Calumet Specialty Products Partners (CLMT) is the big loser in today's trading. Sahres are down around 45% today after management eliminated the company's quarterly distribution of $0.685 a share (26.7% yield) over the weekend. By definition, a 26% yield carries high risk. But as Calumet investors learned this morning, there was far more to lose than the steady quarterly income.
Although the price of crude oil has rebounded 50% from its February lows, we believe there are many other high-yielding master limited partnerships that are at risk of cutting their payouts in the coming quarters. We've highlighted two names below that could be destined to a similar fate as Calumet.
First, Crestwood Equity Partners (CEQP) is down 41% this year, and recently changed hands at around $12.19. The company operates a natural gas storage business and oil and natural gas liquids services. About 92% of Crestwood's cash flow is expected to come from fixed-fee contracts, but its quarterly distribution of $1.375 a share (45.4% yield) is still being called into question by investors. In the fourth quarter of 2015, the company generated just 76% of the cash flow necessary to cover its payout.
Even though management has tried to cut corporate costs, interest and capital expenses remained high in the period. Crestwood has a hefty 4.8x debt to EBITDA ratio, and on its most recent conference call, management said that the company is trying to shore up its balance sheet. Crestwood's credit rating is three levels below investment grade, and one of the quickest ways to improve its financial health would be to cut the dividend.
Next up is NGL Energy Partners (NGL), which has seen shares drop 25% so far this year. It recently changed hands at around $8.25. The company provides oil and NGL logistics, in addition to water treatment services and a retail propane business. Management pays out a quarterly distribution $0.64 a share (31.2% yield), which was not increased last quarter for the first time since NGL went public in 2011.
We believe the next change in the company payout will be to the downside. In the fiscal third quarter (ended December), the company generated only 85% of the cash flow needed to cover the distribution. NGL is leveraged to lower oil prices and production, and interest and operating costs remained high in the period. Management also reduced its full-year EBITDA guidance by 10% last quarter.
The company attempted to boost liquidity with asset sales earlier this year, but it still has a sizable debt to EBITDA ratio. NGL would likely have to tap its credit facility this year to sustain its current payout, but its ability to do that may be reduced, as its credit rating is currently three levels below investment grade.