Lose Confidence
Marc Hazelton, a spokesman for Barclays, Rob Julavits, a Citigroup spokesman, and Tasha Pelio, a spokeswoman for JPMorgan, declined to comment.
Growth attained by issuing debt and equity becomes a problem if the companies lose investors’ confidence, said Douglas Johnston, managing partner at Quantalysis LLC, an investment research firm in Huntington, New York.
“It’s a bit of a gimmick,” Johnston said. “Retail investors bid the product up. MLPs can then issue more equity to fund the distribution and growth. It works until it doesn’t work.”
For Boardwalk Pipeline Partners LP, it stopped working on Feb. 10, when the eight-year-old Houston-based company cut its payout to investors and shares dropped 46 percent, the biggest decline ever. CEO Stan Horton, in a conference call to analysts and investors, attributed the cut to declining income from the partnership’s pipelines. The company’s market value has dropped by $2.8 billion since the announcement, to $3.1 billion. Joe Hollier, a spokesman for Boardwalk, declined to comment.
Very Careful
“Retail investors need to be very careful about buying on their own because it’s easy not to know what you’re buying,” said Evan Welch, chief investment officer at Boxborough, Massachusetts-based Antaeus Wealth Advisors LLC, which oversees $285 million. “I find them difficult to understand, and with anything I don’t understand I’m a little cautious.”
MLPs have been profitable for most shareholders. The Standard & Poor’s MLP Index returned 28 percent annually the past five years, compared with 22 percent for the S&P 500 Index of U.S. stocks. The number of MLPs almost doubled in the past four years and their combined market value has surged past $500 billion, more than Apple Inc., data compiled by Bloomberg show.
“We’re undergoing a renaissance in oil and gas production in the U.S., and that means all of a sudden you need the highways and infrastructure,” said Stephen Maresca, a New York- based Morgan Stanley analyst. “These companies are absolutely the critical assets of the U.S. energy infrastructure.”
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