Transco Dumps Its MLP

In an amusing twist, during WMB’s investor day one analyst asked whether they’d considered maintaining Transco’s ownership within an MLP by shifting it into a blocker corporation. This is similar to the structure used by tax-burdened funds such as AMLP. WMB CEO Alan Armstrong replied that the additional corporate tax liability rendered such a solution uneconomic through multiple layers of taxation. In other words, the structure by which AMLP holds WPZ is regarded as unworkable when considered by parent WMB.

The promoters of such poorly structured funds deny a problem, which leaves it to their investors to do their own homework. Fewer MLPs may even cause investors to exit such funds in search of more diversified exposure, depressing prices. ENB’s press release referred to, “…the continuing deterioration in the MLP equity marketplace.”Their presentation asserts that, “Sponsored vehicles are ineffective and unreliable standalone financing vehicles.” MLPs aren’t going away, but they’re clearly not an attractive choice for companies in need of equity capital to grow.

The problem is one of structure, not fundamentals. U.S. hydrocarbon output is hitting new records, in some cases leaving the infrastructure struggling to keep up (see Dwindling Pipeline Capacity Causes FOMO). The appeal of broad-based, tax-efficient energy infrastructure using mostly corporations is strong.

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Disclosure: 

We are invested in ENB, KMI and WMB. We are short AMLP

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