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  • Roger S. Conrad

Portfolio Moves

By Roger S. Conrad on Jul. 4, 2016

Energy Transfer Partners LP (NYSE: ETP) has rallied hard off its February low, reflecting the market’s expectations that the failure of Energy Transfer Equity LP’s (NYSE: ETE) proposed acquisition of Williams Companies (NYSE: WMB) will better position the general partner to support the MLP.

However, Energy Transfer Partners’ underlying business continues to face challenges. In the first quarter, the MLP’s distributable cash flow declined by 6.1 percent from year-ago levels and 47.1 percent on a per-unit basis, resulting in a coverage shortfall.

At this juncture, an investment in Energy Transfer Partners represents a bet that Energy Transfer Equity will do what it takes to enable the MLP to maintain its payout until cash flow from new projects helps to offset the widening shortfall in distribution coverage.

With its cash flow under pressure and questions about how the MLP will fund its planned growth projects and deal with at least $1 billion in debt maturities in each of the next eight years, Energy Transfer Partners finds itself in a precarious situation.

During Energy Transfer Partners; first-quarter earnings call, management emphasized the MLP’s commitment to maintaining its investment-grade credit rating. In other words, a distribution cut could be on the table if one of the credit-rating agencies puts the partnership on negative watch.

We like Energy Transfer Partners’ exposure to Mexico’s growing demand for US natural gas and its gathering and processing assets in the Permian Basin, which is why we would have no qualms about adding the stock back to the MLP Portfolio in the event of a major selloff or a distribution cut. Sell Energy Transfer Partners LP.

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