HY Energy: 7 Short Duration Picks

EXECUTIVE SUMMARY

RELATIVE VALUE

HY Pipeline/MLP Short Duration Picks

Crestwood’s (CEQP: Ba3/BB-) $500mn 5.75% 2025s are currently offering a yield of 5%, ~80bp wide to the low-BB 3-year YTW. This is CEQP’s nearest maturity and the bond’s call price step downs to 101.438 on April 1, 2022, then to 100 on April 1, 2023. We have a Market perform on CEQP at the issuer level, with most of CEQP bonds call constrained, but feel the 2025s offer an attractive short duration opportunity.

CEQP is a gathering and processing focused Midstream company with a focus on the Bakken and Permian. CEQP completed the $1.8bn Oasis Midstream acquisition in February, adding scale with EBITDA increasing ~40% to $820mn, while maintaining leverage at ~3.5x. The deal expands CEQP’s Bakken and Permian footprints, nearly tripling Bakken processing capacity and offering synergy potential in both basins.

We expect CEQP to generate $120mn of cash flow after distributions in 2022, but with pro forma leverage within its target range, CEQP will likely look to shareholder returns with a focus on opportunistic buybacks for excess cash flow in 2022. CEQP’s strong balance sheet, and ability to direct cash flow to the balance sheet if required, provides comfort with owning the front end of the capital structure.