In a new report, Credit Suisse analyst John Edwards issues a series of downgrades (and one upgrade) to a number of MLPs following the big rally in the space in recent weeks. According to Edwards, the severity of the oil downturn has called into question the entire MLP model.
“The accepted wisdom before the downturn was that the models were robust enough to withstand industry cycles and that pipeline and processing plant cash flows had a degree of insulation from the industry cycle due to the long-dated nature of fee based contracts,” Edwards explains. “But, the prolonged down turn has challenged the robustness assumption on account of counterparty risks and contract renegotiation risks.”
Credit Suisse believes that the 30 percent rally in most MLPs has changed the risk/reward balance associated with MLPs. The firm has downgraded the following names from Outperform to Neutral:
- Antero Midstream Partners LP AM 1.69%
- EnLink Midstream LLC ENLC 1.53%
- Enbridge Energy Partners, L.P. EEP 2.24%
- Enterprise Products Partners L.P. EPD 3.18%
- Kinder Morgan Inc KMI 1.98%
- Spectra Energy Partners, LP SEP 1.95%
- VTTI Energy Partners LP VTTI 0.21%
- Western Gas Equity Partners LP WGP 2.42%
- Western Gas Partners, LP WES 2.04%
In addition, the following MLPs were…
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