Over the past few years, it was a pretty good bet that any MLP initial public offering would see significant gains in its first day of trading. In fact, it was becoming harder and harder for most investors to get an MLP at the IPO price, because new units were typically opening much higher than the projected pricing range.

 An example of this is Shell Midstream Partners (NYSE: SHLX), whose future growth is expected to be driven by dropdowns from the midstream assets of Royal Dutch Shell (NYSE: RDS-A). The sponsor’s initial estimate had the IPO raising approximately $750 million with 37.5 million shares priced between $19 and $21, which would have offered an annualized yield of 3.25% at the midpoint based on the forecast minimum distribution.

We thought that SHLX would be a great long-term holding, and recommended it to readers of MLP Profits for purchase below $29. But SHLX opened at $32, closed on the first day of trading at $33.55, and is currently trading above $40. (See MLP Profits for our latest recommendation on Shell Midstream Partners.)

SHLX is the last MLP IPO of 2014 still trading above its IPO price. After its debut on Oct. 29 the price of crude oil continued to fall, and the decline accelerated in late November after the Organization of Petroleum Exporting Countries (OPEC) decided not to cut its production quotas.

Soon enough natural gas prices plunged as well. Thus, the last two IPOs of 2014 — Antero Midstream Partners (NYSE: AM), which launched in November, and Rice Midstream Partners (NYSE: RMP), which went public in December — are both trading at least 10% below their IPO price.

This week will see the first MLP IPO of 2015 in Columbia Pipeline Partners (expected to list as CPPL), which is aiming to raise $800 million in the third-largest initial offering ever for an MLP. The partnership will begin as a subsidiary of the natural gas distributor NiSource (NYSE: NI), which plans to spin out CPPL’s general partner in mid-2015.

Some of the details of Columbia Partners IPO were spelled out in 3 More IPOs to Test Volatile Market. In brief, CPPL will own not particular NiSource midstream assets but rather a rising percentage stake in an operating company representing the entire business. This includes 15,000 miles of strategically located interstate pipelines extending from New York to the Gulf of Mexico, one of the nation’s largest underground natural gas storage systems, and related gathering and processing assets concentrated in the rapidly-growing Marcellus and Utica shale basins.

Columbia Partners expects to price 40 million units between $19 and $21, and to pay out a minimum quarterly distribution of $0.1675 per unit for a midpoint annualized yield of 3.4%.

This IPO is due to price on Feb. 6, and its size, structure, likely yield and projected growth rate rank it alongside some of the other recent large MLP offerings, including Valero Energy Partners (NYSE: VLP), Phillips 66 Partners (NYSE: PSXP) and the aforementioned Shell Midstream Partners. CPPL is an MLP that warrants serious consideration, particularly if it doesn’t open well above its expected offering price.

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Portfolio Updates

Enterprise Rises to Occasion  

During the worst quarter for MLP unit prices in six years, the largest and most conservative midstream partnership of them all performed about as well as might be hoped. On Jan. 29, Enterprise Products Partners (NYSE: EPD) reported a 5% year-over-year increase in its fourth quarter gross margin and a 4% bump in distributable cash flow, good enough for 1.5x coverage on a distribution that increased 5.7% in a year’s time.

Per-unit earnings dropped as the 32% year-over-year drop in the price of natural gas liquids, which are tied to the price of crude, squeezed the variable portion of the partnership’s processing margins.

But new crude and NGL pipelines provided an offsetting lift, as part of the $4.1 billion in new fee-generating assets brought online last year.

“Global energy market is somewhere between turmoil and chaos,” the chief operating officer said on the conference call. “We have no clue how low prices may go or how long they will stay depressed, but then neither does anyone else.”

EPD’s top-notch management team has been through more than one commodity bust over the years, and the game plan remains the same: keep collecting largely fee-based margins backed by multi-year volume commitments, while hunting opportunistically for high-quality assets that might be had from distressed sellers.

For the moment, the main effect of the oil crash on EPD’s plans has been to slow its anticipated investment in new projects from $4 billion to $3.5 billion this year. That’s roughly twice the minimum required to maintain the current distribution growth pace.

But then EPD intends to keep generating one of the biggest coverage cushions in the industry so that it can continue to build out midstream infrastructure in response to a domestic drilling boom management clearly expects to continue over the long haul.

Very few other MLPs can match Enterprise’s financial flexibility, strategic assets and the scale necessary to exploit those advantages, which is why EPD remains our #1 Best Buy below $42.50.

Deals Keeping Navios Afloat

The Baltic Dry Index representing spot charter rates for dry bulk shippers is at a 29-year low, yet major dry bulk operator Navios Maritime Partners (NYSE: NMM) has just rallied 19% in two days.

It also vouchsafed for its current distribution for the next two years despite numerous charters expiring this year in the deeply depressed market.

The rally was in fact in part a product of that pledge, because the current annual distribution of $1.77 per share works out to a 13% annualized yield even after the bounce.

And the reason NMM could make that promise is that it’s been busy buying containerships under long-term charters to get through the current dry bulk slump without having to cut its payout.

The partnership added one such vessel late last year and its largest containership yet will join the fleet this month, bringing containers’ contribution to the earning stream to 44%. Without the latest acquisition, the cash operating surplus would have fallen significantly short of the payout total in the fourth quarter, though even without it NMM had distribution coverage of 1.1x for all of 2014.

The hope is that the partnership won’t have to buy into a much vaster containership armada before the dry bulk rates bounce back. Already, the uneconomical current rates and slack demand have led to a noticeable uptick in the scrapping of the older carriers, a hopeful sign.

But in the meantime the diversification into containerships has worked out well: while daily charter rates were down some 17% last year from more than $24,000 to $20,000 and change, the total number of available ship days in the NMM fleet increased 37%, delivering a 20% gain in the operating surplus.

This is a shuffle NMM can keep performing, because long-term debt is at a manageable 2.8x EBITDA, and the partnership retains access to low-cost financing. And in fact management indicated on the conference call that further containership acquisitions are likely this year.

It’s true that without such purchases and secondary unit offerings NMM would likely not be able to meet its distribution promises. But the fact that it’s still managing to do so with bulk rates where they are is a good thing, and the container earnings, locked in at fixed rates for an average charter term of eight years, are giving the partnership time to wait out the dry bulk collapse.

NMM has delivered a total return of 160% since joining the Aggressive Portfolio in 2009. But, as with all shippers, it’s best viewed as a speculative trade, not a secure income investment. In any case, now is not the time to cut and run. The tax loss sellers who dumped this ugly duckling in mid-December 30% below the current price could pile back in at any time. And the unprofitably low current dry bulk rates won’t last. Buy NMM below $17.70, which would equate to a 10% yield based on the current distribution.  

— Igor Greenwald