Alerian

About the Author Alerian

Here at Alerian, we love MLPs and energy infrastructure. As an indexing company, we exclusively follow these asset classes all day, every day. They are our bread and butter, our peanut butter and jelly, our ham and eggs. We’re kind of dorks about it. Here’s what to expect: As an indexing firm, you can expect objectivity. As employees, we are prohibited from owning individual MLPs; any skin we have in the game is related to the asset class itself. You can expect transparency. We think that’s one of the only ways to run an index with integrity. We are also citizens of the modern world and value transparency over secrecy. Primarily, though, we’re interested in giving you the tools to make your own decisions. We trust that you’re smart and willing to put in some work to understand MLPs and energy infrastructure. Whenever possible, we’ll walk you through the process and spell out the facts we used to draw our conclusions, so that you are free to draw different ones. We’re stat nerds, too. So you can expect us to wax poetic about data. We’re no longer embarrassed about all those years in math club. In fact, those years of being decidedly uncool have helped us explain the things we love about statistics in ways everyone can understand. You won’t find stock tips here. We’ll talk about interesting developments and trends in energy, let you know how MLPs are exposed, and acknowledge the risks. In the end, your decisions are yours. You won’t find breaking news here. Instead, we’ll focus more on long-form journalism—the kind of writing that takes time to research and analyze. We’ll talk to industry experts, see what they have to say, and pass that along to you. We’ll attend analyst days, read 100-page government reports, track any relevant bills in Congress, build models, and draw diagrams. Whatever we find fascinating, intriguing, challenging, or just plain amusing, we’ll pass that along, too. Ask us questions. Our contributors have dramatically varied backgrounds and passions: engineering, physics, international studies, and communications undergraduate degrees along with some postgraduate alphabet soup (CFA, CPA, MPA, and MSA). We like to come at it from all angles. At the end of the day, everything we do here will be driven by our vision: to equip investors to make informed decisions about MLPs and energy infrastructure. That’s it. That’s all. That’s everything. Welcome Aboard. Alerian equips investors to make informed decisions about Master Limited Partnerships (MLPs) and energy infrastructure. Its benchmarks, including the flagship Alerian MLP Index (AMZ), are widely used by industry executives, investment professionals, research analysts, and national media to analyze relative performance. Over $19 billion is directly tied to the Alerian Index Series through exchange-traded products, delta one notes, and separately managed accounts. For more information, including index values, yields, constituents, and announcements regarding rebalancings, please visit www.alerian.com.

MLPs Get Creative in March: FSLR, KMI, WPZ, and More!

Our CEO’s epic March Madness bracket aside, this month, quarter, and year all got off to a rough start. As necessity is the mother of invention, MLPs are starting to get creative with their debt financing and IPO structures.

Kinder Morgan Inc (NYSE:KMI) issued seven- and 12-year Eurobonds totaling EUR 1.25 billion (USD 1.35 billion) in March. With the European Central Bank’s quantitative easing program, a strong dollar doesn’t hurt when it’s time to pay interest and principal. Yields are also lower in Europe than in the US. Energy Transfer Partners LP (NYSE:ETP) also issued debt in March, raising $2.5 billion, including $1 billion of 10-year, 4.05% notes. Despite having the same BBB- credit rating as the KMI 12-year Eurobonds and a shorter maturity by two years, the yield on the ETP 10-year debt is 180 bps higher. Oneok Partners LP (NYSE:OKS), another investment grade MLP that tapped the debt capital markets in March, saw its 10-year notes yield 265 bps higher than KMI’s 12-year Eurobonds, again, despite an earlier maturity and a better credit rating (BBB).

The forward year curve implies that we all think US interest rates are going to rise. Being the conservative guys and gals they are, MLP management teams are also preparing for this. During the first quarter, MLPs raised $17 billion of debt, compared to nearly $40 billion raised throughout all of 2014. Since most MLPs use fixed-rate debt, they are locking in these low rates for the coming years and decades. It may temporarily increase leverage, but as long as they stay within their covenants, this pre-capital raise will result in lower interest payments, which means better returns on projects and higher coverage ratios.

For example, in early March, Williams Partners LP (NYSE:WPZ) completed an offering for $3 billion of senior notes, including $750 million of 4% notes due in 2025. Two weeks later, WPZ redeemed $750 million in 5.875% notes due in 2021. So the company effectively extended the term of that debt by four years and shaved 187.5 bps off the interest rate, which over six years equals more than $84 million in interest payments.

Debt isn’t the only place that we’re seeing creativity abound in the MLP space. Competing solar panel manufacturers First Solar, Inc. (NASDAQ:FSLR) and SunPower Corporation (NASDAQ:SPWR) filed a registration statement in March for a YieldCo called 8point3 Energy Partners, which will own and operate solar energy generation projects. In case you were curious about the significance of the name, it takes 8.3 minutes for light from the sun to reach Earth. While this isn’t the first time we’ve seen a renewable generation YieldCo (five IPOs in the last two years, including one, Nextera Energy Partners (NYSE:NEP), also structured as an MLP), it is the first time we’ve seen one formed via JV. And I do appreciate a creative, astronomy-based name.

When I was a girl growing up in Pennsylvania, every year in school at the beginning of March, we would make a construction paper, cotton ball, and yarn creation based on the saying “March comes in like a lion and goes out like a lamb.” Since leaving my small town, I’ve learned that this isn’t common wisdom. Investors were hoping in the first weeks of March as MLPs continued to slide that this idiom would prove true, but MLPs still finished the month down 4.2%. Still, the broader lesson of those childhood art projects is that seasons are cyclical, and though it feels like it has been cold forever and there will always be gray skies, that actually isn’t true. We’re in this for the long haul.