MLP Protocol 051713

Key adjustments from last week:

  • Added Tallgrass Energy Partners, LP (TEP) to the Natural Gas & NGL Pipeline segment after its successful IPO at $21.50 on May 13.
  • Adjusted WES for a 6.1 million common unit offering at $61.18 on May 13 (3.3% discount to prior close).
  • Adjusted SPH for a 2.7 million common unit offering at $48.16 on May 13 (3.8% discount to prior close).
  • CVRR’s 12 million unit offering (13.8 million with the over-allotment) announced on May 13 was secondary units being sold by a subsidiary of CVR Energy Inc. (CVI) so CVRR did not receive any proceeds from the offering and the total outstanding units did not change:
    1. Offering priced at $30.75 on May 14 (4.7% discount to the May 13 close)
    2. This represents the first large Insider sale since the CVRR IPO that occurred only four months ago on January 16
    3. Given the already very volatile nature of the refining crack spread, large Insider sales within such a short time frame since the IPO raises my concern level for the name
    4. Icahn Enterprises is buying another 2 million CVRR units but keep in mind that is a little bit circular because Icahn Enterprises is effectively buying the 2 million units from CVR Energy, Inc. (CVI) and Icahn Enterprises owns 82% of CVI
  • On May 14 HCLP announced the planned acquisition of D&I Silica for $95 million of cash and 1.579 million units or total consideration of $125 million (roughly 5 times D&I Silica’s trailing EBITDA). The transaction is expected to close during the second quarter of 2103 (Press Release).
  • On May 15 TC Pipelines, LP (ticker TCP) announced it has entered into agreements to acquire an additional 45% interest in each of Gas Transmission Northwest LLC (GTN) and Bison Pipeline LLC (Bison) from TransCanada Corporation (ticker TRP) for an aggregate purchase price of $1.05 billion (Press Release). Highlights:
    1. Increases TCP’s portfolio by approximately one third and is expected to be immediately accretive to cash flows and earnings
    2. Management intends to recommend to the Board of Directors a 3.8% increase to the next quarterly distribution following the close of the transaction (I’m modeling the 3Q13 distribution at $0.81 to be paid in November)
    3. Will increase its interest in the GTN and Bison pipelines from 25% to 70% which will improve long-term cash flow stability by increasing the percentage of total cash flows derived from long-term ship-or-pay contracts (i.e. no integration risk at all, just increases their share of ownership in two assets they already own, classic MLP asset “drop-down” transaction)
    4. Transaction will also reduce relative exposure to Great Lakes which is currently experiencing earnings and cash flow variability
    5. Aggregate purchase price of $1.05 billion includes the assumption of $146 million of GTN’s debt, leaving cash to close of $904 million subject to certain closing adjustments
    6. TCP plans to fund this through a combination of debt and equity in a manner that enables the Partnership to maintain its solid financial position (they are BBB-, so this telegraphs future equity offerings beyond the $388 million of equity priced May 16 so don’t be surprised)
    7. Transaction is expected to close in July 2013
    8. Adjusted TCP for a 7.7 million common unit offering at $43.85 on May 16 (5.0% discount to prior close)
  • First quarter 2013 distribution announcements Quarter-over-Quarter: 58 increases, 38 flat and 2 decreases (RNF and NTI both are variable rate MLPs, NTI declared a $1.23 distribution on May 13).
  • Updated the Portfolio Analyzer for recent IPOs and the May rebalancing of the Alerian MLP Index.

I also had an article published on Seeking Alpha on Friday: MLPs and Interest Rates, How Right is Mr. Gundlach?

The MLP Protocol full Monthly Analytics Report for May is now available, the June 2013 report will be available after May 30th.

MLP Protocol Weekly Snapshot report: (click to open) MLPP 051713 Snapshot vFree

About Philip Trinder

President of MLP Protocol, investor, trader, and proponent of Master Limited Partnerships.
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