZ or EPD equity offerings, so don’t think that had much impact on the overall MLP under-performance.  10-year US Treasury rates weren’t the driver this week, but oil prices may have contributed to MLP under-performance. Russia’s involvement in the Syria situation seems to have made conflict less likely, which contributed to this week’s oil price dip.  Natural gas prices were a bright spot, otherwise no big commodity price moves.
Below is a breakdown of the last 10 MLP follow-on equity offerings, including the 5 this week.  Discounts for the last 10 deals have matched the YTD average of 3.77%, slightly wider than in 2012 and 2011.  Also the first day after pricing performance of the last 10 deals of 0.3% is much better than the overall YTD average of -0.6%, much of that due to GEL’s post-deal rally of 6.3%. Click to enlarge the chart below.

Recent Follow-Ons_9-13

Winners & Losers
Wild week on the margins, with LINE up 16.2% and NS down 7.5% (and NSH down 14.3%).  EROC also caught a bid on a less negative research note and probably caught some of positive vibes from the LINE pop.  NRGM/CMLP and EEQ were down on equity deals.  OXF appears to have been down just out of habit.  Also, not on this list, but leading the variable distribution crowd lower was ALDW (-9.0%), which is down more than 30% year-to-date.


Also notable this week was the Kinder complex of securities, which were the subject of a report issued to subscribers of Hedgeye’s research service.  KMI was down just 0.4% for the week, but from its close on Tuesday afternoon, it traded down 5.3% through Friday.  I haven’t read the report, because I am not a subscriber, so can’t comment.  [update: I now have the report, but still won’t be commenting, because I’m a research analyst and I don’t cover KMI or KMP, so there are certain compliance restrictions that I will be starting to pay more attention to in the future…].  We may see some interesting trading in KMI in the coming week because its September options expire Friday.
Year to date losers part of the chart below was jumbled this week, with LINE leapfrogging over EROC and SXE and nearly out of the bottom 5 altogether.  EVEP didn’t get much love from the LINE-related upstream rally.  On the positive side, AMID slipped a few spots, but not much of a chance week over week.


News of the (MLP) World



  • OCI Resources (OCIR) prices IPO of 5.0mm common units at $19.00/unit, raising $95mm in gross proceeds (10.5% yield)
    • Opened at $18.25, closed first day of trading down 5.3% at $18.00
    • Worst first trading day for an MLP IPO since 2010 IPO of NKA, which dropped 6.8% (that was 42 MLP IPOs ago)
    • Trona ore mining and soda ash production assets
  • Dominion announces defnitive plans to file MLP IPO that will include Cove Point LNG terminal in Maryland, and Dominion’s stake in Blue Racer Midstream (Ohio Utica Shale JV) and may include $1bn of EBITDA (Bloomberg)
  • PVR Partners (PVR) prices 5.5mm common unit offering at $23.00/unit, raising $126.5mm of gross proceeds
    • Overnight offering, priced at 4.6% discount to prior close
    • Traded up 0.6% from pricing the next trading session
  • Genesis Energy (GEL) prices 5.0mm common unit offering at $47.51/unit, raising $237.6mm of gross proceeds
    • Overnight offering, priced at 4.0% discount to prior close
    • Traded up 6.3% from pricing the next trading session
    • 2nd biggest pop after pricing a follow-on deal since in at least last 5 years (BBEP popped 12% after a deal in 2011)
  • Rhino Resource (RNO) prices 1.1mm common unit offering at $12.30/unit, raising $13.5mm of gross proceeds
    • Overnight offering, priced at 3.1% discount to prior close
    • Traded up 4.1% from pricing the next trading session
  • Enbridge Energy (EEP) prices 8.0mm i-units (listed as EEQ) at $29.00/unit, raising $232.0mm of gross proceeds
    • Overnight offering, priced at 3.0% discount to prior close
    • Traded down 2.8% from pricing the next trading session
  • Inergy Midstream (NRGM) prices 11.0mm common unit offering at $22.50/unit, raising $247.5mm of gross proceeds
    • Overnight offering, priced at 3.3% discount to prior close
    • Traded down 3.3% from pricing the next trading session


  • Natural Resource (NRP) prices offering of $300mm of 9.125% senior notes due 2018 at 99.007% of par (9.375% YTM)
  • Energy Transfer (ETP) prices offering of $1.5bn of senior notes, including $700mm of 4.15% senior notes due 2020 at 99.829% of par, $350mm of 4.90% senior notes due 2024 at 99.181% of par and $450mm of 5.95% senior notes due 2045 at 99.647% of par
  • ONEOK Partners (OKS) prices offering of $1.25bn senior notes, including $425mm 3.2% senior notes due 2018, $425mm of 5.0% senior notes due 2023; and $400mm of 6.2% senior notes due 2043

M&A / Growth Projects

  • Capital Products (CPLP) announces acquisition of three container vessels for $195mm (press release)
  • LINN Energy (LINE) announces  acquisition of Permian Basin properties for $525mm (press release)
  • In other LINE news, LINE released the following press release, which seemed to convince the market that the merger was more likely than before, sending LINE and most other upstream MLPs higher:
    • “LINN Energy, LLC (Nasdaq:LINE), LinnCo, LLC (Nasdaq:LNCO) and Berry Petroleum Company (NYSE:BRY) announced today that LINN Energy and LinnCo recently received comments related to the Amended Registration Statement on Form S-4 filed on August 9, 2013 in connection with the proposed merger transaction, and are working diligently to file an Amended Form S-4. Furthermore, LINN Energy, LinnCo and Berry Petroleum have agreed to set the record dates for their respective unitholder, shareholder and stockholder meetings as of September 30, 2013. “

Distribution Announcements

  • VNR ($0.2075)
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