Former KTNs News anchor on how he made a girl borrow money to sustain his lifestyle Gossip Blogger 1 week ago 31597

One reason for this relative outperformance has to do with the balance-sheet strength of both Enterprise Products Partners and Magellan Midstream Partners. The MLPs boast having the highest credit ratings in the sector at Baa1/BBB+. Meanwhile, Energy Transfer Partners and Plains All American Pipeline have investment-grade credit ratings of Baa3/BBB- and Baa3/BBB, respectively, but those ratings are at the lowest end of the investment-grade scale. Those weaker credit ratings have played a role in both companies struggles to raise attractively priced capital during the energy-market meltdown.

Tip No. 2: Put a priority on fee-based assets

Another very important criterion for an MLP is to make sure that it derives the bulk of its cash flow from fee-based assets. In this quartet, Energy Transfer Partners leads the pack, as 90% of its gross margin this year is derived from fee-based assets. Its followed by Enterprise Products Partners and Magellan Midstream Partners, which are both at 85%, while Plains All American Pipeline rounds out this group at just 78%.

That said, despite Energy Transfer Partners perceived strength, the company has really struggled over the past year due to direct exposure to commodity prices within its midstream segment. The companys distributable cash flow has slipped over the past few quarters as a result of weaker earnings from processing natural gas. Plains All American Pipeline, likewise, has experienced pressure to its cash flow due to its exposure to commodity prices. Last year, for example, its adjusted EBITDA declined to $2.168 billion, down from $2.2 billion in 2014, due to negative impact from commodity prices, which the company wasnt able to fully offset with growth projects that went into service.

Tip No. 3: Make sure its retaining cash flow

The primary reason this rather limited exposure to commodity prices has had a bigger impact on the unit prices of Energy Transfer Partners and Plains All American Pipeline really boils down to their distribution policies. Both companies have made it a policy to pay out nearly all of their distributable cash flow to investors each quarter, which is a problem when that cash flow is being impacted by commodity price exposure. In fact, last quarter both companies paid out more than they brought in, as evidenced by distribution coverage ratios of 0.86 for Energy Transfer Partners and 0.96 at Plains All American Pipeline. This forced both companies to borrow money to meet their commitments to investors.

Contrast this with Enterprise Products Partners, which has maintained a coverage ratio of 1.4 over the past five years, enabling it to retain $5.1 billion in cash since 2011 that it reinvested in growth projects. Magellan Midstream Partners, likewise, retains a lot of its cash flow, with the companys coverage ratio also at 1.4 last year, with expectations that it will be 1.2 this year.

This last characteristic has been the biggest difference between MLPs which have been crushed during the downturn and those which are largely staying afloat. Because Enterprise and Magellan Midstream are retaining cash, neither have had to resort to funding growth projects with asset sales or exotic financial instruments, which have been the respective funding sources of Energy Transfer Partners and Plains All American Pipeline during the downturn.

Investor takeaway

Not all MLPs are the same, so follow these three simple tips before investing money in an MLP. Its the best way to not only make more money in the sector, but also to avoid investing in what could turn out to be a loser.

Atwater's pension debt clearly sums up the city's foolish approach to solving financial woes. City Manager Frank Pietro's proposal to kick the can down the road by mortgaging off city property to pay retirements costs is dangerous and irresponsible.

Maybe it was not a good idea to purchase that million-dollar firetruck or give three staffers $10,000 each raises. Whoever heard of a corporation granting employees retirement benefits for as little as five years of service, including full medical coverage?

To lend money for retirements costs, a bank would require the city use our parks and community center as collateral. Apparenty our credit is that bad.

Notice, city officials are not willing to put up their Imperial Palace, aka city hall, on the chopping block as part of the collateral - just the parks and community center that are used by Atwater families and children. I applaud the city council members who turned the irresponsible loan down. City officials always claim to do the right thing; this time they did.

-With interest rates low, now is the time to get that new car or light truck, because manufacturers and dealers are offering to lend the needed cash at interest rates often below 1%. Sales are on track to equal last years record.

-With interest rates low, and jobs not easy to come by, borrow from the government to finance a longer stay in college: student loans account for about 10% of total household debt, double the pre-crisis level.

True, US households owed $12.25 trillion at the end of the first quarter, and by continuing to borrow at the current rate are set to drive outstanding debt to pre-2008 crisis levels by the end of this year. But with interest rates so low, the cost of carrying that debt as a percent of household income is down from around 13 percent in 2008 to 10 percent now.

If its good enough for our government and consumers, it must be good enough for our corporations. So borrow money to finance acquisitions, or to keep shareholders happy by buying-back shares, thereby increasing earnings-per-share even if earnings are declining. So what if the rating agencies are unhappy about this increased ratio of debt to equity, so-called leverage. As indeed they are. In the 1980s some 60 companies had triple-A ratings; by 2000 that number had dropped to 15; now only two companies, Microsoft and Johnson Johnson, can claim that exalted status. But interest rates paid by double-A rated companies are only a sliver above their higher-rated counterparts, making the advantages of more borrowing outweigh the higher interest cost. At least up to the point where earnings are insufficient to cover interest costs.

Theres more, and better. In many cases borrowers dont really have to repay the lender, at least not in full, if it seems too costly to do so. Puerto Rico issued $3.5 billion in IOUs in 2014, and its governor announced that the constitutional obligation to repay was reinforced by a moral obligation to do so. That was then, this is now. With its debt and pension obligations at 172 percent of its GDP, Puerto Rico will default. Lenders, who apparently ignored 14-pages of warning in the prospectus, profess themselves shocked, shocked although they must have perceived a risk of non-repayment when they were able to command what at the time looked like a whopping 8.7 percent interest rate on the $3.5 billion loan.