11, 2002; Repeal the Partnership Tax!
Investors hear me out
General Partners have levied a burdensome tax on the population in the form of
an incentive compensation increase
could happen to you
let me tell you the story of a man named Charlie on that tragic and fateful day
put a share in his pocket
his wife and family and set out to ride on the MTA
he got to the Scollay Square station the conductor said
more nickel for the GP!
Charlie couldn't get off of that train
did he ever return?
he never returned
his fate is still unlearned
may ride forever 'neath the streets of Boston
the man who never returned.
Source: The Kingston Trio, with modification
as energy trends look more positive, Wall Street is preparing to market new
issues of energy infrastructure partnerships.
Overleveraged parent companies including Kinder Morgan (KMI), El Paso
(EP), Williams (WMB) and Dynegy (DYN) each have transferred or acquired pipeline
properties for limited partnerships in anticipation of selling new units.
see many problems. First, the
sellers are in financial distress. Belatedly recognizing that unregulated
businesses require more equity capital than regulated business, the credit
rating agencies are downgrading companies with too much debt.
Considering those circumstances, one would expect a steep discount for
buyers who can afford to be choosy. Instead,
McDep Ratios for two of the partnerships, KMP and EPN, are among the highest of
any energy stocks we cover.
the supply is large. Considering
how many new units are contemplated, perhaps there should be a volume discount
as well. Existing units,
particularly those highest on the Greed Gauge, may decline in price in
anticipation of the new supply.
the accounting is inadequate. The
dilution caused by general partner compensation is only partly disclosed in
issuer financial statements and is further disguised in Wall Street research.
general partner compensation is too high to be sustained in a competitive
environment, in our opinion. Marketed
as tax preferred investments, the partnerships are subject to general partner
tax more onerous than the government tax foregone. We recommend that investors be vocal in encouraging the
sellers of partnership units to repeal the general partner tax.