Pipeline operator Magellan Midstream Partners, L.P. (MMP) has priced $250 million of its 4.25% senior notes due 2021. The securities – additional notes of the series originally issued on August 11, 2010 – were priced at 104.094% to yield 3.731% to maturity.
The oil distributing master limited partnership (MLP) plans to use the net proceeds from this offering – expected to be approximately $259 million after the underwriting discount, estimated offering expenses and accrued interest – to pay back all the outstanding debt under its revolving credit facility and for general partnership purposes such as capital expenditures. The offering is expected to close on August 24, 2011.
Tulsa, Oklahoma-based Magellan Midstream owns and operates a diversified portfolio of energy infrastructure assets. The partnership primarily transports, stores and distributes refined petroleum products and, to a lesser extent, ammonia. It conducts its operations in three segments: Petroleum Products Pipeline System, Petroleum Products Terminals and Ammonia Pipeline System.
Magellan Midstream units currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
We appreciate Magellan’s highly stable/recurring cash flows, as well as its low cost of capital and strong distribution coverage. Additionally, the partnership – with more than $500 million of potential projects under development – has attractive growth potential, and maintains a sound liquidity position.
However, we still believe that the operating scenario for pipeline operators will remain critical. Magellan is also susceptible to lower-than-expected demand for refined products, commodity price fluctuations and cost overruns on expansion projects. As such, we believe Magellan Midstream’s current valuation adequately reflects its fairly balanced risk/reward profile with limited upside potential.
Magellan Midstream competes in the ‘Oil/Gas Production Pipeline MLP’ industry with firms like ONEOK Partners, L.P. (OKS), Plains All American Pipeline L.P. (PAA) and Sunoco Logistics Partners L.P. (SXL).
MAGELLAN MDSTRM (MMP): Free Stock Analysis Report
ONEOK PARTNERS (OKS): Free Stock Analysis Report
PLAINS ALL AMER (PAA): Free Stock Analysis Report
SUNOCO LOGISTIC (SXL): Free Stock Analysis Report
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