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WIKI ANALYSIS
Tortoise Energy Infrastructure (TYG) is a non-diversified, closed-end management investment company that seeks to obtain a high level of total return with an emphasis on current distributions paid to stockholders.
TYG is designed to provide an efficient vehicle to invest in a portfolio of publicly-traded Master Limited Partnerships (MLPs) and their affiliates in the energy infrastructure sector. These companies gather, transport, process, store, distribute or market natural gas, natural gas liquids, coal, crude oil, refined petroleum products or other natural resources, or explore, develop, manage or produce such commodities.
TYG is sponsored by Tortoise Capital Advisors, LLC, a energy infrastructure MLP investment specialist.
TYG vs. Direct MLP Investment
TYG is designed to provide an efficient alternative to investing directly in MLPs and an attractive distribution, a portion of which is expected to be tax deferred, with a historically low correlation to returns on stocks and bonds.
As a taxable corporation, TYG allows both institutions and retirement accounts to join individual stockholders as MLP investors.
Unlike holders of MLP common units, stockholders of TYG will not recognize an allocable share of TYG income, gains, losses and deductions. Historically, a significant portion of TYG's distributions to its stockholders have been treated as tax-free Return of Capital (ROC).
TYG may (and does) invest in direct placements and other investments not available through public markets.
TYG uses significant leverage (40.5% of total assets at end of fiscal year 2008[1]) to amplify returns.
Holdings
Top 10 Equity Holdings as of Jan. 31, 2009 [2]
| Holding | % of Total Portfolio |
| Kinder Morgan Management, LLC | 9.0 |
| Magellan Midstream Partners, L.P. | 8.4 |
| Enbridge Energy Partners, L.P. | 7.8 |
| Energy Transfer Partners, L.P. | 7.4 |
| NuStar Energy L.P. | 6.9 |
| Plains All American Pipeline, L.P. | 6.7 |
| Sunoco Logistics Partners LP (SXL) | 6.3 |
| Enterprise Products Partners L.P. | 6.2 |
| Inergy, L.P. | 5.9 |
| TC PipeLines, LP (TCLP) | 4.3 |
Trends and Forces
Correlations
Some interesting statistical correlations (Jan 2006 (or when ETF premiered) - Dec 2008) :
| ETF/Index | Correlation |
| United States Natural Gas Fund, LP (UNG) | 0.54 |
| Amex Oil Index (XOI) | 0.71 |
| SPDR Lehman High Yield Bond ETF (JNK) | 0.95 |
| SPDR Trust Series I (SPY) | 0.91 |
A note on the comparison with junk bonds - TYG's Auction Rate Notes suffered a 'failed auction' in Aug 2007, as noted in a company press release. TYG continues to use other sources for leverage and narrowly avoided failing lender's asset coverage ratio covenants in Oct 2008.
Distributable Cash Flow
TYG considers distributable cash flow (DCF) to be the most meaningful measure of their operating performance and distribution paying capacity.
DCF is the amount received by Tortoise Energy as cash or paid-in-kind distributions from MLPs or their affiliates, and interest payments received on debt securities owned by Tortoise Energy, less current or anticipated operating expenses, dividends on MMP shares, taxes on Company taxable income, and leverage costs paid by Tortoise Energy.[4]
Growth depends on credit/capital market access
Because TYG distributes substantially all of its income to stockholders, it needs additional capital to make new investments. If additional funds are unavailable or not available on favorable terms, its ability to make new investments will be impaired.
TYG was forced to shrink its assets in fiscal 2008. TYG reduced its total leverage outstanding from $458 million to $280 million to remain in compliance with its asset coverage ratio requirements. (Remaining leverage consisted of $210 million in fixed rate senior notes and $70 million in preferred stock.) This caused an attendant sale of investments, total assets decreased from $1,262 million on Nov. 30, 2007 to $692 million on Nov. 30, 2008.[5]
TYG completed a secondary offering of 1.1 million shares of common stock at approximately NAV in Q4 2008.
Competition
Closed End Funds
- Fiduciary/Claymore MLP Opportunity Fund (FMO)
- Kayne Anderson MLP Investment Company (KYN)
- Energy Income and Growth Fund (FEN)
- Cushing MLP Total Return Fund (SRV)
- Tortoise Energy Capital (TYY)
Exchange Traded Notes
- Bear Stearns Companies Inc BearLinx Alerian MLP Select Index ETN (BSR) - just in case someone still wants to be an unsecured Bear Sterns creditor.
References
- ↑ TYG 2008 Annual Report http://www.sec.gov/Archives/edgar/data/1268533/000120677409000162/tyg_ncsr.htm
- ↑ TYG Press Release http://tygd.client.shareholder.com/ReleaseDetail.cfm?ReleaseID=363151
- ↑ TYG 2008 Annual Report http://www.sec.gov/Archives/edgar/data/1268533/000120677409000162/tyg_ncsr.htm
- ↑ TYG 2004 Annual Report http://www.sec.gov/Archives/edgar/data/1268533/000089418905000206/tortoisencsr.htm
- ↑ TYG 2008 Annual Report, Performance Review http://www.sec.gov/Archives/edgar/data/1268533/000120677409000162/tyg_ncsr.htm
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