Major MLP Crashes 20%, MUFG Analyst Sees More Concern Now

• Global Partners LP (NYSE: GLP) shares have been on a downward trajectory for the past three months, and have lost 52 percent since October 29.
• MUFG’s Barrett Blaschke downgraded the rating from Overweight to Neutral, while slashing the price target from $31 to $20.
• The reduction in quarterly distribution rate represents lot of pain for little gain, Blaschke stated.

Global Partners LP unexpectedly announced a reduction in its quarterly distribution rate from $0.6975 per unit for 3Q15 to $0.4625 per unit for 4Q15. Analyst Barrett Blaschke commented that this surprise reduction “has prompted us to re-evaluate our position on the GLP units.”

Blaschke mentioned that the reduction would result in annual savings of $42.7M, coming from GP/IDR payments and distributions to LP unitholders. He added, “Although we understand management's desire to be conservative, we think alternative solutions could have been explored.”

Blaschke believes that the reduction represents a “lot of pain for little gain” and that the one-year IRR of 60.7 percent no longer justifies an Overweight rating. Although the IRR continues to be relatively high, it is now broadly in-line with the midpoint of MUFG’s internal MLP index, “which can be compared with the Alerian MLP Index.”

Global Partners LP is witnessing a more-challenging capital market, with equity issuance unattractive and concerns over rising debt costs, the analyst pointed out.

In the report MUFG noted, “From a cash-flow risk perspective, we are more concerned following this announcement, though we still see the partnership as having a healthy base-load business above and beyond its challenged crude-by-rail operations.”