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Ron Hiram

 
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  • A Closer Look At Energy Transfer Partners' Q2'14 Distributable Cash Flow [View article]
    Hard to answer this in a vacuum - the answer requires understanding how your entire portfolio is allocated to assets of different risk classes, the composition and volatility of your income-producing assets, your ability to absorb losses, how sensitive you are to a 4% yield reduction (from ETP's 6.6% to ETE's 2.6%), whether/how you plan to make up for the foregone yield, etc. Another factor to consider is that while ETE should provide superior growth, less dilution and better alignment of your interests with management's, you may be too concentrated in MLPs for your yield producing investments. If that's the case, there are more non-MLP alternatives to ETE's 2.6% yield than to ETP's 6.6% yield.
    Aug 18 03:05 AM | Likes Like |Link to Comment
  • A Closer Look At Plains All American Pipeline's Q2'14 Distributable Cash Flow [View article]
    DCF per unit is a measure I use to evaluate whether total DCF generated is growing or contracting, not to calculate DCF coverage. In the case of PAA's 2Q14 results, DCF per LP unit was $1.00 and distributions per unit were $0.65. But, as my article points out, DCF coverage was 1.07 (i.e., not 1/0.65). This reflects $344 million in total distributions (of which $110 million in GP IDRs, not $119 as you calculate) vs. $367 million of total DCF. So 367/344 = 1.07x

    MLPs' methods of determining DCF and DCF coverage differ. KMP, for example, deducts the general partner’s portion of net income in deriving DCF. It thus adopts a narrow definition, one that includes only that portion of DCF that is attributable to limited partners. This is the approach you seem to prefer. The more common and broader definition of coverage (e.g., PAA) is one whose numerator is total DCF (available to both LPs and GP) and whose denominator is the total of all distributions made to all the stakeholders, including the general partner. DCF, DCF growth and DCF coverage as computed using the narrow approach are not consistently lesser or greater than they would have been had the broader definition been used. They are just different.

    The brokerage analysts' calculation you refer to is as follows: $344m total distributions, less $110m IDRs, less $5m GP's 2% stake = $229m distributed to LPs. Divide $229m by the average 367m units outstanding = $0.62.
    Aug 17 02:12 PM | Likes Like |Link to Comment
  • A Closer Look At Plains All American Pipeline's Q2'14 Distributable Cash Flow [View article]
    It's a reasonable approximation, but not quite the same for a variety of reasons (e.g., unit liquidity, cost of capital, cost of maintaining 2 public entities, etc.) MLP GPs such as PAGP yield less than their underlying MLPs. On the other hand they should provide better growth, less dilution and better alignment of your interests with management's. The ratio depends your willingness to absorb lower current yields and additional risk that come with the GP's prospects for faster distribution growth and capital appreciation.
    Aug 17 07:20 AM | 1 Like Like |Link to Comment
  • A Closer Look At Suburban Propane Partners' Distributable Cash Flow As Of Q1 FY 2014 [View article]
    Have not yet completed my analysis of the latest 10-Q, but the preliminary answer is no.
    Aug 10 02:23 PM | Likes Like |Link to Comment
  • A Closer Look At Targa Resources Partners' 2Q14 Distributable Cash Flow [View article]
    The GP was privately held until the IPO (December 2010).
    Aug 10 01:59 PM | Likes Like |Link to Comment
  • A Closer Look At Kinder Morgan Energy Partners' Q2 Distributable Cash Flow [View article]
    Thank you for your thoughtful comment. I re-checked the number and accept your correction. While I do not need to change my calculations of sustainable DCF, the differences between them and coverage ratios reported by KMP are not due to exclusion of outflows that would have been required had KME holders received cash. I will incorporate a corrected attribution of the differences in future articles.
    Aug 2 01:54 PM | 1 Like Like |Link to Comment
  • A Closer Look At El Paso Pipeline Partners' 2Q Distributable Cash Flow [View article]
    On the 2Q conference call Rich Kinder was asked that question. He responded with boiler-plate language to the effect that "management is continually looking at ways to lower the cost of capital". Any deal will probably require some give-back by KMI (Kinder's largest holding) on its IDRs. The question is how much can he give back and still have the transaction accretive to KMI (otherwise it does not make sense for Kinder). Assuming it can be structured to be accretive (today's price declines make that objective easier to achieve, further declines will make the transaction more likely), and assuming tax issues and other issues can be overcome, someone will have to opine the proposed transaction is fair to EPB unit holders. Of course, Kinder gets to pick that someone. Hopefully, despite the inherent conflict, we end up with a fair proposal, although I doubt it will be at much of a premium to EPB's unit price.
    Jul 31 04:50 PM | Likes Like |Link to Comment
  • A Closer Look At Enterprise Products Partners' Distributable Cash Flow As Of 1Q 2014 [View article]
    You are correct that the marginal (vs. average) rate is 48%. However, the break points typically start at 13% (not 2%) and the step-up thresholds for increases were reached years ago, so the bulk of the IDR payments are at 48%. Using ETP as an example: for each current quarterly LP distribution of $0.935, ETE (as general partner) receives $0.558, of which $0.517 is at the 48% rate. Overall, the distribution split is 62.6% to LPs and 37.4% to the GP.
    May 25 10:18 AM | Likes Like |Link to Comment
  • A Closer Look At Plains All American Pipeline's Distributable Cash Flow As Of Q1 2014 [View article]
    MLP GPs such as PAGP, KMI and ETE yield less than their underlying MLPs. On the other hand they should provide better growth, less dilution and better alignment of your interests with management's. But, relatively speaking, it is easier to find non-MLP alternatives to the lower-current-yields / faster-growth combination offered by the GPs than it is to find non-MLP alternatives to the higher current yields offered by the underlying MLPs. So if you are concerned about being too concentrated in MLPs for your yield producing investments, you should choose non-MLP alternatives for that portion of your portfolio designed to generate faster capital appreciation, albeit provide less current income.
    May 25 07:27 AM | Likes Like |Link to Comment
  • A Closer Look At Enterprise Products Partners' Distributable Cash Flow As Of 1Q 2014 [View article]
    I think management is free to change the non-GAAP measures as it sees fit, but needs to provide proper disclosure and reconciliation to GAAP.
    May 17 01:06 AM | Likes Like |Link to Comment
  • A Closer Look At Energy Transfer Partners' Distributable Cash Flow As Of Q1 2014 [View article]
    I don't think litigation is the main conflicts-related risk. Fairness opinions will be procured when assets are transferred and prices will be set so as not to be too egregious. But when conflicts exist, there are many subtle ways to advantage one party and disadvantage the other and many do not require asset transfers. I prefer ETE because it provides better alignment of interests between management and unit holders.
    May 17 01:00 AM | Likes Like |Link to Comment
  • Model For Assessing The Sustainability Of American Capital Agency Corp.'s Dividend [View article]
    Cost of hedges are not included. The implicit assumption is that hedges generate benefits that at least offset the costs.
    Apr 19 07:50 AM | Likes Like |Link to Comment
  • Model For Assessing The Sustainability Of American Capital Agency Corp.'s Dividend [View article]
    I dislike the management company structure. It creates a compensation mechanism that removes the need to make disclosures regarding compensation and increases the misalignment between the company performance and management's renumeration.
    Apr 16 07:55 PM | 1 Like Like |Link to Comment
  • Model For Assessing Sustainability Of Annaly's Dividend [View article]
    I use the same methodology for NLY and AGNC, so the link is correct.
    Apr 13 03:02 PM | Likes Like |Link to Comment
  • A Closer Look At Magellan Midstream Partners' Distributable Cash Flow As Of Q4 2013 [View article]
    Label of third column should indeed have been "Yield". Thank you for pointing this out. Creating an "apples-to-apples" comparison for MLPs is difficult. Adopting a narrow definition of coverage, one that includes only that portion of DCF that is attributable to limited partners, requires reducing EBITDA by the total of IDR payments (rather than the 48% of EBITDA as you suggest). This will not neutralize the "noise" created by temporary waivers that GPs frequently grant, but may still be preferable to no adjustment at all. I will try to incorporate a comparison of this kind in a future article.
    Mar 31 11:16 AM | 1 Like Like |Link to Comment
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