2007

Yet Another Perspective…..

In discussing the Capital Product Partners deal with various analysts last week, it was pointed out that investors were in effect buying a BP/Morgan Stanley bond with very attractive pricing given the investment grade counter parties. We thought this was pretty perceptive given the average charter term of 6.3 years with a 7% yield at the offering price. However unlike a bond there is operating risk as well as some perceived but unlikely counter party risk, as the obligors under the charters are not likely to be the corporate parents themselves. Given the belief that the investment grade ratings of the parents passes through, these units were priced on the basis of providing a high current return, without giving consideration to the additional potential yield available under profit sharing arrangements. It is no surprise, therefore that the units priced at $21.50, above the high end of the proposed range, and traded up to $26.75 on the first day of trading. Given the current yield of the Teekay MLPs, perhaps the closest comparable, at 5%, there is more room to go. The risk here is that the new vessels be accretive and maintain the yield.

This is only an excerpt of Market Commentary – 04/05/2007

Content is restricted to subscribers. To continue reading please Log-In or view our subscription options.