The master limited partnerships (MLPs) have changed quite a bit from the peak days of the oil boom. Many MLPs saw their units surge for years as investors bought into the notion that the infrastructure and pipeline segments of energy could withstand the tests of time with the ups and downs of the oil and gas markets.

Credit Suisse had been one of the firms still willing to hold out hope for the MLPs. As of St. Patrick’s Day, that hope may have faded. Credit Suisse does still have a handful of MLP structures with Outperform ratings, but the firm’s John Edwards came out and downgraded 12 MLPs on March 17. Many of these MLPs are trading well below the target prices, and Credit Suisse is still calling for huge upside in some of the names.

What hurts here, at least on the surface, is that those downgrades include Enterprise Products Partners L.P. (NYSE: EPD) and former MLP of Kinder Morgan Inc. (NYSE: KMI), both being reduced to Neutral from Outperform.

On Enterprise, Edwards said that this MLP remains a bellwether in the space, but with a 6.5% yield and 32% total return outlook, he believes better value can found elsewhere in the near term (especially if crude finds a floor or corrects to the upside). Its target is $30. Enterprise Products units were up 3% at $25.40 on Thursday afternoon despite the downgrade, and its 52-week range is $19.00 to $34.73.

The Kinder Morgan call may be a formal downgrade, but there may be upside still as Credit Suisse raised its target to $22 from $20. Its shares have recovered well after the dividend cut, but they were last seen trading near its target EV/EBITDA and DCF multiples of 12x. Edwards sees limited upside to Kinder Morgan shares in the near term, although remaining constructive on the name. Kinder Morgan shares were last seen up 0.6% at $19.01 on Thursday after the downgrade, versus a 52-week range of $11.20 to $44.71.

In 2015 and 2016, many investors have had to get used to far worse metrics for MLPs. Many investors already had a hard time differentiating the difference between traditional dividends of common stocks and the distributions from MLPs. Now they have in many cases had to learn to deal with lower distributions, or in some cases almost no distributions.

There was just one upgrade of the entire MLP group. Edwards raised the rating on Enable Midstream Partners L.P. (NYSE: ENBL) to Outperform from Neutral. Edwards said that there is relative upside to the firm’s $11 target price and that Enable’s units appear oversold. How about this for a gain, up 13% at $7.80 versus a 52-week range of $5.38 to $18.09. Maybe the $11 target had something to do with it versus a $9.30 consensus price target.

Antero Midstream Partners L.P. (NYSE: AM) was downgraded to Neutral from Outperform. Its units have performed well in 2016 and the Credit Suisse $32 target price reflects 32% total return potential, below the median of Credit Suisse’s coverage universe.

EnLink Midstream LLC (NYSE: ENLC) was downgraded to Neutral from Outperform.

Enbridge Energy Partners L.P. (NYSE: EEP) was downgraded to Neutral from Outperform. Enbridge Energy is one in which coverage is expected to remain tight, even with flat distributions. The $24 target price indicates a total return of about 40% is near its sector midpoint.

Spectra Energy Partners L.P. (NYSE: SEP) was downgraded to Neutral from Outperform, and the target was cut to $54 from $56. The MLP remains a strong defensive name that should perform in line with its coverage if crude continues to recover.

VTTI Energy Partners L.P. (NYSE: VTTI) was downgraded to Neutral from Outperform. The $24 target price suggests a total return of about 36%, but there is also a lack of trading liquidity.

Western Gas Equity Partners L.P. (NYSE: WGP) was downgraded to Neutral from Outperform. It was downgraded along with the next Western, as the total return outlook is in line with its coverage.

Western Gas Partners L.P. (NYSE: WES) was downgraded to Neutral from Outperform, and the target fell to $53 from $56. The lower total return outlook falls in line with the firm’s coverage.

Columbia Pipeline Group Inc. (NYSE: CPGX) was downgraded to Underperform from Neutral. This one ran up amid takeover speculation, but that has reportedly stalled. Credit Suisse feels it is near fair value relative to its impressive backlog of organic projects.

Magellan Midstream Partners L.P. (NYSE: MMP) was downgraded to Underperform from Neutral. Magellan was said to have presented a safe alternative to higher beta midstream names, but the valuation looks stretched.

ONEOK Partners L.P. (NYSE: OKS) was downgraded to Underperform from Neutral.

There is something key here for the leveraged ETFs. The so-called right yield or yield spread was said to be about 6.5% yield at $60 to $70 oil and 5.5% to 6% at $80 oil. The “correct” EV/EBITDA multiple was indicated about 12 to 13 times at $90 to $100 oil and about 10 times at $30 to $40 oil, although clearly neither condition is deemed sustainable.

Counterparty risks and contract renegotiation risks are now front and center for investors and MLPs alike. The balance sheet strength focus is now a priority, as is the risk of distribution viability. A look at the history reveals a stronger correlation between multiples and the price of oil than most analysts and investors thought. Compared to other sectors, MLPs appear slightly expensive versus utilities but cheap versus exploration and production.

John Edwards said:

In light of the severe downturn, the viability of the MLP model as well as valuations has faced significant challenge. The accepted wisdom before the downturn was that the models were robust enough to withstand industry cycles and that pipeline and processing plant cash flows had a degree of insulation from the industry cycle due to the long-dated nature of fee based contracts. But the prolonged downturn has challenged the robustness assumption on account of counterparty risks and contract renegotiation risks. Balance sheet strength, liquidity, and distribution coverage have become a more important priority. Valuation assumptions have also been challenged. The DDM valuation model has less viability as a valuation tool if the distributions are subject to disruption as does yield spread analysis. Valuation models such as EV/EBITDA and P/DCF showing relative indifference to distribution policy are being resurrected as a way to look at the sector. We believe that the customary assumption of MLP industry yields in the 6’s will be a long time before being revisited owing to the stronger coverage, thicker equity requirements needed to withstand cycles of the future. Management teams that have already positioned for this have seen their equity hold up a lot better during this current cycle.

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