EnLink Midstream Partners LP executives were mum on whether Devon Energy Corp.'s decision to sell the oil and gas pipeline operator to a private investment fund for $3.13 billion would speed up structural simplification plans.
Recent tax changes for master limited partnerships have spurred sector heavyweights like Enbridge Inc. and Williams Cos. Inc. to roll up the tax-advantaged MLPs they use to house their U.S. assets, while partnerships without parent corporations like Tallgrass Energy Partners LP and NuStar Energy LP plan to merge with their general partners.
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With the option for Devon to roll up EnLink Midstream Partners no longer on the table once the deal with private fund Global Infrastructure Partners closes, CEO Michael Garberding declined to elaborate on what an eventual consolidation would look like and if it might happen sooner rather than later.
"The point we made in the last call was if we saw really a cost to capital disadvantage, it was something that we need to be very focused on," he said during a June 6 conference call. "I would say now we have [Global Infrastructure Partners] sitting side-by-side with us working through those solutions, but our path forward is unchanged."
Analysts at Jefferies LLC were unconvinced that the deal, which values the stake at 12 times cash flow based on $265 million of cash distributions contributed by the ownership interests over the past year, would not accelerate a reorganization given Global Infrastructure Partners' history.
"We believe today's transaction announcement marks a first step in a multi-step simplification/restructuring profile. ... similar to GIP's LP and GP purchase of [Chesapeake Midstream Partners LP] in 2012, whereby GIP acquired outstanding LP units and controlling GP interest, GIP eventually monetized its stakes in the company to a strategic 3rd party buyer (Williams)," they wrote in a June 6 note to clients. "In this case ... we believe the next step will be a roll-up simplification transaction between [EnLink Midstream LLC] and [EnLink Midstream Partners], leaving the parent C-Corp as the surviving entity."
At deal closing, Global Infrastructure Partners will hold a 100% equity interest in Enlink Midstream Manager LLC, 23% limited partner equity interest in EnLink Midstream Partners and 64% limited partner equity interest in general partner EnLink Midstream LLC.
The sale is expected to cut Devon's consolidated debt by 40%. Fitch Ratings said June 6 that EnLink Midstream Partners' BBB- corporate credit rating is unaffected by the deal's announcement. Garberding hopes the MLP's new ownership can help lift that rating beyond that first investment-grade level.
"GIP has a great track record ultimately in this space as far as what they've done with the different assets they've been invested in," he said during the call.
Equity analysts at energy investment bank Tudor Pickering Holt & Co. took EnLink Midstream Partners' "clean exit" from Devon as a sign that parent drilling companies are willing to sell their MLPs at a discount to reduce their own leverage.
"The 'all-at-once' approach vs. gradual sell-down could cement views that monetization of interests in favor of the parent balance sheet will take priority over midstream valuation," they wrote in a June 6 note to clients.
EnLink Midstream Partners units were down nearly 3% from the June 5 closing price of $17.77 in midday trading.

