The first initial public offering (IPO) of the year went off yesterday as USA Compression Partners L.P. (NYSE: USAC) priced 11 million common units at $18 per unit. By the end of the day, the common units closed at $17.60. On deck are IPOs from SunCoke Energy Partners L.P. and Carl Icahn-controlled CVR Refining L.P. To top it off, a new ETF was launched yesterday, the Global X Junior MLP ETF (NYSEMKT: MLPJ).
USA Compression provides natural gas compression services to upstream and midstream companies that produce and transport natural gas. The services are offered under long-term, fixed-fee contracts similar to the contracts for pipeline master limited partnerships (MLPs).
In its prospectus, the company said it would distribute $1.70 per common unit annually, for an annual yield of 8.5%, based on the IPO price. That is the attraction of MLPs - substantial pretax distributions to common unitholders. And USA Compression is offering a high yield, compared with stalwarts such as Kinder Morgan Energy Partners L.P. (NYSE: KMP), which yields 5.8%, and Enterprise Products Partners L.P. (NYSE: EPD), which yields 4.8%.
SunCoke Energy Partners is a spin-off of SunCoke Energy Inc. (NYSE: SXC), which is majority-owned by Sunoco Inc., which in turn is owned by Energy Transfer Partners L.P. (NYSE: ETP), following a $5.4 billion merger last year. The SunCoke MLP was originally planned to hold an IPO in November, but that was pulled. SunCoke Energy Partners plans to offer 13.5 million common units in a price range of $19 to $21 per unit. The company will trade on the NYSE under the ticker symbol SXCP. The projected yield for the SunCoke Energy Partners MLP is 8.25%.
CVR Refining L.P. plans to offer 20 million common units in a price-range of $24 to $26 per common unit. The spin-off from CVR Energy Inc. (NYSE: CVI) will remain under the control of CVR Energy, which will retain ownership of 86% of the new refiner's common units. Carl Icahn owns a controlling interest in CVR Energy and through his company, Icahn Enterprises L.P. (NASDAQ: IEP), may purchase up to 4% of the common units of CVR Refining. The common units of the new company will trade on the NYSE under the ticker symbol CVRR. The projected yield for CVR Refining is a whopping 18.8%.
Perhaps the most interesting of the MLP IPOs is the launching of the Global X Junior MLP ETF. The new fund tracks the Solactive Junior MLP index, which lists 25 holdings, including a 6.8% holding in Suburban Propane Partners L.P. (NYSE: SPH), a 6.6% holding in Northern Tier Energy L.P. (NYSE: NTI), a 6.5% holding in Alliance Resource Partners L.P. (NASDAQ: ARLP), a 6.4% holding in TC Pipelines L.P. (NYSE: TCP) and a 6.3% holding in Natural Resource Partners L.P. (NYSE: NRP).
What is interesting about the new ETF is that the fund's daily tracking error is expected to be about 38%. That is the net asset value (NAV) change each day will give investors a haircut of 38%, compared with the change in the underlying index. The fund is taxed as a regular corporation, not as a regulated investment company. The ALPS Alerian MLP ETF (NYSEMKT: AMLP) is set up the same way and gives its shareholders a similar daily haircut.
Last year, there were 14 MLP IPOs that raised $4.9 billion, according to a Wall Street Journal report. This year could see even more, if the month of January is any guide.
Filed under: 24/7 Wall St. Wire, Commodities, ETF, IPOs, Oil & Gas Tagged: AMLP, ARLP, CVI, EPD, ETP, IEP, KMP, MLPJ, NRP, NTI, SPH, SXC, TCP, USAC