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Analyzing Cash Flows of Master Limited Partnerships

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2014-12-19 16:01

Another note of caution on Buckeye Partners L.P.’s Distributable Cash Flow

By: Ron Hiram

Published: Feb 13, 2012

In an article dated December 19, 2011, regarding Buckeye Partners L.P.(BPL)  I noted the following: “What I see for the 9 months ending 9/30/11 causes me concern regarding BPL’s ability to make distributions that are financed by operations, not by borrowings or sale of additional partnership units”.

BPL issued a press release with its fourth quarter and year-end results February 10, 2012, reporting distributable cash flow (DCF) of $72.25 million for the quarter and $318.7 for the 12  2011. Following that, on February 13, Citigroup downgraded BPL to “Sell”.

The reported DCF numbers are indeed good cause for concerns:

Period:4Q112011
Reported DCF per unit$0.77$3.51
Distributions per unit$1.04$4.08
Coverage ratio based on reported DCF0.740.86

 

Indeed, sustainable DCF was substantially lower than reported DCF in each of the first 3 quarters of 2010 and in each of the first 3 quarters of 2011:

        
3months ended:9/30/20116/30/20113/31/20119/30/20106/30/20103/31/2010
Net cash provided by operating activities(2.8)28.5156.464.287.9144.0
Less: Maintenance capital expenditures(16.8)(12.3)(7.5)(9.3)(5.9)(3.3)
Less: Working capital (generated)--(139.1)-(8.1)(95.7)
Less: net income attributable to GP
Less: Net income attributable to noncontrolling interests(1.5)(1.6)(1.3)(49.0)(41.9)(39.4)
Sustainable DCF(21.1)14.68.55.831.95.7
Add: Net income attributable to noncontrolling interests1.51.61.349.041.939.4
Working capital used14.871.4-17.3--
Risk management activities81.9(10.1)78.63.3(6.3)19.2
Proceeds from sale of assets / disposal of liabilities------
Other3.9(0.7)(2.0)(4.7)(2.4)0.3
DCF as reported81.076.886.470.765.164.6

 

Figures in $ Millions

BPL currently yields 6.74%, but investors should be aware that a significant portion of what they are receiving from this master limited partnerships does not seem to be generated from sustainable sources. I will take a closer look at the numbers and compare reported to sustainable DCF once it files its 10-K (which will include cash flow data not provided in the press release).

 

3 comments to BPL: Another note of caution on Buckeye Partners L.P.’s Distributable Cash Flow

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