At the beginning of September, two Japanese high schools played a 50-inning baseball game that lasted four days.
As a rookie on the Alerian team, I’ve had many opportunities to learn about the MLP space through analyst days, conferences, and webinars. One common thread in the Q&A section of almost all of these events has been the public’s desire to know what “inning” MLPs would be in if the asset class were playing a baseball game.
If you ask five people this question, you’ll likely get five different answers. I’ve heard everything from the early innings, to the fourth inning, to “I don’t think it’s a game.” At the Deloitte National PTP Conference, panelists and speakers discussed lots of hot MLP topics that provided some inning insight.
Deloitte Managing Principal Jonathan Traub discussed Washington news. Fears of tax reform have caused some to speculate that MLPs are in the ninth inning. While Mr. Traub was unable to give a definitive answer on what, if any, reforms could affect PTPs, he suggested that significant restructuring was unlikely to occur before year end primarily due to upcoming midterm elections. Along with tax policy change concerns, the recently announced consolidation of the Kinder Morgan family of companies also sparked ninth inning speculation. In another panel, David Dubner of Goldman Sachs reassured the audience that “what Kinder did was very specific to Kinder” and the actions of the energy giant are not an insinuation that “the MLP is dead.” He further explained that Kinder’s plans are unique because of its size, and the MLPs that could actually benefit from copying their restructuring are limited at this time. We agree.
Victoria Louie of Deloitte shed light on the PLR pause, explaining the freeze as an opportunity for the IRS to develop a standard that is useful to all taxpayers and avoids unintentional scope creep of qualifying income. While the final guidance has no set release date, Ms. Louie expects that some insight on the matter will be given this fall based on comments made by IRS representatives at the NAPTP Annual Meeting in mid-July. The PLR pause may be comparable to the seventh inning stretch; after a short break, the game will resume.
Optimists may speculate that the game has just started. The legal perspectives panel explained numerous tax-advantaged structures available for companies wanting to form MLPs. With options ranging from the standard MLP structure to the Up-C structure to the MLP with an OpCo, greater numbers of both “traditional” and non-traditional businesses may find themselves going public as MLPs. The MLP Parity Act (Senate Bill 795, House of Representatives Bill 1696) could also support growth if passed; however the trending YieldCo structure adopted by a handful of renewable energy businesses may make passage of the Act less impactful.
The answer to the wildly popular inning question isn’t easy, but Randy Burkhalter of Enterprise Products Partners (EPD) may have best summarized the sentiment of the conference when he said, “We’re not in an inning; we’re in an endless game at this point.” While there may be no such thing as an “endless” game, the high school students competing in the 50-inning faceoff may have proven that even the bottom of the ninth can be just the beginning.