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Inergy, L.P. Message Board

  • abter1 abter1 Jul 10, 2005 5:24 PM Flag


    Agter trying to gain some understanding about what NRGP is, I think it is structured similar to the late, lamented KPP/KSL pair of sisters. KPP and KSL just got bought by Valero, so a great investment opportunity got swept into VLO. While it has some similarities to KMP/KMR, NRGP doesn't have the Payment-In-Kind aspect of KMR. KPP/KSL seems to be a better analogy (or perhaps the model itself?)

    KSL operated as an MLP (i.e., tax shelter, K-1, etc.) They owned the GP rights to KPP. The fundamental investment premise was that as KPP's distribution went up, KSL's went up faster. There was a stated ratio: for every $1.00 increase in the KPP distribution, KSL's went up $1.25. That ratio was later increased just before the buyout was announced.

    NRGP appears to be a similar beast, but without any clear statement about the distribution. They own the GP rights to NRGY, and hence will be getting the GP cash flow. As that cash flow increases, the NRGP distribution will increase. As the total DCF increases, and the GP splits increase, the portion of the DCF available to NRGP will be greater than the portion available to NRGY, so the NRGP distribution should grow faster.

    The market priced KSL to give a lower yield than KPP. That was reasonable, as KPP was "pay me more now", and KSL was "pay me more later". Simple bond math would price KSL lower (as long as the increasing DCF was expected to occur).

    I expect the market will price NRGP similarly to NRGY. But is there any info about what the intended initial distribution for NRGP will be? Without that, how can the market correctly price it relative to NRGY? This could lead to a market correction (up or down) when the initial NRGP distribution is announced. Do you expect that to be in July, or will they wait until October. October makes more sense to me.

    Does this sound right?

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    • NRGP to pay out $.90/year, so its a 3.1% yield, NRGY pays out $2.00/year and is a 6.7% yield.

      To me its a no brainer, go with NRGP. You will be more than compensated for the lower yield. The a .20 growth at NRGY correlates to a roughly .36 increase at NRGP. So, about the numbers increase, the percentage growth shrinks but the overall growth stays pretty constant. Read the prospectus, they pretty much spell it all out..