Rapid Price Decline Closes Two Leveraged MLP ETNs

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Rapid Price Decline Closes Two Leveraged MLP ETNs

Declining oil prices have victimized two leveraged exchange traded notes (“ETNs”) tracking master limited partnerships (“MLPs”). UBS Investment Bank announced the closing of ETRACS 2xMonthly Leveraged Long Alerian MLP Infrastructure Index ETN (NYSEArca: MLPL) and ETRACS 2x Monthly Leveraged S&P MLP Index (NYSEArca: MLPV).

MLPV “will be mandatorily redeemed in accordance with the terms of the Securities as a result of the occurrence of an Acceleration Event, triggered as a result of the intraday indicative value of the Securities being equal to or less than $5.00 on January 20, 2016,” said UBS in a statement.

Previously popular income-generating asset classes, MLPs and sector-related exchange trade products have collapsed together with oil and natural gas prices last year, a theme that has extended through this year. Investors are concerned that the traditionally attractive dividend-paying asset would no longer be able to maintain its steady payouts as U.S. oil output starts to drop  after the massive decline in crude prices. In the recent crude oil sell-off, investors did not distinguish MLPs from other energy related assets and dumped the asset as crude oil prices plummeted.

The shutter of MLPL is surprising though since that ETN has over $100 million in assets under management, and closing exchange traded products of that size is rare.

“The net asset values of both ETNs appear to have fallen so far, so fast, that each hit triggers that allow the bank to automatically accelerate redemptions for notes that were set to expire in 2040 and 2045,” reports Chris Dieterich for Barron’s.

If you or someone you know has lost money from investing in a MLP, please contact Richard Frankowski at 888-741-7503 to discuss your potential legal remedies or complete the contact form.

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