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MLP Weekly: IDR Out

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Units gave back most of their gains since the New Year as crude had it's first losing week coupled with negative news from from two large cap units.   Incentive Distributions Rights, which reward Sponsors for developing and/or acquiring strong and consistent cash flow assets, which are then dropped down to their Master Limited Partnership, are now in dispose.   IDR payments increase either when new shares are issued and the distribution rates are above the Minimum Quarterly Distribution rate, or Distribution rates increase above the minimum split. The increasing payments, coupled with higher yields, have burdened some IDR linked MLPs by increasing their Cost of Capital, reducing cash flows necessary to sustain and increase distributions.  This past week, Williams Inc became the latest Sponsor to convert their IDR's into LP units, despite signaling prior that no cuts were contemplated until 2018.  Despite the recent actions, there is still a long list of Midstream LP units with Incentive Distribution Rights, each with with a varying impact on the fully burdened Equity Cost of Capital





Williams Inc announced they have converted their IDR rights into 289MM units of Williams Partners, increasing their ownership to 72% of Williams Partners.   To sweeten the IDR swap, Williams Inc increased the dividend by 50% while lowering the Williams Partners distribution by 29%, in order to maintain a DCF coverage greater than 1.1 with an expected 5-7% distribution growth rate.  This plan differs from a set of assumptions Management stated on August 1st, 2016, three days after the Energy Transfer deal was terminated.  At that point, the company summarized their long term plan with the slide below






Unit News


According to a source, Blackstone is no longer considering a rumored $5B stake in from Energy Transfer Partners, which is looking forward to resolving their DAPL impasse post Inauguration Day.  Subsequently, Energy Transfer Equity announced a $580MM PIPE deal to sell 32.22MM units, and in turn, will purchase 15.8MM units of Energy Transfer Partners for $568MM.  


Memorial Production Partners reached agreement with creditors which will allow the company to voluntarily file for reorganization under Chapter 11, which may leave remaining unitholders burdened with phantom income due to the Cancelation of Debt Income (CODI).



Fund Flows


Mutual Funds attracted the highest level of inflows since last March as $170MM of new cash poured into MLP funds for the week.







Q4 Earning Release Dates


Kinder Morgan will kick off the Q4 reporting period this upcoming week with Enterprise Products Partners reporting on the 30th.  The full list of earnings release dates can be found here






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