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The 2008 MLP Crash vs Present

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MLP investors are looking for any insight to better understand recent market events and whether the future fundamental outlook is properly reflected in current valuations.  To that end, we took a quick look a the change in credit yields for the month of September 2015 and compared to the change in unit prices during the same period. Apart from two upstream units which cut and suspended their distributions, the change in credit yields have been between with -1% and 1%.  The majority of unit prices have declined from -10-25% as investors have dumped shares based upon the expectation of broad distribution cuts.  Bond holders do not feel that their risk has increased.




In 2008, the credit market deteriorated rapidly, which sent unit shares plummeting.  Of course, the credit crunch was not specific to energy prices or production, but it nonetheless impacted MLP's more so than other sectors, for reasons unrelated to market fundamentals.  Lets first look at 2008 and what happened to credit yields.  The Enterprise Products chart below indicates credit yield from September 2nd 2008 to October 16th, 2008, where the yields increased 358 bps to 10.46%, returning back to the previous yield by July 2009.  Over the course of 11 months, yields ranged from 6.92% to 10.86%, a period in which EPD raised their quarterly distributions by 1.4%, or 6.2% over the full period.  





Crude hit a low on 12/19/09 at $39.7,  but just 10 months later, was trading at $78, a near double from the low. 




During this period where the price of crude crashed, production dropped nearly 35% from 5.16MM bpd to 3.38MM bpd, only to recover 60 days later to 5.18MM bpd





Finally, during this same period, the units of Enterprise Products fell from $15 to a intraday low of $8, and took almost 8 months to recover back to the $15 level





For those looking back at 2008 as a reference point for the MLP crash of 2015, the similarities are few other than investors panicked and dumped units before any potential fundamental impact was realized by any Master Limited Partnership.  Despite oil production rebounding quickly, and credit markets returning to expected risk premiums, the recovery in unit prices occurred over a much longer time frame, which may be the most important similarity between 2008 and the present market



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