Master limited partnership

Master limited partnership

Master limited partnership (MLP) is a limited partnership that is publicly traded on a securities exchange. It combines the tax benefits of a limited partnership with the liquidity of publicly traded securities.

Master Limited Partnerships are limited by US Code to only apply to enterprises that engage in certain businesses, mostly pertaining to the use of natural resources, such as petroleum and natural gas extraction and transportation. Some real estate enterprises may also qualify as MLPs. To qualify for MLP status, a partnership must generate at least 90 percent of its income from what the Internal Revenue Service (IRS) deems "qualifying" sources. For many MLPs, these include all manner of activities related to the production, processing or transportation of oil, natural gas and coal.[1]

Some private equity management companies such as Blackstone Group (NYSE: BX) and Fortress Investment Group (NYSE: FIG) are structured as MLPs.

In practice, MLPs pay their investors through quarterly required distributions (QRD), the amount of which is stated in the contract between the limited partners (the investors) and the general partner (the managers or GP). Typically, the higher the quarterly distributions paid to LP unitholders, the higher the management fee paid to the GP. The idea is that the GP has an incentive to try to boost distributions through pursuing income-accretive acquisitions and organic growth projects. Failure to pay the QRD may constitute an event of default.

Because of such stringent provisions on MLPs, and the nature of the QRD, the vast majority of MLPs are pipeline businesses, which earn very stable income from the transport of oil, gasoline or natural gas.

Because MLPs are a partnership, they avoid the corporate income tax, on both a state and federal basis. Additionally, the limited partner (investor) may also record a pro-rated share of the MLP's depreciation on his or her own tax forms to reduce liability. This is the primary benefit of MLPs and gives MLPs relatively cheap funding costs.

However, this makes MLPs unattractive to tax-deferred funds, who must lose this tax saving advantage. To encourage tax-deferred investors, many MLPs set up corporation holding companies of LP claims which can issue common equity.

An example is the pipeline company Kinder Morgan Energy Partners. The main corporation, Knight, Inc. (formerly traded on the NYSE as KMI), is the operator of the pipelines and other assets. However, the pipelines themselves are owned by the MLP Kinder Morgan Energy Partners, L.P. (NYSE:KMP). Finally, part of KMP's limited partner interests are held by the corporation Kinder Morgan Management LLC (NYSE:KMR) which allows tax-deferred investors to participate in KMP's operations.

Usually, in the MLP structure, the general partner starts with a small (usually 2%) stake in the company but is given incentive distributions from net income after the QRD. Since these distributions are usually paid in the form of increased equity claims, over time, this allows the general partner to attain higher and higher percentage of ownership in the company.

In May 2010, the first ever MLP mutual fund was launched, with a stated goal of providing "a high level of inflation-protected income currently through a 7.8 percent distribution yield, which is higher than equity alternatives such as REITs and Utilities." The fund is a part of the SteelPath Mutual Fund Family.[2]

On August 25, 2010, the first MLP exchange traded fund (ETF) was launched by Alerian, the company that manages the benchmark MLP index (NYSE: ^AMZ). This fund was similarly designed to the above mentioned mutual fund in that it avails a new level of diversification to investors and, according to Alerian President Kenny Feng, "provides a single Form 1099, no K-1s, and allows investors to potentially benefit from return of capital and qualified dividend tax treatment of distributions."[3] The fund is known as the Alerian MLP ETF (NYSE: AMLP).

References

  1. ^ [1], Master Limited Partnerships and Taxation InvestingDaily.com, April 1, 2010.
  2. ^ [2], SteelPath Launches MLP Income Mutual Fund Forbes.com, May 12, 2010.
  3. ^ [3], Alerian Benchmarks First-Ever MLP ETF Yahoo Finance, August 25, 2010.

External links



Wikimedia Foundation. 2010.

Игры ⚽ Нужно сделать НИР?

Look at other dictionaries:

  • master limited partnership — see partnership Merriam Webster’s Dictionary of Law. Merriam Webster. 1996 …   Law dictionary

  • master limited partnership — ( MLP) A publicly traded limited partnership. Bloomberg Financial Dictionary …   Financial and business terms

  • Master Limited Partnership - MLP — A type of limited partnership that is publicly traded. There are two types of partners in this type of partnership: The limited partner is the person or group that provides the capital to the MLP and receives periodic income distributions from… …   Investment dictionary

  • Master limited partnership (MLP) — A publicly traded limited partnership. The New York Times Financial Glossary …   Financial and business terms

  • limited partnership rollup transaction — limited partnership roll·up transaction / rōl ˌəp / n: the combining or reorganizing of one or more limited partnerships into an entity (as a master limited partnership or real estate investment trust) that can be publicly traded; specif: such a… …   Law dictionary

  • limited partnership — Type of partnership comprised of one or more general partners who manage business and who are personally liable for partnership debts, and one or more limited partners who contribute capital and share in profits but who take no part in running… …   Black's law dictionary

  • limited partnership — Type of partnership comprised of one or more general partners who manage business and who are personally liable for partnership debts, and one or more limited partners who contribute capital and share in profits but who take no part in running… …   Black's law dictionary

  • Limited partnership — A limited partnership is a form of partnership similar to a general partnership, except that in addition to one or more general partners (GPs), there are one or more limited partners (LPs).The GPs are, in all major respects, in the same legal… …   Wikipedia

  • Limited Partnership Unit — An ownership unit in a publicly traded limited partnership, or master limited partnership (MLP). This trust gives the unit holder a stake in the income generated by the partnership company. A MLP often distributes all available cash flow from… …   Investment dictionary

  • partnership — part·ner·ship n: an association of two or more persons or entities that conduct a business for profit as co owners see also uniform partnership act in the important laws section compare corporation, joint venture, sole pro …   Law dictionary

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”