Sectors

Appaloosa Founder Tepper taps Energy Transfer Partners and Kinder Morgan

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February 16
3:48 AM 2016

Appaloosa Management head David Tepper strengthened his market position by acquiring millions of shares in pipeline companies - 5.1 million shares in Energy Transfer Partners, and 9.4 million shares in Kinder Morgan Inc. - as per regulatory filing on Friday.

The shares acquired are worth a total market value of $314.4 million approximately, of which $173.5 million relate to Energy Transfer and the remaining $140.9 to Kinder Morgan, according to Bloomberg.

The billionaire investor also bought stakes in the fund that held stocks in companies reaping profits from energy commodities, transportation, and storage - the Alerian MLP Exchange Traded Fund. Owing to plaguing oil slump, the energy-related companies have been affected severely. Energy Transfer's position took a beating by 30%, with Alerian MLP ETF close on its heels at 29% decrease, while Morgan Kinder remained relatively flat.

As per Insider Monkey, Energy Transfer Partners have started their downhill journey following the 30% decrease, from which they haven't shown any signs of recovery. The worrying traits of the flat dividend payouts, low coverage ratio and the huge debts on the balance sheet all indicate the same thing. Last week the company went down to "Neutral" from its "Outperform" status, with its price slashed by half to $25, from $51.

Kinder Morgan, on the other hand, is the only company that has managed to stay afloat in the trading scenario and has even recorded a 0.2% increase this year. Despite losing 65% of its market capitalization due to sluggish crude and natural gas prices, it has managed nearly $5 billion in free cash flow every year. This is because their chairman, Richard D. Kinder, reduced future capital expenditure for 2016 along with dividends for greater flexibility, and the company now is in a position to delever the balance sheet and support their growth.

However, these are not the only two companies tapped by Tepper who's known on the Street for his remarkable insight in distressed debt. He believes his $18 billion Appaloosa Management, which has been shaped up to specialize in distress debt, has picked the right pipeline companies to invest in. The company is quick to exit the distressed companies which will not ultimately provide superior risk-adjusted returns, like it did when it exited six positions last quarter, including its 4.5 million shares in JetBlue Airways Corp, as represented by The Money Street

This was also the time when Tepper increased his US equity holdings by 56%, highlighted by an elevated Alphabet position. Alphabet Inc., which owns Google, is now reportedly bigger than Apple. Appaloosa, set up in 1993, has now increased its stake in Google's parent company by 349,500 shares. The American hedge fund reflected a market value of $406.9 million in the last quarter, which puts it right behind General Motors Inc. in the stock-position race.

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