Based on a risk/reward assessment, we had a downgrading of Magellan Midstream Partners to market perform from outperform.
In our initial observation on Magellan Midstream Partners, we noticed the GP is currently the subject of a tender offer as part of restructuring effort.
Under that restructuring, the LP will recapitalize by eliminating the GP interest to upstream LP owners, which we saw as a positive.
However, the reverse termination fee has increased from $100 million in May to $150 million in June, which we saw as a negative. The GP accounted for about 12% of 2019E EBITDA and about 26% of 2020E EBITDA, so we view it as an important component of the offering.
From our vantage point, the GP recapitalization could allow some upside for PVM shareholders, should the LP turn out to be a net winner.
Downgrade Magellan Midstream Partners (MMP) from market perform to market perform at BMO Capital due to poor results in 2018. BMO sees downside risk of about 4.3% in 2019 and 2.8% in 2020. While our negative thesis remains, BMO points out a likely upside catalyst should the LP finally gain an arbitrage nod on the GP structure.
BMO said they view the majority of 2019E and 2020E earnings benefiting from fee-based and commodity sensitive transportation and storage contracts to be far more correlated to rising commodity prices as compared to non-fee-based and commodity sensitive pipelines.