MLPs With Suspended Distributions Have Also Rebounded

by: Avi Morris

Most MLPs have had an outstanding rebound in the last year, but a few are still far below former highs after suspending distributions took their prices into single digits. A few with current prices are:

Atlas Pipeline Partners (NYSE:APL)_______14.52
BreitBurn Energy Partners (BBEP)___15.04
Constellation Energy Partners (CEP)__3.45

These companies survived the worst part of the recession and should do better as the economy improves. BreitBurn declared a Q2 distribution based on an annualized rate of $1.50 (and just went ex-distribution). However their last distribution, paid in Q1 2009, was based on an annual rate of $2.08. At least they are working their way back. Atlas Pipeline just reported Q1 results and said distributable cash flow per weighted average common limited partner unit was approximately 36¢, or $1.44 annualized (implying they have their eye on declaring a distribution). The partnership had $1.2 billion in borrowings and the debt seems to be under control. Constellation Energy is still in single digits, providing the greatest opportunity for those who like speculating on turnaround situations. 3 months ago they indicated that they will concentrate on reducing borrowings in 2010 which all but rules out the possibility of a distribution this year.

Earnings season has gone well for MLPs. Distributions have been announced and healthy MLPs continued with quarter over quarter increases. Kinder Morgan (NYSE:KMP), after already guiding for a $4.20 annual distribution in 2010, just raised the quarterly payment from $1.05 to $1.07. Enbridge Partners (NYSE:EEP), cautious about raising their distribution, just increased their distribution to a $4.01 annual rate from $3.90.

The big picture for MLPs is they got through the recession with no failures. Ample financing was available (many businesses can not say that), allowing capital expansion programs to continue (an impressive positive about the health of the industry). MLPs' businesses should do well in an improving economy and that ought to be bullish for their partnership units. But the Alerian MLP Index fell over 20 in the last 2 weeks, including a drop of 11 yesterday. Some of that decline is attributable to ex-distributions this week, but a portion could be related to current events, especially the massive oil spill in the Gulf. This is an enormous mess which will take time to solve and that encourages Congress to meddle in energy policy, adding to uncertainty for all energy businesses. Price declines in MLPs give believers opportunities to buy and receive higher yields. The yield on the index has risen from 6¾% at the high 2 weeks ago, to 7¼% yesterday.

Disclosure: None

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