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Analyzing the Recent Trends in MLP Equity Issuance

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New offerings

In the previous part of this series, we looked at the recent trend in MLP debt issuance. In this part, we’ll analyze the recent trend in MLP equity issuance.

The MLP sector saw just one IPO (initial public offering) in 2016 to date. Noble Midstream Partners (NBLX) completed its IPO in September 2016, raising $323.0 million. The fall in MLP IPOs in 2016 could be attributed to higher market uncertainties in the first half of 2016.

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Follow-on offerings

MLP follow-on equity offerings also fell in 2016 due to their rising distribution yields or cost of equity capital. However, low-yielding distribution MLPs have continued to raise money from equity markets through secondary and ATM (at the market) offerings.

A few high-yielding MLPs, including Energy Transfer Partners (ETP) and Williams Partners (WPZ), also opportunistically raised money from equity markets through the ATM program.

EQT Midstream Partners (EQM), which has a low leverage ratio of 1.1x, is still using the equity markets to raise funds. When asked if the MLP would reach the target leverage that it had projected, EQM’s chief financial officer Rob McNally stated, “It really is going to be over the next several years as we guide significant CapEx spend primarily with MVP coming, will give us an opportunity to get to appropriate levels over the next call it two years or little more than two years.”

Simplified capital structure

The IDRs (incentive distribution rights) present in the capital structures of MLPs result in higher cost of equity capital since a larger share of incremental cash flows move from limited partnerships to general partnerships.

A few MLPs have simplified their capital structures to lower their costs of equity capital. The most recent is Plains All American Pipeline (PAA). Plains GP Holdings (PAGP) now owns just the limited partner unit of PAA. Enterprise Products Partners (EPD), Crestwood Equity Partners (CEQP), and Buckeye Partners (BPL) are among the MLPs that have simplified their capital structures.

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