BWP cuts its distribution in Q4-13 - and it has stayed at 10 cents per quarter ever since. While BWP has had 'revenue problems' resulting in a DCF fall - the triggering event for this distribution cut came from credit metric problems.
There are potential lessons in the data. Is it the case that - once a MLP begins to have problems - the business model lends to the "I've fallen and I can't get up" condition? Are there metrics (besides DCF/unit) that should warn us of upcoming cuts?
In the spreadsheet below, I show most of the key BWP metrics. It appears that in order to get a good interest rate on its credit facility, BWP accepted a lower than average credit covenant. I have seen credit metrics worse than the ones below. But the issue is not 'how bad are these numbers' - the issue is how bad are the numbers compared to the covenant.
Boardwalk Pipeline Partners metrics
|GPs DFC dollars||1.3||2.0||1.3||0.8||0.8||1.6||0.8||0.6||1.1||2.2||0.4||10.8||10.1||10.2|
|Net DCF dollars||127.6||158.1||103.8||82.8||91.5||130.7||105.9||56.2||123.0||159.6||138.5||105.3||138.6||144.7|
|The 2016 analyst DCF projection is $1.80 while the 2015 analyst DCF number was $1.64, the 2014 number was $1.77 and the 2013 number was $2.08.|
|I see multiple instances where a normalized DCF number would vary from my quarterly number - and that should explain the small variances between my numbers and those of the analysts.|
|There were several quarters in 2014 and 2015 where BWP noted that there were "contract expirations and renewals at lower rates".|
|Q3-14 had close to $10 million of higher than average maintenance capital expenditures - having a one time influence in decrementing DCF/unit. Park and lend revenues fell - significantly hurting net income.|
|A cold winter significantly helped Q1-14 - which also had a write-off of $10 million on the cancelled Bluegrass pipeline|
|Q3-13 had $13.0 million in gains on asset sales - having a one time influence in incrementing DCF/unit|
|Long Tern Debt||3,625.5||3,475.3||3,459.3||3,459.2||3,493.6||3,568.1||3.689.7||3,410.6||3,350.2||3,374.8||3,424.4|
|Long Term Debt/EBITDA||4.75x||4.69x||4.79x||5.00x||5.20x||5.31x||5.37x||5.18x||4.86x||4.82x||4.97x|
|Asset Retirement Obligation||59.9||38.3||38.1||40.9||40.5||39.9||39.9||34.3||34.6||37.9||39.3|
|From presentation of June 2016: The Debt/EBITDA ratio is expected to increase in 2016 as BWP funds construction of growth projects before they generate revenues.|
|On 5-11-16 BWP priced a public offering of $550 million of 5.95% senior notes due 2026 to pay off notes maturing in Nov 2016 and Feb 2017.|
|On 3-10-15 BWP priced a public offering of $250 million of 4.95% senior notes due December 15, 2024.|
|On 11-19-14 BWP priced a public offering of $350 million of 4.95% senior notes due December 15, 2024.|
|As of Q1-14 BWP's revolving credit facility had a debt/EBITDA covenant max of 5.0x|
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.