Bracing for a Wave of MLP Secondary Offerings (ETP, KMP, PAA, WPZ, OKS, QRE, BWP, EEP, AMJ, AMLP, KYN)

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Pipeline partnership Energy Transfer Partners L.P. (NYSE: ETP) this morning priced a secondary offering of 13.5 million common units at $44.57/common unit, about -3% below last night’s closing price of $45.98. The company plans to use the net proceeds to repay its revolving credit facility, fund capital expenditures for construction projects, and for “general corporate purposes.”

Master limited partnerships (MLPs) are frequent users of both secondary offerings and new debt issues. Some offers in the past 12 months include Kinder Morgan Energy Partners LP (NYSE: KMP), Plains All American Pipeline LP (NYSE: PAA), Williams Pipeline Partners LP (NYSE: WPZ), Oneok Partners L.P. (NYSE: OKS), QR Energy LP (NYSE: QRE), Boardwalk Pipeline Partners LP (NYSE: BWP), and Enbridge Energy Partners L.P. (NYSE: EEP). These offerings are typically used to refinance or pay down debt, to fund massively expensive pipeline expansion projects, or to finance an acquisition.

MLPs need to continue to grow and expand in order to continue boosting their payouts limited partners. It’s often difficult to figure out just what a secondary is truly paying for, and that difficulty raises yellow flags among some investors.

With so many secondaries so recently completed, could there be more in the pipeline? There are well over 50 MLPs involved in pipelines, propane distribution, and shipping, and all of them need to raise capital virtually continuously. It’s a virtual certainty that more secondaries will be coming from the MLPs, particularly the pipeline companies that are expanding into areas like North Dakota, Ohio, and Michigan where pipelines are relatively scarce.

As could be expected, units of Energy Transfer Partners are down about -6.4% at $43.04 in a 52-week range of $38.08-$51.00.

The JPMorgan Alerian MLP Index ETN (NYSEMKT: AMJ) is up 0.11% at $37.12 in a 52-week range of $31.52-$41.68. The ALPS Alerian MLP ETF (NYSEMKT: AMLP) is down -0.2% at $15.72 in a 52-week range of $13.10-$17.19. A closed-end fund, the Kayne Anderson MLP Investment Co. (NYSE: KYN), is also down -0.32% at $30.15 in a 52-week range of $22.87-$33.10.

Paul Ausick

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