MASTER LIMITED PARTNERSHIPS

Tuesday, September 30, 2008

Please folks...just a reminder if you post a story in the comments section please also post the link...thank you.

Going into the close with nearly a 6 point gain on the MLP index but the volume today is low. I wish i could be more enthused about this but right now i'm demoralized with everyone else. Yet somehow i managed to pull off 5 nice day trades in the group.

6 comments:

Anonymous said...: Anyone have an idea why DPM simply cannot rally? Even on a day like today, DPM units fell.

Bruce; 9/30/2008 4:21 PM
Anonymous said...: Good question... Lehman / Barclays current research has it (DPM) as a 1-Overweight. They believe there'a above avg growth with this mlp.; 9/30/2008 5:10 PM
Anonymous said...: I read the Lehman/Barclays' report and others. I can't find anything to explain the price action which--alarmingly--seems to resemble the pattern we saw in CEP.

Bruce; 9/30/2008 5:56 PM
Anonymous said...: Bruce:

The second half of the subordinated shares
(as I read it) 3.571 million shares will convert to common shortly after the first 2009 distro:

In addition DCM is at the top of it's incentive split structure of 48%, so any new equity raised for any reason would not likely be acretive to the limited partners ( at this price level) . At this share price level, any project that would need equity financing would need to return about 25% on the investment to not be dilutive to current limited partners. DPM is investment grade(BBB+), so eventually when the bond markets calm down they might be able to sell bonds at a reasonable rate.

I guess misery liks company!
I've got 3000 shares of this as well.

As to the possible larger float in 2009, as long as the distros are solid, the now subbordinated shareholders might not chose to sell based on the distro.

MLPs need to cut back on most new projects ( especially when there is a 50/50 LP/GP split) because at these price levels niether equity or debt financing makes sense to the limited partners.

But of course you know most MLPs have as one of their risk factors, divided loyalties for the GP.

HS

dcm PAGE 13
"The subordination period has an early termination provision that permits 50% of the subordinated units to convert to common units on the second business day following the first quarter distribution in 2008 and the other 50% of the subordinated units to convert to common units on the second business day following the first quarter distribution in 2009, provided the tests for ending the subordination period contained in the partnership agreement are satisfied. We determined that the criteria set forth in the partnership agreement for early termination of the subordination period occurred in February 2008 and, therefore, 50% of the subordinated units, or 3,571,428 units, converted into common units. Our board of directors certified that all conditions for early conversion were satisfied. The rights of the subordinated unitholders, other than the distribution rights described above, are substantially the same as the rights of the common unitholders."

http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=6089083-32698-131930&type=sect&dcn=0001193125-08-171859; 9/30/2008 8:07 PM
Anonymous said...: Thanks, HS!

I knew that even in this irrational market there had to be some substantive reason for DPM's particularly poor price action.

Bruce; 9/30/2008 8:25 PM
Anonymous said...: Bruce:

Kinder Morgan Bonds with a little of 9 years to maturity are offered
at 7.245 yield to maturity.
They are one notch lower credit quality than DPM.

Dan Fuss (Loomis Sayles) bond guru said on Bloomberg last week (not verbatum) that bid/asked spreads have widened to the point that corporate bonds aren't
tradeable. I guess that means you have to hold them until markets improve or maturity.

If the Bond market opens up again for new issuance, right now that implies perhaps a cost of capital of around 8% ( figuring expenses ) for DPM.

If confidence comes back that we're not facing armageddon maybe a credit like DPM might get 10 year 6% net money in the bond market. That would brighten the picture for MLPs wouldn't it?

HS

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494550AY2
Utility 322
10 Kinder Morgan Energy Partners
Non Callable, Make Whole Calls, NYBE, KMP 5.950 02-15-2018
Baa2/BBB 7.245
Mat 91.300 Buy Sell; 9/30/2008 11:43 PM