MarkWest Secondary Discounting Takes A Toll (MWE)

MarkWest Energy Partners, L.P. (NYSE: MWE) has priced its public offering of 2.9 million common units at an offering price of $18.15 per common unit.  While all funds are being used for the right purposes, this discounting may create an issue in this partnership’s uptrend we have seen.

The use of net proceeds from the offering, approximately $50.3 million excluding offering expenses, will be used to partially fund its growth capital budget and the partnership plans to apply a portion of the net proceeds to pay down borrowings under its revolving credit facility.

Morgan Stanley was the sole book-running manager for the secondary offering, and the partnership has granted an overallotment option for an additional 435,000 common units to the underwriter.

This $18.15 is a fairly deep discount of about 9% from the close of $19.95 yesterday and shares had not really been able to break above the $20.00 mark all week. The 52-week trading range is $6.55 to $38.50.  So far we have seen some 250,000 units trade and the last price is down at $18.15.  Its market cap before this offering and before the implied price drop was listed as $1.14 billion.

MLP’s can trade with a mind of their own and the price of oil is usually the bias-setter each day.  But generally speaking, a price drop of twice the dilution to the stock is deemed excessive.  The problem with using that general rule is that this one has also doubled in the last 3 months.

Jon C. Ogg
June 5, 2009