MASTER LIMITED PARTNERSHIPS

Thursday, September 18, 2008

Stock futures are skyrocketing tonight. As of this post dow futures were up over 200 points and the S&P futures are up an astounding 35 points. Assuming this all holds over night i think we may have a huge snapback rally in MLP land tomorrow. After falling almost straight down from 273 to 211 in the last 2 weeks a rally certainly is in order.

However given that we may get a favorable resolution that could at least un-jam the credit markets...mlps stand to benefit greatly from this. Yield spreads are beyond ridiculous. The spread could get cut in 1/2 in some of these issues and that still will be well above normal. No thats not going to happen all in one day but i think a multi-percentage gain is due for tomorrow and we might at least see a few smiles by Friday's close.

Look for GP's to play catch up tomorrow as they did not turn around until late in the day and of course some of the laggards today like Markwest (MWE) and Oneok (OKS) and even Kinder Morgan (KMP) will play catch up.

One note on Constellation Energy Partners (CEP). I'm long this one and given all the news today and a the re-affirmed distribution this evening...this one yields 22%. It could double from here in the next year and still yield 11%. EV Partners at 18 is going to 3 dollars on the distribution. Thats a whopping 16% on that one. My point is if market conditions improve significantly MLPS could move up in a hurry.

5 comments:

Anonymous said...: The shorts are bidding up the futures. Imagine if you are short individual stocks, and there is no way for you to hedge. You must buy futures tonight to offset losses in individual stocks.

Tommorrow every institution will buy and not sell, and with the new naked shorting restrictions, every institution will place shares lent to the shorts in a cash account.

Every short, even shorts that have borrowed shares legitimately will become naked shorts.

It will be a bloodbath.

But turnaround is fair play.

Part 2 of the recovery plan is a Resolution Trust type co. to buy bad loans.

Say level 3 assets have a value in an illiquid market of 10 cents on the dollar.

The new RTC imho will buy small amounts ( but enough to establish a price )of these CDOs at 70 cents on the dollar. Instant balance sheet repair for the banks and brokers.

HS; 9/18/2008 9:29 PM
Anonymous said...: I agree that we may see a short term rally BUT I do not believe that we have put in the ultimate low. Notwithstanding all the government intervention, we are still skidding into a recession, hedge funds continue to unwind, 3Q earnings from the financials will be UGLY, incipient inflation is still and issue and may trigger higher rates before many expect, housing will still decline further, and on and on.

So let's not get too carried away over what may be another suckers' rally.

Bruce; 9/18/2008 10:45 PM
Anonymous said...: From Friday's Wall Street Journal:

"Revealing the Truth on Short-Squeeze Lift

The so-called naked short-selling rules enacted this week could provide an extra lift to share prices early next week -- on a technicality. With short selling, investors borrow shares they don't own and sell them, hoping to profit from a stock's fall. Naked shorting is selling shares without borrowing them first.

This new rule comes into force just as stock options are set to expire Saturday, normally a routine event. But with Wall Street down sharply, many put-option holders (those with the right to sell shares at a predetermined price) are in the money. Typically, those contracts, if they haven't already been sold, would automatically exercise, resulting in short positions.

With the naked-shorting rules, though, "many of those short positions will have to be closed out early next week if shares cannot be borrowed," says Randy Frederick, Charles Schwab's director of derivatives. And in the current environment, borrowing shares could be challenging.

That could result in a short-squeeze, in which those same put-option holders are forced to buy back shares to cover their short positions. The result: Wall Street could be headed higher early next week.

But remember, if it happens, it's a technicality. Not a sign of renewed vigor."

Bruce; 9/18/2008 10:58 PM
Anonymous said...: From Bloomberg:
This shows why MLPs are in the toilet, non investment grade debt ( corporate bonds )now costs 13%+.
Any mlp with bonds that need to be rolled over might be paying 7 or 8 5 more in the bond market.
That has to eat into distributable funds. IT kills the GP's more than LPs because of the LPs superior interest in distributable funds for most MLPs.

HS
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Qwest, Amgen, Sirius Scrap Deals, Pay 14% Amid Credit Crisis

By Gabrielle Coppola and Amy Thomson

Sept. 19 (Bloomberg) -- The credit markets seizure is hurting companies outside Wall Street as executives from Amgen Inc., Qwest Communications International Inc. and Sirius XM Radio Inc. cope with the soaring cost of money.

Officials at Cablevision Systems Corp., Amgen and Qwest said they may use cash on hand to pay off debt as it comes due instead of rolling it over. Companies that must raise money, including Sirius and NextWave Wireless Inc., are paying as much as 14 percent in annual interest, the highest since 2002. NRG Energy Inc. canceled plans to refinance as much as $2 billion.

Corporate bond sales this month are running at less than half the pace analysts anticipated as investors flee all but the safest of government bonds. In a week when Lehman Brothers Holdings Inc. filed for bankruptcy, Merrill Lynch & Co. was taken over and the government assumed control of American International Group Inc., companies looking for new money have few options.

``Our debt markets are close to frozen,'' former U.S. Treasury Secretary John Snow, chairman of private-equity firm Cerberus Capital Management LP, said in a telephone interview this week.

The crisis is pushing borrowing costs to the highest since at least November 2002. The average yield on the most actively traded investment-grade bonds has risen to 7.43 percent from 5.99 percent a year ago, according to the Finra-Bloomberg Active U.S. Corporate Bond index. Yields on bonds rated below investment grade jumped to 13.6 percent from 9.17 percent.

$234.5 Billion

That's going to hurt as companies seek to refinance $234.5 billion of bonds maturing by year-end, according to Fitch Ratings estimates based on Aug. 30 data. A year ago, companies had $165.5 billion in debt coming due. Borrowing costs will rise as much as 30 percent for some lower-rated companies, according to Mariarosa Verde, a Fitch analyst in New York.

Qwest, the third-largest local phone company, may pay off debt instead of refinancing because of ``shaky'' credit markets, Chief Executive Officer Edward Mueller said at a conference in New York this week. Denver-based Qwest has more than $1 billion in debt coming due by August 2009, according to data compiled by Bloomberg.

``The markets today will make us have to evaluate any debt,'' Mueller said.

Cablevision, the New York-area cable-television company, may use cash and existing credit lines to pay off $1.7 billion in bonds maturing next year instead because some borrowers have to pay more than 10 percent annual interest, CEO James Dolan said.

Amgen, Sirius

Amgen, the largest biotechnology company, retired $1 billion in debt this year and has another $1 billion expiring in November, said David Polk, spokesman for the Thousand Oaks, California-based business. ``We can repay the November maturity with cash and may do so depending upon market conditions,'' he said.

Sirius, the New York satellite radio company created in the $2.76 billion all-stock purchase of XM Satellite Radio Holdings Inc. in July, has $300 million of bonds convertible into stock maturing in February. CEO Mel Karmazin said this week he plans to refinance the company's debt soon, although at an interest rate ``far higher than we'd like to pay.''

Sirius debt coming due in February has a 2.5 percent coupon; the $550 million maturing in 2014 is at 7 percent.

NRG, Texas's second-largest power producer, cited the ``extraordinary financial environment'' when it nixed plans to refinance this week.

`Tedious Process'

Verizon Communications Inc., the New York-based phone company seeking to raise money for its $28.1 billion purchase of wireless carrier Alltel Corp., is working to get the deal closed by year-end, President Denny Strigl said yesterday.

``Is it a tedious process? Yes,'' he said. ``Are we any less confident? No.''

DirecTV Group Inc. is unlikely to borrow more because it wouldn't be able to get rates close to the 8.375 percent it paid to borrow $910 million in its most recent deal, said Liberty Media Corp. CEO Greg Maffei, who sits on the El Segundo, California-based satellite-TV company's board.

No bonds were sold in the U.S. this week, the first time that has happened since at least 1999, Bloomberg data show. September has only seen $18.8 billion in investment-grade offerings, down from $55.7 billion in the same period in 2007.

Before the takeover of Fannie Mae and Freddie Mac, analysts at Barclays Capital Inc. predicted as much as $100 billion of investment-grade issuance in September and $275 billion for the remainder of the year, according to an Aug. 21 report.

`Too Risky'

``Jumping in here is too risky right now,'' said Bill Larkin, who oversees $250 million in fixed-income assets at Cabot Money Management in Salem, Massachusetts.

Short-term debt costs also have soared. Average yields on top-rated seven-day commercial paper jumped 1.38 percentage points this week to 3.46 percent, the highest since January, Bloomberg data show.

GE Capital, the financing arm of Fairfield, Connecticut- based General Electric Co., the world's third-largest company, is willing to pay 2.5 percent to issue 30-day commercial paper, the most since March 14.

Companies that pulled off recent bond sales have a sense of relief. NextWave, a seller of high-speed communications gear in San Diego, won commitments to raise $100 million of notes with a 14 percent rate.

``It was financing we needed to fund our business,'' Chief Financial Officer George Alex said in an interview yesterday.

Liquor maker Pernod Ricard SA was ``lucky to get the financing for the Absolut acquisition at the beginning of the year,'' CEO Patrick Ricard said. There is ``no way'' the Paris- based company could buy it if it tried now, he said.

``It's prudent to expect that people are going to be tighter with credit,'' Arne Haak, finance chief at low-fare carrier AirTran Holdings Inc., said in an interview.

Orlando, Florida-based AirTran doesn't need more credit now, after raising $147 million in the second quarter selling stock and convertible notes and receiving a $150 million credit facility, he said.

``We don't think it's going to affect us,'' Haak said. Still, with the volatility in oil prices, airlines ``would rather have more liquidity than less,'' he said.

To contact the reporters on this story: Gabrielle Coppola in New York at gcoppola@bloomberg.net; Amy Thomson in New York at athomson6@bloomberg.net; 9/19/2008 12:29 AM
Anonymous said...: Thanks for the bloomberg post, that explains the problems mlps are experiencing well. I think these problems will ease eventually and mlps will rise from the ashes. The thing now is to avoid panic selling at these fire sale prices.; 9/19/2008 5:20 AM