With investors tirelessly searching for high-yield investments, and a frosty winter requiring heating fuel, the timing seems appropriate for a new natural gas master limited partnership. Enter Columbia Pipeline Partners, an MLP that will have its initial public offering on Friday.
The partnership has big ambitions; it's aiming to raise up to $840 million in its listing. Here's what investors will be buying for that money.
A lot of pipe
Columbia Pipeline Partners is essentially the natural gas pipeline network, along with related storage and midstream assets, operated by utility NiSource (NYSE:NI).
In a rather tangled ownership structure, a subsidiary of a subsidiary of NiSource, Columbia Energy Group, will own a majority of both Pipeline Partners and CPG OpCo. The minority stake in the latter will be held by Pipeline Partners. Columbia Energy Group will also hold a 100% membership interest in Pipeline's general partner, CPP. Of those entities, OpCo will technically own the network assets. Whew.
The main asset, the bluntly named Gas Transmission pipeline system, is well placed. Most of it spider-webs under the Marcellus and Utica Shales in the Appalachian Basin, which are two significant natural gas plays. From the same region, the company's Gulf pipeline snakes down through the country to the coast of Louisiana.
All told, the entire network comprises around 15,000 miles of pipeline, with a geographical reach stretching from New York to the Gulf of Mexico.
Columbia Pipeline Partners has good finances on its side, judging by the figures posted by its predecessor entity. It drew revenue of just over $1 billion in the first nine months of 2014, a 17% increase over the same period the previous year. Net profit was modestly (5%) higher at nearly $205 million, for a net margin in excess of 20%.
As for cash distribution to its unit holders, in an SEC filing, the partnership said it will aim for a minimum quarterly payout of nearly $0.17 per unit. If the partnership executes its strategy with success, "we will grow our business in a steady and sustainable manner and distribute to our unitholders a portion of any increase in our cash available for distribution resulting from such growth," it said in the filing. It didn't provide details on how much this might amount to.
Taking the midpoint of the IPO price range ($20) and the annualized rate of the above dividend ($0.67) results in a yield of 3.4%. That will probably need to rise before long in order to compete with the higher yields of other MLPs, such as ONEOK Partners, which currently sports a 7.2% yield and has a roughly comparable business profile.
Columbia Pipeline Partners' IPO will occur on Friday. 40 million units are to go on sale priced at $19 to $21 apiece. The issue's joint book-running syndicate includes a number of big names in the IPO sphere such as Citigroup, Bank of America Merrill Lynch, and Wells Fargo Securities. The units will trade on the New York Stock Exchange under the symbol CPPL.