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MLPs here to stay despite Kinder Morgan deal, analysts say

  • While Kinder Morgan's (KMI, KMP) decision to abandon the use of MLPs may have rattled some investors, it is unlikely that other MLPs will copy KMI's move, says Chris Eades, portfolio manager for energy MLP strategies at ClearBridge Investments.
  • "MLPs continue to be well positioned from a long-term growth perspective given all the growth we're seeing in the U.S. in energy production," Eades says.
  • As Kinder Moran MLPs were structured, incentive payments to the general partners were growing bigger and making equity more costly, but other MLPs haven't yet matured to this stage and some are structured differently; MLPs are "a long, long way off having to contend with the situation that Kinder found itself in," Eades says.
  • Greg Reid of Salient Partners agrees the deal is not a harbinger of the end of the structure, noting the Shell plans to spin off some of its portfolio into an MLP.
  • ETFs: AMLP, AMJ, MLPL, YMLP, MLPI, MLPA, ENY, MLPN, MLPG, EMLP, MLPS, MLPX, MLPY, MLPJ, AMU, YMLI, ATMP, ZMLP, MLPW, IMLP, ENFR, MLPC
Comments (1)
  • demotom
    , contributor
    Comments (40) | Send Message
     
    Its been evident for some time that companies will continue to become too big and complex for the MLP model. The question I have been exploring some time: What is the life cycle of an MLP?

     

    What I like about the MLP structure, is that manangent has to clearly justify every acquisition and/or organic project and distribution accretion before going back to the unit holders to finance the deal. MLP's that make deals and offer secondaries that do not grow the business and distribution are severely punished.

     

    There are several C corp companies that run into the law of big numbers, but they are able to stash cash, make deals without going back to shareholders; whereas the MLP structure requires each deal to move the needle, and the tacit approval & cooperation of the unit holders to finance the transaction.

     

    Is Kinder Morgan's history and its recent reorganization show the eventual life cycle for all MLPs?
    14 Aug 2014, 04:47 PM Reply Like
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