I had expected the start of some weakness this past week, but clearly I was wrong on that front as the Alerian MLP Index impressively closed the week up another 3% at another all-time weekly closing high. I still won’t be surprised to see some pause in this surge in prices, but we shall see what the market thinks.
Key adjustments from last week:
- Adjusted CPLP for the issuance of 9.1 million Class B Convertible Preferred Units and for its $130 million acquisition of 2 container vessels with 12 year employment contracts (announced March 15 with a conference call on March 19).
- Adjusted LRE for a 3 million unit equity offering (deal size was 6 million but 3 million units were sold by its sponsor Lime Rock Resources) at $16.84 on March 18 and for its $38.2 million acquisition of Mid-Continent oil and gas reserves and associated hedges from Lime Rock Resources.
- Adjusted CMLP for a 4.5 million unit equity offering at $23.90 on March 18.
- Adjusted HEP for a 1.875 million unit equity offering (deal size was 3.75 million but 1.875 million units were sold by its sponsor HollyFrontier Corporation) at $40.80 on March 18.
- Adjusted MEMP for its $200 million acquisition of oil and gas producing properties in Texas and Louisiana from its sponsor, Memorial Resource Development. MEMP also approved an increase in the distribution rate to $0.5125 per unit for Q1 2013, a 6.8% year over year increase (announced March 18). Notice that MEMP traded down on the 19th in anticipation of an equity offering, which was announced after market close that day. Adjusted MEMP for an 8.5 million unit offering at $18.35 on March 19.
- Adjusted STON for a 1.4 million unit offering (upsized from original 1.2 million unit deal) at $25.35 on March 20 (please see additional thoughts below).
- Adjusted the Current Yield calculations for ALDW, CVRR and NTI to use the estimated next four quarters of distributions instead of the “run rate” quarterly distribution estimate (which in all cases is LOWER than the estimated next four quarters to reflect that the current very favorable crack spread environment cannot last forever).
Energy Transfer Partners (ETP) and Energy Transfer Equity (ETE) Announcement
On March 21, ETP and ETE announced that ETP will acquire from ETE its interest in ETP Holdco Corp. for $2.35 billion of newly issued ETP common units and $1.40 billion in cash.
- ETP Holdco is the entity formed by ETP and ETE in 2012 to own the equity interests in Southern Union Company and Sunoco, Inc.
- Post transaction ETP will own 100% of ETP Holdco
- Expected to close in the second quarter of 2013 (will adjust numbers once deal closes)
- ETE will forego all of the IDR payments on the newly issued ETP units for the first eight consecutive quarters post transaction, and fifty percent of the IDR payments on the newly issued ETP units for the following eight consecutive quarters
Additional Thoughts on StoneMor Partners (STON)
I am very impressed with the market reception that the STON deal received. The equity offering was priced at $25.35 and basically traded well immediately and actually closed on Friday at $26.58 (up 4.9% from the equity offering in two trading days). The first risk in their Tax Risks to Common Unitholders section mentions that they are under an IRS audit for 2010 to determine if they met the “qualifying income” standard to remain an MLP for that tax year. However, they do also state the following:
- “We do not anticipate any change in our status as a partnership for federal income tax purposes or any change in prior period taxable income.”
- “An IRS formal notice of commencement of the audit will be provided to unitholders if the audit is not concluded on or before March 30, 2013.”
While looking at these issues in their 10-K on March 19, I decided to buy a tiny Put position on STON, based on the following (I posted this as a comment on a Seeking Alpha article):
- It is generally an under followed name and sort of an odd duck in the MLP space
- It has been subject to bear attacks in the past
- There are around 789,400 units sold short right now (Short Interest) which is roughly $20.6 million worth
- STON has run up quite a bit since the start of the year, up around 26.5% (well along with the whole MLP space and the general market)
- They may not need to raise equity but they may opportunistically issue equity, especially if they see some M&A opportunities on the horizon (an equity offering would be tough to do though with the IRS audit uncertainty)
- It is much, much easier to incite fear in the crowd than it is to incite greed
- It just seems ripe for a bear attack using the fear of the IRS audit
Hence my surprise when the next day they launched an equity deal and it went off without a hitch in spite of the looming IRS audit. They even upsized(!) the base deal from 1.2 million units to 1.4 million units (my hat’s off to the underwriters for doing a very strong job of selling the deal). Given the move in STON’s unit price the put options I hold may very well end up worthless but I plan to hold on to them past the March 30 deadline mentioned above, just in case…
The MLP Protocol Monthly Analytics Report for March is now available, the April 2013 report will be available after March 29th.
MLP Protocol Weekly Snapshot report: MLPP 032213 Snapshot vFree
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