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September 25, 2016

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Week Thoughts: No Action, Positive Reaction

MLPs snapped back hard with their best week since April, up 4.5% over last week.  Large cap MLPs outperformed smaller MLPs (EPD’s big week helped AMZ outperform the equal weight version by 50 bps).  Wednesday’s confirmation of 3 more months of current rates from the Fed spurred risk assets higher, especially those that offer income (UTY +3.4%, S&P 500 +1.2%).  The strong week pushed MLPs back into positive territory for the month to date, just barely.
Oil was along for the risk-on ride most of the week, helped by another strong inventory report and jawboning by OPEC energy ministers ahead of an informal meeting of OPEC next week in Algiers.  That worked until around noon Friday when reports broke that Saudi Arabia confirmed that the meeting was in fact informal and no freeze decision was likely.
The lack of action spurred MLPs higher this week: no FED action, no MLP equity offerings, bullish sentiment into an OPEC meeting that will result in no action.
Poll Questions: Theme-Spotting
Like the Fed, MLPs investors are on the lookout for “further evidence of continued progress toward objectives…”  At various times since the bottom in February, positive themes have emerged (ethane, M&A, self help from asset sales or cost cutting).  The negative themes seem to have faded or become less urgent (maybe with the exception of read-throughs from the DAPL debacle).
In this week’s poll questions, we focus on what potential negative trends could emerge at this point, and how worried you are about them.
Sorry, there are no polls available at the moment.
Sorry, there are no polls available at the moment.
Winners & Losers
PAA and HEP led a tight grouping of MLPs that traded up 8% or better this week.  PAA seems to be gathering momentum on the back of oil price strength, Permian volume optimism and the approaching simplification deal close.  HEP’s drop down of contracted refinery assets with PIPE financing pre-sold was very well received.
Not pictured is EPD (+4.9%), which had underperformed pretty dramatically since the WMB bid rumors began circulating, but bounced back this week.  Also, SXL (+5.3%) and ETP (+3.9%) both bounced back a bit, but didn’t regain all that was lost over the last few weeks from the Bakken Pipeline delay.
Year to Date Leaderboard
Each of the top 5 and bottom 5 on the year to date leaderboard traded up this week, except RRMS and SUN.  The drop down, high growth MLPs that occupy 3 of the 5 bottom spots perked up a bit, in particular on Friday when the sector overall was down.
General Partner Holding Companies
General partners traded well, although with the typical wide range of returns.  PAGP led the way, up nearly 10%, basically in lockstep with PAA.  Another oil beta stock, SEMG, however, took the bottom spot.
News of the (MLP) World
It didn’t feel like much company-specific news happened this week but tallying up all the news, it turns out there was quite a bit of news activity this week.  Two companies that were filed as MLP IPOs last year have refiled as corporations this year.  A yieldco did an equity deal, $2.5bn worth of midstream high yield debt priced, we got a PIPE to fund a drop down, and an MLP investor was charged with insider trading. No telling what we’ll get next week, especially with all the OPEC nonsense that’s likely to go down.

  • 8point3 Energy Partners (CAFD) priced public offering of 7.0mm class A shares at $14.65/share, raising $102.5mm in gross proceeds (press release)
    • Overnight transaction, priced at 3.7% discount to prior closing price
  • Cheniere Energy Partners (CQP) priced upsized offering of $1.5bn worth of 5.0% senior notes due 2027 at par (press release)
  • Targa Resources (TRGP) priced upsized offering of $1.0bn of senior notes (press release)
    • $500mm of 5.125% senior notes due 2025 and $500mm of 5.375% senior notes due 2027
    • Overall offering upsized from $800mm to $1.0bn
    • Proceeds from the issuance will go towards purchase existing outstanding notes maturing in 2018, 2020 and 2021
  • Holly Energy Partners (HEP) announced private placement of 3.4mm common units at $30.18/unit, raising $100mm in gross proceeds (filing)
    • HEP will use proceeds to partially fund the drop-down acquisition discussed below
    • HEP does not anticipate further equity financing needs in 2016
    • The units were sold to Tortoise Capital at a 5% discount to prior closing price
    • The market reaction to the announcements was positive, HEP finished the day up 6.5% from prior closing price
  • CSI Compressco (CCLP) announced placement of $30mm of additional Series A convertible preferred units (press release)
    • CCLP had sold $50mm of the units in August
    • The preferred units will pay quarterly distributions in kind (in the form of additional preferred units) at an annual rate of 11% of issue price
    • The units will convert into common units monthly over a total of 30 months

Growth Projects / M&A

  • Holly Energy Partners (HEP) announced acquisition of refinery assets from sponsor HollyFrontier Corp for $275mm (press release)
    • HEP will acquire certain refinery units that will be contracted on a tolling basis under 15 year contracts with HollyFrontier Corp that include minimum volume commitments
    • Management expects 2017 EBITDA expected to total $32.4mm, which corresponds to an 8.5x multiple
  • CVR Refining (CVRR) and private company Velocity Midstream announced agreements underpinning construction of a new oil pipeline from the SCOOP Play to CVRR’s Wynnewood Refinery (press release)
    • CVRR will contract for capacity on the new pipeline and will own a 40% stake in the joint venture to develop the pipeline and terminal assets with Velocity Midstream
  • 8point3 Energy Partners (CAFD) announced acquisition of 49% interest in SunPower Corp’s 102-megawatt Henrietta solar project for $134mm (press release)
    • The acquired assets are expected to generate $10.9mm in annual cash distributions supported by a 20-year power purchase agreement with Pacific Gas and Electric
  • So far this month, Smart Sand, Inc. and Mammoth Energy Services, Inc. have filed initial S-1s for IPOs (as corporations) over the last few weeks, after both were at one point filed as MLP IPOs


  • Reports that Vanguard Natural Resources (VNR) has hired Evercore to explore debt reorganization alternatives (Reuters)
    • VNR had $1.8bn of debt outstanding at 6/30, including $1.4bn on the revolving credit facility, compared with around $140mm in market capitalization
    • The article noted debt moves by California Resources Corp as a possible similar path for VNR
  • The SEC charged Leon Cooperman and his Omega Advisors hedge fund with insider trading (Dealbook)
    • The suit argues that Cooperman accumulated more units of APL after learning details of the sale of APL’s processing complex in Elk City, OK in 2010
    • APL’s unit price increased 31% after the asset sale was announced
  • Reports Friday indicated that Energy Transfer (ETP) acquired a ranch nearby the protested pipeline construction area in North Dakota (ABC News)
    • The land acquired was 6,000 acres
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