(Bloomberg Gadfly) -- Last Thursday was a very bad day for MLPs (see this). But Friday and Monday may actually count as even worse.
An unfavorable FERC ruling knocked virtually ever member of the Alerian MLP Index down on Thursday. Friday brought something of a relief rally: 38 out of 42 master limited partnerships in the index closed up that day. But it turned out to be the deadest of dead-cat bounces: Come Monday morning, the same number were falling again; as of 10.30 AM , the index was actually trading slightly lower than where it closed after Thursday's initial slump:
What makes this so pernicious is the broad-based nature of the sell-off and the passage of time.
Only four MLPs -- Golar LNG Partners LP, Alliance Resource Partners LP, Noble Midstream Partners LP, and Viper Energy Partners LP -- are now in positive territory versus last Wednesday's close. It is no coincidence that they are all clearly very far removed from the interstate pipeline business directly affected by the Federal Energy Regulatory Commission's proposal. Golar operates ships; Alliance is in coal; Noble operates gathering and processing assets in the hot Permian basin; and Viper is an exploration and production business that also benefits from the aura of its parent, Diamondback Energy Inc.
Yet, as many MLPs have been at pains to emphasize in the past few days, most of the index's members don't appear to face impending doom from the FERC's decision either.
Here's where the passage of time matters. By now, investors and analysts have had almost 100 hours to digest the implications. Many companies have issued statements discounting any significant impact. They aren't the most objective of sources, obviously.
Yet it should be clear that the FERC's ruling, which would take away tax allowances on certain interstate gas and liquids pipelines operating under cost-of-service contracts, affects only a sub-set of assets for a sub-set of MLPs.
Hinds Howard, a midstream portfolio manager at CBRE Clarion Securities, estimated over the weekend that MLPs with a potential direct impact from the decision account for less than 10 percent of market capitalization overall. He relied partly on company press releases for that calculation; but even allowing for some corporate creativity on judging the fallout, the sell-off seems harsh. The index is back to the levels of early 2016, when existential angst was rife, and yields 8.7 percent, undercutting the rationale for using the MLP structure in the first place.
The most obvious companies with clear exposure, such as TC Pipelines LP and Enbridge Energy Partners LP, have been hit the hardest, indicating some method in the madness. And Monday started out as a bad day for the broader market.
But if Thursday was ominous, then the days that have come after have proven more ominous still. The initial knee-jerk sell-off was painful but understandable. It is the studied disinterest that has followed, despite the opportunity to assess the real story, that really spells trouble.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.
To contact the editor responsible for this story: Mark Gongloff at mgongloff1@bloomberg.net.
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