MLPQ

The Free Cash Flow Shortfall in the Master Limited Partnership Space

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With the recent acceleration of master limited partnership simplification transactions, we find it appropriate to revisit the internally-generated cash flow shortfall present throughout much of the space. The table provides a breakdown of traditional free cash flow (cash from operating activities less all capital spending) relative to distributions paid, as well as a measure of the elevated financial leverage often found within the group. In case you missed it, “Nearly 60 Distribution Cuts Later, We Maintain Our View on the Hazards of the MLP Business Model.” By Kris Rosemann We think it is worth noting that the two entities at the top of this list in terms of traditional free cash flow coverage of distributions paid have significantly reduced their … Read more

Master Limited Partnership Simplifications on the Rise

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  With the announcement of three separate master limited partnership simplification transactions on May 17 alone, we must revisit our thesis that the business structure may not be in it for the long haul. By Kris Rosemann At Valuentum, we continue to believe the master limited partnership (MLP) business model is at risk over the long haul, and recent news from the space only seems to support the notion that the MLP model we once knew may be fading more quickly than some had expected. If there is nothing inherently wrong with the structure of MLPs, then the rate at which simplification transactions are occurring would certainly be an alarming development, but we continue to point to factors such as … Read more

Nearly 60 Distribution Cuts Later, We Maintain Our View on the Hazards of the MLP Business Model

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Image Source: Brian Cantoni Valuentum has been highlighting the inherent risks associated with the master limited partnership (MLP) structure for some time now, but we are not alone in acknowledging the limited sustainability of such structures. Internal simplification transactions may only become more common moving forward as management teams seek to optimize the structure of their entities. Readers should continue to cast a skeptical eye on this business model. By Kris Rosemann and Brian Nelson, CFA Quite possibly, Valuentum made the “call of the century” when it outlined its warning on MLPs in June 2015, embedded in its Kinder Morgan (KMI) “call,” and more explicitly in September 2015, “Why the MLP Business Model May Be a Goner.” There was a … Read more