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Constellation Energy Partners, Ltd. Şti. Message Board

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  • rrb1981 rrb1981 Apr 18, 2008 5:53 PM Flag

    Can a MLP buyback units?

    It isn't fun to watch investments decline in price, but are you a short term trader or a long term investor. If nothing material has changed with the company, then it can be frustrating, but you also have to realize that these MLPs are not very liquid and if a PIPE holder (private investment in public equity) wants to unload, it can drive the price down. CEP has had some operational issues and also some management turnover, so there is some reason that it has been pounded. Did it deserve to be pounded the way they did, probably not, but it also shouldn't have gone as high as it did (fueld by speculation..). To answer the question on the buyback, since CEP has incentive distribution rights, it would be harmful the the GP, so I would say that no, it won't happen. An LLC like VNR or LINE, that has no IDRs could do it, and LINE has mentioned that they will address the situation at the next BoD meeting. CEP would be better off using excess cash to buy more production as you can buy properties at 5.5x or 6x ebitda (a 16% to 19% return) vs buying back equity at 12%.

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    • RRB,

      It looks like you and I were responding to the same message at the same time. We both recognized that LINE would consider a buyback, and you raised a good point about the GP connection that LINE fortunately does not have. I was wondering if those IDR's are measured in aggregate or in per-unit numbers. If a buyback were to increase per-unit distributions, I would think that the GP would be all for it. Or would the number of units be reduced by so much that the total fee would go down? If that's the case, the IDR's are a pretty perverse incentive for the LP unit holder.

 
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