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Boardwalk Pipeline Partners Reports Q2/16

|Includes: Boardwalk Pipeline Partners, LP (BWP)

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

  Q2-2016 Q1-2016 Q4-2015 Q3-2015 Q2-2015 Q1-2015 Q4-2014 Q3-2014 Q2-2014 Q1-2014 Q4-2013 Q3-2013 Q2-2013 Q1-2013
Revenues 306.3 345.0 326.8 294.1 298.6 329.7 304.6 278.9 293.4 356.9 312.9 275.5 288.7 328.5
Costs 197.0 203.4 220.4 213.4 212.7 206.9 224.1 210.4 196.9 204.3 254.4 172.3 177.6 186.8
EBITDA 190.3 222.7 189.1 161.2 167.3 204.6 158.7 141.4 167.1 220.4 129.6 171.9 178.5 208.7
DCF dollars 128.9 160.1 105.1 83.6 92.3 132.3 106.7 56.8 124.1 161.8 138.9 116.1 148.7 154.9
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
Units 250.3 250.3 250.3 250.3 250.3 244.3 243.3 243.3 243.3 243.3 243.2 212.3 235.2 230.6
DCF/unit $0.5098 $0.6316 $0.4147 $0.3308 $0.3655 $0.5372 $0.4353 $0.2310 $0.5055 $0.6560 $0.5695 $0.4960 $0.5893 $0.6275
Upcoming Distrib. $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.5325 $0.5325 $0.5325
LTM DCF/unit $1.8869 $1.7426 $1.6482 $1.6688 $1.5690 $1.7090 $1.8278 $1.9620 $2.2270 $2.3108 $2.2821      
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
LTM EBITDA 763.3 740.3 722.2 691.8 672.0 671.8 687.6 658.5 689.0 700.4 688.7      
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      
Total Debt 3,685.4 3,513.6 3,497.4 3,500.1 3,534.1 3,608.0 3,729.6 3,444.9 3,384.8 3,412.7 3,463.7      
Total Debt/EBITDA 4.83x 4.84x 4.84x 5.06x 5.26x 5.37x 5.42x 5.23x 4.91x 4.87x 5.03x      
Reported Debt/EBITDA   4.7x 4.8x 5.0x 5.2x 5.3x 5.4x              

Interest Expense 45.4 42.6 42.2 43.1 45.9 45.2 44.4 40.0 40.2 40.9 41.2 41.0 40.7 40.5
Interest Coverage 4.19x 5.23x 4.48x 3.74x 3.64x 4.53x 3.57x 3.53x 4.16x 3.95 3.15x 4.19x 4.39x 5.15x
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.