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January 19, 2013

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Week Thoughts: MLPs Up, IPOs Down

In a reversal of the big trend in 2012 that saw MLP IPOs (on average) vastly outperform MLPs, this week we saw MLPs grind higher while each of the three MLP IPOs closed the week below their issue prices. This week’s 1.6% gain by the MLP Index was the lowest weekly return of the year so far, but even that “modest” rise for the MLP Index was enough to outperform other equities again.
Weekly Review_1-18-13
Energy commodity prices were up sharply across the board, propane and natural gas leading the way on some very low temperatures (that I can attest to from my travels to Kansas City and Tulsa, where temps got down to the mid-teens).  Distributions and earnings season is underway, expect related announcements to drive performance in the next few weeks absent some large macro event.
Winners & Losers
Small cap, high beta MLPs were the biggest winners again this week….
For the year, some of the biggest losers from last year are up the most for this year, led by OXF at +31.8% so far.  The youngest MLP (SXCP) is also the biggest loser so far.
Everything is up, its been a very pleasant few weeks, which have some analysts (RW Baird MLP analyst Ethan Bellamy for example), calling for caution for MLPs moving forward as history has not been kind in the short term following periods of low volatility, or really any period that is not January.  Also there are obviously still some issues to work out in Washington DC. Whether its another kick of the can down the road remains to be seen, but there will be drama and volatility, so get your popcorn and your war-chest ready.
News of the (MLP) World
This week was all about experiments in equity.  A few times in 2012 and 2011 we saw two MLP IPOs price in a week, but never before have 3 MLP IPOs priced in a single week, until now.  The experiment didn’t go so well, as all 3 of them broke issue, with SXCP (the last one of the week) dropping the most at -3.9%.  In fact, of the last 10 MLP IPOs, 5 have broken issue, so there is clearly still some fatigue left over from late last year.  Second experiment was for a variable distribution MLP to execute a public registered offering.  It was not a primary offering, but it was still a first.

  • Northern Tier Energy (NTI) announces pricing of 10.7mm unit marketed secondary offering at $24.46/unit, raising $261.7mm in gross proceeds to seller
    • 100% secondary, proceeds to sponsor
  • SunCoke Energy (SXCP) prices initial public offering of 13.5mm units at $19.00/unit, raising $256.5mm in gross proceeds at 8.68% yield
  • CVR Refining (CVRR) prices initial public offering of 24.0mm units at $25.00/unit, raising $600mm in gross proceeds at 18.89% yield
    • Priced at midpoint of the range, upsized offering
    • Biggest IPO in the history of the MLP space, second to PDH ($595mm), then EPB ($585mm).
  • USA Compression (USAC) prices initial public offering 11.0mm units at $18.00/unit, raising $198mm in gross proceeds at 9.44% yield
    • Priced below the range but upsized the offering


  • SunCoke Energy (SXCP) announces pricing of private placement of $150mm of 7.375% senior notes due 2020
    • Simultaneous offering with IPO
  • Atlas Resource (ARP) announces pricing of private placement of $275mm of 7.75% senior notes due 2021 at par
  • Energy Transfer (ETP) announces pricing of $800mm of 3.6% senior notes due 2023 and $450mm of 5.15% senior notes due 2043
  • NuStar Energy (NS) announces pricing of $350mm of 7.625% fixed-to-floating subordinated notes due 2043

M&A / Growth Projects

  • ONEOK Partners (OKS) announces plans to invest $500mm in fresh NGL growth projects in North Dakota, Kansas and Oklahoma
    • OKS now has announced $4.7bn to $5.3bn of growth projects through 2015, at 5-7x EBITDA multiples per management
  • Kinder Morgan Energy (KMP) announces $170mm investment Gulf Coast that includes acquisition of 42 acres, construction of new ship dock and 1.2mm barrels of liquids storage tanks


  • Delek Logistics (DKL) announces Assi Ginzburg to be CFO
  • Holly Energy (HEP) completes two for one unit split
  • Kinder Morgan Energy (KMP) announces President Park Shaper and others are retiring


  • Increases (quarter over quarter):
    • TRGP: $0.4575, +8.2%
    • EPB: $0.61, +5.2%
    • CLMT: $0.65, +4.8%
    • OKS: $0.71, +3.6%
    • NGLS: $0.68, +2.6%
    • KMI: $0.37, +2.8%
    • KMP: $1.29, +2.4%
    • EPD: $0.66, +1.5%
    • Flat: CMLP, TLP, LGP, TCP, TGP, TOO
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