The following are some highlights on the MLP sector that were discussed yesterday during a conference call I attended with other leading analysts in the industry:
- The yield spread between MLPs and UST 10 year is, depending on the index of choice, below the 300 basis point level; not terribly attractive but in line with historical averages. MLPs still retain a yield advantage over Utilities, REITs and BBB bonds.
- The trailing twelve month price return by subsectors continues to see GPs and Crude Oil and Refined Products as the leading subsectors, albeit with large variations between the best in class and the laggards. Coal, Upstream and Variable Distribution are the worst subsectors.
- Capital Markets Activity: 2013 will probably be a record year in terms of number of IPOs. The good news is the MLPfication of the Energy sector as many traditional energy companies are finding the MLP structure an attractive vehicle to own midstream assets. The other positive is the US Energy Renaissance theme which keeps providing opportunities. On the negative side, the more supply comes to the market (in terms of IPOs) the more speculative the space may become.
- YTD MLPs have raised $25 billion in equity and $26.4 billion in debt
- Some of the themes to monitor that were highlighted in the call:
- General Partner Restructuring
- LPG (propane and butane) Exports booming
- LNG (liquefied natural gas) Exports getting the green light
- Strong activity in M&A
- Ethane Rejection Estimates increasing; the low pricing continues to hurt this segment
Please feel free to call our team should you want to discuss further any of these highlights.