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Kinder Morgan, Inc. Message Board

  • recession2014 recession2014 Feb 27, 2014 5:22 AM Flag

    Expect Continued Turmoil For Boardwalk Pipeline Partners

    Expect Continued Turmoil For Boardwalk Pipeline Partners
    Feb. 26, 2014 5:36 PM ET | 7 comments | About: BWP, Includes: EPB, KMI, KMP

    Many questions remain unanswered regarding the collapse of Boardwalk Pipeline Partners (BWP). A few weeks ago, the stock fell nearly 50% on heavy volume after the company lowered its distribution by a massive 81% to $0.10 per unit per quarter. This was clearly an unmitigated disaster as Boardwalk Pipeline Partners was before widely seen as a "safe" investment due to the fee-based nature of its income. The purpose of this article is to find out exactly what factor(s) forced Boardwalk Pipeline Partners to lower its distribution so suddenly.

    What caused Boardwalk Pipeline Partners to lower its distribution?

    It shocked many that Boardwalk Pipeline Partners lowered its distribution so significantly, especially considering its distributable cash flow, or DCF, generation. For 2014, the company is projecting DCF of about $400M, well above the expected annual distribution payments of about $90M.

    Given that the current distribution is barely 25% of 2014 DCF, clearly the company will be using its cash flows for other reasons.

    From its press releases the company gives us the following causes for its lowered distribution:

    A need to lower debt from about 4.6x to below a long-term target of 4.0x EBITDA

    A need for internally generated cash flows to fund certain critical expansion projects, namely the planned Bluegrass pipeline

    The future expiration and resetting of certain favorable midstream natural gas contracts to lower rates

    While the first two points are rather self-explanatory, point three is probably the most complex and relevant to the issue.

    During its conference call, Boardwalk Pipeline Partners was rather mum on details regarding its future contracts, only really mentioning certain "market headwinds" caused by the new sources of natural gas, namely in the Marcellus and Utica shale formation.

    Sentiment: Strong Sell

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