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This MLP Should Not Be

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Presenting to a standing room audience at the National Association of Publically Traded Partnerships in May 2014, Hi-Crush Partners presented investors the slide below, suggesting that Take or Pay agreements would provide strong DCF growth into 2015. 




Just 17 months later, Hi-Crush Partners announced the suspension of their distribution due to the precipitous drop in frac sand prices in Q3, with lower prices expected in Q4, which will  further stress their debt covenants.  The company reported 3.794MM tons of sand sold, on pace to exceed the 4MM tons mentioned in 2014, but at a price point which fell from $70 to $57/ton from Q2 2014 to Q3 2015.  While no one could have predicted the current state of the industry, Investors who read the 10Q's were likely comforted by the following disclosure:



These Take or Pay agreements were not the assets investors thought they were, and when things got tough, management opted to modify these agreements to maintain good client relationships, which clearly has not protected unit holders from the destruction of both their principal and income.  For that reason alone, Hi-Crush Partners is ill suited to be a yield instrument, regardless of whether crude recovers.  




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