Articles

MLP Monthly Report: September 2020

Sep 18, 2020

The September MLP Monthly Report can be found here offering insights on MLP industry news, the asset class’s performance, yields, valuations, and fundamental drivers.

Summary

News:

1) Brookfield Asset Management (BAM) announced it would acquire Blackstone Infrastructure’s 41% stake in Cheniere Energy Partners (CQP). The stake was valued at $7 billion, and represents an approximate $5 billion gain for Blackstone after initially investing in CQP in 2012.

2) Delek US Holdings, Inc. (DK) and Delek Logistics Partners, LP (DKL) agreed to eliminate all incentive distribution rights (IDRs) in DKL held by its general partners (GP). The IDRs were exchanged for 14 million newly issued DKL common units and $45 million in cash. After the IDR elimination, DK will hold approximately 80% of DKL’s outstanding common units.

3) The Organization of the Petroleum Exporting Countries and its allies (OPEC+) maintained its oil production cuts of 7.7 million barrels per day (bpd) in its latest meeting. As Iraq, Nigeria, Angola and Kazakhstan continue to compensate for their overproduction in May-July, it is expected that cuts from those countries will over compensate for prior months.

Sources: Reuters, Bloomberg, Analyzemarkets, Delek Logistics Partners, LP.

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, decreased 0.8% last month. The index is down by 44.07% since last August. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 15.14%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (5.86%), Fixed Rate Preferreds (4.53%), Emerging Market Bonds (4.09%), and Investment Grade Bonds (2.00%).¹ MLP yield spreads versus 10-year Treasuries currently stand at 14.13%, higher than the long-term average of 5.35%.² (Sources: Bloomberg and Fed Reserve)

Valuations: The Enterprise Value to EBITDA ratio (EV-to-EBITDA), which seeks to provide more color on the valuations of MLPs, decreased by 3.12% last month. Since August 2019, the EV-to-EBITDA ratio is down by approximately 12.39%. (Source: Bloomberg)

Crude Production: The Baker Hughes Rig Count increased to 254 rigs, increasing by 3 rigs from last month’s count of 251 rigs. US production of crude oil reduced to 9.700 mb/d in the last week of August compared to July levels of 11.0000 mb/d. (Source: Baker Hughes & EIA)

MLP September

For performance data current to the most recent month- and quarter-end, please click here

As of 8/31/2020, Cheniere Energy Partners (CQP) was a holding in the Global X MLP ETF (MLPA), with a 4.61% weighting and Global X MLP and Energy Infrastructure ETF (MLPX), with a 0.71% weighting,

MLPX ETF and MLPA ETF do not have any holding in Brookfield Asset Management (BAM), Delek Logistics Partners, LP (DKL), and Delek US Holdings,Inc. (DK).

1. Asset class representations are as follows, MLPs, Solactive MLP Infrastructure Index; High Yield Bonds, Bloomberg Barclays US Corporate High Yield Total Return Index; Preferreds, ICE BofA Merrill Lynch Fixed Rate Preferred Securities Index; Emerging Market Bonds, Bloomberg Barclays EM USD Aggregate Total Return Index; REITs, FTSE NAREIT All Equity REITS Index; Investment Grade Bonds, Bloomberg Barclays US Corporate Total Return Value Unhedged Index; Equities, S&P 500 Index; and Crude Oil, Generic 1st ‘CL’ Future.

2. MLPs are represented by the S&P MLP Index.

DEFINITIONS

Solactive MLP Infrastructure Index: The Solactive MLP Infrastructure Index is intended to give investors a means of tracking the performance of the energy infrastructure MLP asset class in the United States. The index is composed of Midstream MLPs engaged in the transportation, storage, and processing of natural resources.

The Solactive MLP & Energy Infrastructure Index: The Solactive MLP & Energy Infrastructure Index is intended to give investors a means of tracking the performance of MLPs and energy infrastructure corporations. Midstream energy infrastructure MLPs and corporations principally own and operate assets used in energy logistics, including, but not limited to, pipelines, storage facilities and other assets used in transporting, storing, gathering, and processing natural gas, natural gas liquids, crude oil or refined products. The index limits its exposure to partnerships in order to comply with applicable tax diversification rules. Securities must be publicly traded in the United States. The index is maintained by Solactive AG.

S&P MLP Index: S&P MLP Index provides investors with exposure to the leading partnerships that trade on the NYSE and NASDAQ. The index includes both master limited partnerships (MLPs) and publicly traded limited liability companies (LLCs), which have a similar legal structure to MLPs and share the same tax benefits

Bloomberg Barclays US Corporate High Yield Total Return Index: The Bloomberg Barclays US Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded.

ICE BofA Merrill Lynch Fixed Rate Preferred Securities Index: ICE BofA Merrill Lynch Fixed Rate Preferred Securities Index tracks the performance of fixed rate US dollar denominated preferred securities issued in the US domestic market.

Bloomberg Barclays EM USD Aggregate Total Return Index: The Bloomberg Barclays Emerging Markets Hard Currency Aggregate Index is a flagship hard currency Emerging Markets debt benchmark that includes USD-denominated debt from sovereign, quasi-sovereign, and corporate EM issuers.

Bloomberg Barclays US Corporate Total Return Index: The Bloomberg Barclays US Corporate Total Return Value Unhedged Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes USD denominated securities publicly issued by US and non-US industrial, utility and financial issuers.

Crude Oil: Measured based on the Generic 1st ‘CL’ Future, which is the nearest crude oil future to expiration.

EBITDA: Earnings before interest, tax, depreciation and amortization (EBITDA) is a measure of a company’s operating performance. Essentially, it’s a way to evaluate a company’s performance without having to factor in financing decisions, accounting decisions or tax environments.

Average Spread: Average spread is the average of the excess of the MLPs yield over the 10 year treasuries yield.

Enterprise Value (EV): EV is a measure of a company’s total value, often used as a more comprehensive alternative to equity market capitalization.

Category: Articles

Topics: MLPs

new windowSave PDF