The Pros and Cons of Incentive Distribution Rights

Whenever the cash distributions reach the stage where incremental cash distribution is divided equally between a GP and a LP (or high splits), the future growth prospects of the MLP becomes challenging because for every extra dollar that the MLP pays to its LP, it has to pay the equivalent amount to the GP.

MLPs that have reached high splits or are nearing them have more difficulty going forward to increase their cash distribution to unit holders. If they want to grow their cash distribution by 5%, then the MLP needs to grow its available cash distribution by more than 5%, as they have to pay equal incremental cash distribution to both a GP and a LP.

View more information: https://marketrealist.com/2015/05/pros-cons-incentive-distribution-rights/

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