Why would a company form an MLP?
By dropping down its income generating assets, what does the company achieve?
I mean if it is trying to fund CapEx then just issue more debt (or if you have too much debt then sell a portion of your assets)
What I dont understand is how is this any different from selling your assets completely (I know there's a sliding payment scale but how much of a difference does it make given that GP only has 2% interest)
Biggest reasons I can think of are
a-x) Taxes y) access to incremental investors/capital pools z) more granular capital structure options (similar to point y)
I mean why would a company form a REIT?
By dropping assets into an mlp you monetize them but retain operational control through the gp. Investors are hungry for yield so the same assets recieve a higher multiple in the mlp, not to mention removal of the tax burden. The "sliding scale" you refer to are IDRs, and they have incredible value as they often get 50% of marginal cash flows in the highest tier. Just look at public pureplay GPs like WGP, TRGP, PAGP.
Thepie and Oracleofnothing cleaned this out pretty effectively I'd say.
Modi sint aliquam sit error et neque quia. Repellat dolor nihil sint et accusantium. Sed consequatur suscipit iusto ut veniam et eius. Quas perspiciatis aut dolores laboriosam quas. Ut autem commodi quia incidunt consequuntur quo itaque.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...