Master Limited Partnership
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MASTER LIMITED PARTNERSHIP
New Concept of Limited Partnership
NIRAJ SHARMA MBF
WHAT IS IT ?
Master limited partnership (MLP) is a limited partnership that is publicly traded on a securities exchange. Also know as Publicly traded partnership (PTP) It combines the tax benefits of a limited partnership with the liquidity of publicly traded securities. Enterprises that engage in certain businesses, mostly pertaining to the use of natural resources, such as petroleum and natural gas extraction and transportation. Some real estate enterprises qualifies as MLPs.
NIRAJ SHARMA MBF
Cont…. MLPs emerged during the late 1970s and early 1980s as a means of asset securitization financing initially among real-estate-based businesses. During the 1980s it became very popular the format was being used by businesses in cyclical industries or with depleting assets. Two characteristics vital to the success of an MLP: 1) mature assets and 2) stable cash flow.
NIRAJ SHARMA MBF
STUCTURE OF MLP There are two classes of MLP owner: General partners and Limited partners. General partners manage the day-to-day operations of the partnership and receive compensation that is linked with performance of the venture. Limited partners and have no involvement in the partnership's operations . They are generally person that provide capital to the MLP.
NIRAJ SHARMA MBF
Cont….
MLPs are defined under Tax Reform Act 1986 and Revenue Act 1987. Companies that use the MLP format tend to operate in very stable, slow-growing industries, such as pipelines. According to the National Association of Publicly Traded Partnerships, the MLP structure is limited to companies that receive 90% or more of their income from interest, dividends, real estate rents, and income and gain from mineral or natural resources activities.
NIRAJ SHARMA MBF
ADVANTAGE OF MLP. High Yield. Yield of about 6 – 7%. Consistent Distributions Over Time. Capital Gains. Firms primarily switch to the MLP structure to avoid taxes. Lower Cost of Capital. The absence of taxes at the company level gives MLPs a lower cost of capital than is typically available to corporations, allowing the MLPs to pursue projects that might not be feasible for a taxable entity. General Partner Compensation Aligned with Limited Partners' Interest.
NIRAJ SHARMA MBF
DISADVANTAGE OF MLP Limited Pool of Investors. MLPs face a smaller pool of potential investors than traditional equities. Personal Tax Liability. Each unit holder is responsible for paying his or her share of the partnership's income taxes, which can make filing taxes more complicated.
NIRAJ SHARMA MBF
WORKING OF MLP. Companies qualifies for MLP are Natural resource activities, including exploration, production, mining, development, transportation, refinement, and marketing of any natural resource. Today's MLPs are predominantly active in the energy and real estate industries. Tax Reform Act of 1986 and Revenue Act of 1987 the two act that put restriction on entry of MLP. MLPs are regulated by the SEC.
NIRAJ SHARMA MBF
Cont….
MLPs also are required to provide investors with a K-1 statement detailing the unit holder's individual allocation of partnership income and deductions, tax liability; and distributions. Bankruptcies and Risk Factors. In the past five years, two MLPs are known to have succumbed to structure-related financial difficulties--EOTT Energy Partners, LP, and Cornerstone Propane Partners, LP. May not be suitable for high-growth businesses because of a lack of capital reinvestment.
NIRAJ SHARMA MBF
Cont… An unexpected decline in commodity prices could cause a sharp decline in cash flow. An unexpected decline in commodity prices could cause a sharp decline in cash flow. Excessive leverage could overwhelm the partnership in the event of a decline in cash flow. Income tax law changes could remove preferential treatment for MLPs.
NIRAJ SHARMA MBF
An Example
The pipeline company Kinder Morgan Energy Partners. Kinder Morgan, Inc. (KMI) is one of the largest midstream energy companies in the United States The main corporation, Knight, Inc. (formerly traded on the NYSE as KMI), is the operator of the pipelines and other assets. Most of the company's $18 billion in assets are held by Kinder Morgan Energy Partners, L.P. (KMP) A third entity, Kinder Morgan Management, LLC, was created specifically to allow institutional investors to hold partnership equity in Kinder Morgan Energy Partners
NIRAJ SHARMA MBF
Some failures. EOTT Energy that filed for Chapter 11 reorganization due to - Excessive leverage, Partners, LP subsidiary of Enron. Cornerstone Propane Partners, LP .That was Delisted from public market due to Excessive acquisition- markets related leverage
NIRAJ SHARMA MBF
New Concept of Limited Partnership
NIRAJ SHARMA MBF
WHAT IS IT ?
Master limited partnership (MLP) is a limited partnership that is publicly traded on a securities exchange. Also know as Publicly traded partnership (PTP) It combines the tax benefits of a limited partnership with the liquidity of publicly traded securities. Enterprises that engage in certain businesses, mostly pertaining to the use of natural resources, such as petroleum and natural gas extraction and transportation. Some real estate enterprises qualifies as MLPs.
NIRAJ SHARMA MBF
Cont…. MLPs emerged during the late 1970s and early 1980s as a means of asset securitization financing initially among real-estate-based businesses. During the 1980s it became very popular the format was being used by businesses in cyclical industries or with depleting assets. Two characteristics vital to the success of an MLP: 1) mature assets and 2) stable cash flow.
NIRAJ SHARMA MBF
STUCTURE OF MLP There are two classes of MLP owner: General partners and Limited partners. General partners manage the day-to-day operations of the partnership and receive compensation that is linked with performance of the venture. Limited partners and have no involvement in the partnership's operations . They are generally person that provide capital to the MLP.
NIRAJ SHARMA MBF
Cont….
MLPs are defined under Tax Reform Act 1986 and Revenue Act 1987. Companies that use the MLP format tend to operate in very stable, slow-growing industries, such as pipelines. According to the National Association of Publicly Traded Partnerships, the MLP structure is limited to companies that receive 90% or more of their income from interest, dividends, real estate rents, and income and gain from mineral or natural resources activities.
NIRAJ SHARMA MBF
ADVANTAGE OF MLP. High Yield. Yield of about 6 – 7%. Consistent Distributions Over Time. Capital Gains. Firms primarily switch to the MLP structure to avoid taxes. Lower Cost of Capital. The absence of taxes at the company level gives MLPs a lower cost of capital than is typically available to corporations, allowing the MLPs to pursue projects that might not be feasible for a taxable entity. General Partner Compensation Aligned with Limited Partners' Interest.
NIRAJ SHARMA MBF
DISADVANTAGE OF MLP Limited Pool of Investors. MLPs face a smaller pool of potential investors than traditional equities. Personal Tax Liability. Each unit holder is responsible for paying his or her share of the partnership's income taxes, which can make filing taxes more complicated.
NIRAJ SHARMA MBF
WORKING OF MLP. Companies qualifies for MLP are Natural resource activities, including exploration, production, mining, development, transportation, refinement, and marketing of any natural resource. Today's MLPs are predominantly active in the energy and real estate industries. Tax Reform Act of 1986 and Revenue Act of 1987 the two act that put restriction on entry of MLP. MLPs are regulated by the SEC.
NIRAJ SHARMA MBF
Cont….
MLPs also are required to provide investors with a K-1 statement detailing the unit holder's individual allocation of partnership income and deductions, tax liability; and distributions. Bankruptcies and Risk Factors. In the past five years, two MLPs are known to have succumbed to structure-related financial difficulties--EOTT Energy Partners, LP, and Cornerstone Propane Partners, LP. May not be suitable for high-growth businesses because of a lack of capital reinvestment.
NIRAJ SHARMA MBF
Cont… An unexpected decline in commodity prices could cause a sharp decline in cash flow. An unexpected decline in commodity prices could cause a sharp decline in cash flow. Excessive leverage could overwhelm the partnership in the event of a decline in cash flow. Income tax law changes could remove preferential treatment for MLPs.
NIRAJ SHARMA MBF
An Example
The pipeline company Kinder Morgan Energy Partners. Kinder Morgan, Inc. (KMI) is one of the largest midstream energy companies in the United States The main corporation, Knight, Inc. (formerly traded on the NYSE as KMI), is the operator of the pipelines and other assets. Most of the company's $18 billion in assets are held by Kinder Morgan Energy Partners, L.P. (KMP) A third entity, Kinder Morgan Management, LLC, was created specifically to allow institutional investors to hold partnership equity in Kinder Morgan Energy Partners
NIRAJ SHARMA MBF
Some failures. EOTT Energy that filed for Chapter 11 reorganization due to - Excessive leverage, Partners, LP subsidiary of Enron. Cornerstone Propane Partners, LP .That was Delisted from public market due to Excessive acquisition- markets related leverage
NIRAJ SHARMA MBF
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