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Doing the Breakdown: An In-Depth Look at the Biggest MLPs

By Roger S. Conrad on Dec. 31, 2015

Spectra Energy Partners owns and operates 14,000 miles of natural-gas pipelines and associated storage capacity spread across eight systems in the Eastern US.

The preponderance of Spectra Energy Partners’ revenue comes from fee-based contracts, 80 percent of which are with gas and electric utilities, resulting in one of the most secure cash flow streams in the MLP universe.

As for counterparty risk, management estimates that 90 percent of its customers have an investment-grade credit rating or their contracts are secured by letters of credit and other investment-grade equivalents.

In addition to distribution safety, Spectra Energy Partners also offers exposure to a compelling growth story connecting utilities and industrial users to the growing supply of inexpensive natural gas from the Marcellus and Utica Shale.

Thus far in 2015, the MLP has completed growth projects that generate $135 million in annual operating cash flow. Management expects Spectra Energy Partners to bring onstream assets with a total price tag of $1.68 billion next year and almost $5 billion worth of expansions in 2017.

The start-up of these projects won’t change the safety of the MLP’s underlying cash flow, but they are expected to drive annual distribution growth of 8 percent to 9 percent.

And with a distribution yield of 5.4 percent and ample liquidity, Spectra Energy Partners shouldn’t encounter any challenges funding these endeavors. Management also indicated that the financial challenges facing some of its peers could open the door for joint ventures or acquisitions.

At this juncture, permitting delays in the Northeast remain the biggest risk to the MLP, though we’d take that any day over volumetric headwinds or exposure to commodity prices.

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