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  • Roger S. Conrad

MLP Roundup, Part II

By Elliott H. Gue on Sep. 8, 2013

American Midstream Partners LP (NYSE: AMID)

American Midstream Partners LP’s struggles to bridge the gap between its cash flow and its distribution continued into the second quarter, with the small-capitalization MLP covering only 48 percent of its payout.

But thanks to the intervention of High Point Infrastructure Partners LLC, a portfolio company of private-equity outfit ArcLight Capital Partners LLC, the hapless partnership’s future appears brighter.

Since High Point Infrastructure Partners acquired a 90 percent interest in American Midstream Partners’ general partner, the new sponsor has made a number of changes that prompted management to forecast a 3 percent to 5 percent distribution increase for the third quarter.

First, this transaction included the contribution of High Point Infrastructure Partners’ operating assets, which include approximately 700 miles of onshore and offshore gathering and transmission assets that serve producers on the Gulf Coast. Management expects these assets to add $10 million to $12 million in annual earnings before interest, taxes, depreciation and amortization (EBITDA) and estimates that the combination in 2014 will produce $1 million to $2 million in cost synergies.

Equally important, American Midstream Partners and ArcLight Capital Partners announced an agreement whereby the outstanding subordinated units and incentive distribution rights were restructured, effectively boosting the MLP’s expected distribution coverage to about 1.3 times to 1.4 times cash flow. This new structure also incentivizes ArcLight Capital Partners and High Point Infrastructure Partners to drive distribution growth through additional drop-down transactions. During a conference call to discuss second-quarter results, American Midstream Partners’ management indicated that such a deal could occur in the fourth quarter of 2013 or early 2014.

We’re also bullish on the MLP’s construction of a gathering system in the oil-rich window of the Eagle Ford Shale; this growth project, which is slated to come onstream in 2014, is backed by a long-term, fee-based agreement.

Down the road, we wouldn’t be surprised if American Midstream Partners eventually were absorbed by Enable Energy Partners LP, a larger MLP created that will house midstream assets owned by CenterPoint Energy (NYSE: CNP), OGE Energy Corp (NYSE: OGE) and ArcLight Capital Partners. Although this private MLP has yet to file its S-1 registration statement with the US Securities and Exchange Commission, the parent companies have indicated that the initial public offering would take place in late 2013 or early 2014.

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    • Elliott H. Gue

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

    • Roger S. Conrad

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor