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MLP Week Thoughts: Everything Up...Except MLPs

|Includes:ETP, LRE, PAA, Teekay Offshore Partners L.P. (TOO)

For any of the 900,000 people living in Connecticut who have been without power for the last 12 days, apparently you are back online, so welcome back.

This week, the MLP index closed down 1.4% on a price basis (less if you consider distributions that hit this week).  The S&P 500 had a positive week (+0.8%), despite dropping 3.7% on Wednesday.  Interest rates on 10-Year treasuries were flat, gold had another strong week, and oil futures were up approximately 5%, sending the Brent-WTI spread is down to less than $15 per barrel.  Other than MLPs, it seems like everything was up.

MLPs had an eventful week, with more equity issuance than any other week in the history of the sector (not counting KMI IPO week), as discussed here.  So, MLP underperformance was a combined result of equity issuance and several ex-dates that hit early in the week.  Distribution ex-date season is over for another 3 months.  So, as the market digests all of the equity issued this week and if WTI oil futures break above $100 next week, I’d expect MLPs to catch up and outperform next week, unless there is another $1.0+ billion of equity issued this week.

See below for a chart of the MLP Index compared with the S&P 500, and you can see how the massive amounts of equity pumped into the MLP system this week weighed on the index in a “risk on” week.  The broader stock market recovered Thursday and Friday apparently on improved jobless claims domestically and some positive signs in the Italy situation.

LGCY, PAA and ETP all priced their equity offerings before Wednesday’s market beatdown, and therefore are all trading more than 2% below their issue prices, despite a market recovery Thursday and Friday.  LRR Energy (NYSE:LRE), priced its IPO Thursday night at $19 per unit, and traded below that most of the day Friday, before closing up $0.05 at $19.05 per unit.

PIPEs are Back, Hopefully Not with a Vengeance

There was also a PIPE (private investment in public equity) deal this week, for $170 million into Teekay Offshore ($TOO)...

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Stocks: TOO, LRE, PAA, ETP