RE:RE:RE:RE:RE:Brian Madden discusses ENB yield returning to 5% to 5.5%Thanks for posting this. Have you read or seen anywhere any update about the timing of the appeal that the Michigan AG has filed on Line 5? I would think that the only decision for the Appeals Court now is either to conclude that they will hear the appeal or dismiss it outright. I'm obviously hoping for the latter.
bonafide wrote:
Good post Ticker that received a thumbs up from me.
Dilution through a subsidiary company is a wonderful thing for the income statement of the parent company. Without getting into detail, when a parent company seeds a subsidiary and then raises money in the sub at values higher than the seed cost, the increase in the book value of the sub leads to a significant financial boost in the parent via consolidation.
Hundreds of mid stream companies in particular (but both upstream and downstream players jumped into the game as well) eventually followed Apache Corporation's creation of the first Master Limited Partnership (MLP) in 1981 when they seeded the Apache Petroleum Company.
When MLP investors provided money to the subsidiaries to take advantage of the tax free flow through distributions, the parent companies made off like bandits as the investor investments were at a significant premiums to the seed cost.
The MLP game worked very well for a long time until the IDR's (Incentive Distribution Rights) started coming to roost. The parent companies created the IDR's to allow the parent to take advantage of higher distributions down the road. As the sub's grew, so did their distributions which the parent companies knew would eventually happen. When the limited partners began seeing the parent companies taking the lion's share of the distributions through the IDR's, the game began to collapse. When the limited partners (who never took the time to read and understand their prospectus because they were only interested in the monthly returns) began to scrutinize the way the parent companies had schemed the game, they began to rebel and it didn't take long for the party to end. There were a number of other factors that played into the downfall of MLP's such as unscrupulous behaviors by a number of players as well as tax ruling changes, but when the IDR's kicked in, the jig was up.
ENB had huge wins from their MLP's. When MLP's began to become unpopular, ENB bought back their MLP's at a huge discount to what they were actually worth. From a public perspective, ENB raised its offers to the 5 MLP's by about 10% from the initial offering, but ENB was happy to get massive assets back at a substantial discount to the prices of the MLP's before the demise of MLP prices took place.
When ENB announced the takeover of the MLP's was a zero sum gain for both ENB and the MLP investors, the company wasn't lying based upon the value of the MLP's at the time of the takeover. ENB was able to provide clarity to the analysts who were confused by the MLP structure and get away from the stench of MLP's.
While the MLP game was positive for ENB until it wasn't anymore, the entire MLP buyback only cost ENB 3.5% dilution. That is why the company maintained that the MLP play was irrelevent in terms of financial impact.
The reason I wrote the above boring diatribe which will be irrelevent to most readers was a lead in to the Line 3 issue. The market pummeled ENB for its high level of debt after the Spectra takeover and the perceived "risk" associated with Line 3. As the political controversy and delays mounted, the market massively over reacted to Line 3 project. Fund managers don't like controversy as they want a "sure thing" and they were not willing to wait out the process because they are evaluated on their most recent results. When Line 3 is fully operational, it will contribute about $0.35 to the DCF which represents about 7% of the overall DCF. In the meantime, the company has put the Canadian portion of Line 3 into service which representsa portion of the $0.35
The fund managers are now beginning to see that the Line 3 controversey is almost over and the positive impact of increased DCF is not that far off. That means the fund managers now have to courage to invest in ENB and why they are showing up on BNN advertising how smart they are. Too bad they missed the 40% increase in the price of ENB shares.
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