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Why Does Buckeye Partners Have a Low Distribution Coverage Ratio?



Distribution coverage ratio

Buckeye Partners’ (BPL) 1Q15 trailing 12 month distribution coverage ratio of 0.97x is lowest among the selected peer group. A distribution coverage ratio of less than one indicates that the partnership isn’t generating enough DCF (distributable cash flows) to cover its distributions.

According to Buckeye Partners’ management, the coverage ratio is expected to stay low in 2Q15 and 3Q15 due to limited butane blending activity combined with higher maintenance capital spend as weather conditions improve.

If the ratio continues to stay low in the long run due to insufficient DCF growth, the partnership might have to cut distributions.

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Buckeye Partners’ peers, Plains All American Pipeline (PAA), Sunoco Logistics (SXL), Shell Midstream Partners (SHLX), and NuStar Energy (NS) had trailing 12 month distribution coverage ratios of 1.09x, 1.47x, 1.65x, and 1.11x, respectively, in 1Q15. Together, these companies account for ~19.76% of the Alerian MLP ETF (AMLP).


Of the selected companies, Sunoco Logistics has the lowest consensus forward EV/EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 11.5x. Shell Midstream Partners has the highest multiple of 31.5x. Buckeye Partners’ forward EV/EBITDA of 15.1x is lower compared to the group average of 17.1x. A lower forward EV/EBITDA multiple compared to a trailing multiple typically indicates EBITDA growth.

Debt levels

Buckeye Partners’ net debt-to-EBITDA multiple of 5.05x is higher than the selected peer groups’ average. Its outstanding debt didn’t change much in recent quarters, but its cash and cash equivalents decreased significantly, resulting in a higher net debt and net debt-to-EBITDA ratio. Also, the company’s adjusted EBITDA hasn’t grown much in recent quarters.


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