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IPO Preview: BP Midstream Partners

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As the Master Limited Partnership circle of life continues to swirl (HEP just announced IDR Conversion this week),  another large cap MLP IPO will offer investors access to a financially engineered, high distribution growth, sponsor drop down tax deferred income vehicle.  Unlike other units which are generally impacted by organic volumes and excessive midstream infrastructure, BP Midstream Partners success (yield + distribution growth = total return) will be mostly predicated upon access to the capital markets to fund Sponsor drop downs.  

 

BP Midstream Partners is expected to price on 10/26/17 between $19 and $21 with a midpoint yield of 5.25%, for which 80% of the $1.05 distribution will be tax deferred until at least 12/31/2020 according to their filing.  Pro forma distributable cash flow coverage is projected to be 1.18x.  The Sponsor, BP PLC, is expected to receive $804MM in proceeds for the interests related to the Gulf of Mexico and Whiting Refinery midstream assets they are dropping into the MLP as described below:

 

BP Assets

 

 

In addition to the high 15x Adjusted EBITDA, unitholders will pay for the assets to be owned by the MLP (vs the 8x EBITDA multiple of the C-Corp Sponsor BP), the GP will also receive Incentive Distribution Right Payments, which will commence when the Minimum Quarterly Distribution Rate  ($1.05 annual/$0.2625 quarterly) increases by at least 15% and will payout as per the table below.  

 

BP Midstream IDR

 

BP Midstream will be following the path of other large Integrated Sponsors which launched MLPs between mid 2013 and late 2014.  At the time, best in class distributions of 25-30% was used to describe their growth plans, which have been dialed back as of late.  The below table summarizes their most recent metrics, which are all trading well below BP Midstream's midpoint yield of 5.25%, indicating units have upside to $24.00 for parity.

 

 

BP Midstream Peers

 

 

 

 

 

 

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