Capital Products Limited Partners (CPLP)

[NeumansMom]

The market woke up last year and realized the MLP model is unsustainable. You can't continually distribute all your net cash flow and issue shares and debt to fund fixed assets. Its like depreciation isn't a real expense... maybe so for REITS, but who thinks ships and pipelines don't go down in value and eventually need replacing? Eventually most MLP's would go bankrupt since they wouldn't have the reserves to fund asset replacements. Reminds me of a ponzi scheme. That said, CPLP is now selling at close to liquidation value. Their credit facilities require the collateralize'd fleet to have a current market (i.e. saleable) value of no less than 125% of outstanding balance. This would give a minimum fleet value of $740,000 as of 12/15/15 and result in a fair market value (i.e. liquidation value) of $2.93 per unit. Unlike some other MLP's like KMI, CPLP is actually profitable. If I were management, I would pull out all stops to buyback as many "30%" units as possible. My plan would be: fund additional MR tankers and buy back 10% of units with ~10% financing and cut the distribution to 60 cents. This would generate an annual reserve addition of $75,000,000 and give them the flexibility to pay down debt coming due in 2018 and 2019, self-fund further fleet additions and/or buy back more units. I think this is exactly what they are trying to do now. The market would react very positively IMO. At today's unit price the yield would still be over 20%. Any way you look at it, CPLP is a very good buy below $3.00.