Boardwalk Pipeline Partners, LP (BWP), Loews Corporation (L): Why a Supportive Parent Company Is Key to Success

The key here is that Loews will be paying 90% of Boardwalk’s $150 million share of the initial development costs to get the project off the ground. This is key for two reasons, first it mitigates Boardwalk’s risk on the project. Boardwalk CEO Stanley Horton pointed this out on the company’s most recent earnings conference call:

Loews has offered to fund 90% of the development costs. If, for some reason, the project did not go, Loews loses most of the money, not Boardwalk. So we’re somewhat insulated from that. They’re taking the development risk on the project. And as the CEO of Boardwalk, I think that is a great deal for Boardwalk and my unitholders.

In addition, it frees up Boardwalk’s capital to pursue projects that will more quickly affect the bottom line. Bluegrass wouldn’t start generating income until late 2015, so Boardwalk would have expended this capital, paid additional interest on the debt incurred, and not benefited from this capital spending until 2015 if at all. While Boardwalk is initially giving up 90% of its share of Bluegrass, if the past is any indication, it can eventually buy this asset back from Loews when it will have a positive effect on its bottom line.

I’m typically not a fan of meddling parent companies or expensive general partners. That’s why I’ve personally chosen to invest in Enterprise Products Partners L.P. (NYSE:EPD); I like the fact that the company doesn’t answer to anyone but its unit holders. That being said, Enterprise Products Partners L.P. (NYSE:EPD) is all grown up now and doesn’t need the help. Boardwalk, on the other hand, clearly benefits from the relationship it has with Loews. It’s important for investors to see that this relationship really is a competitive advantage.

The article Why a Supportive Parent Company Is Key to Success originally appeared on Fool.com and is written by Matt DiLallo.

Fool contributor Matt DiLallo owns shares of Enterprise Products (NYSE:EPD) Partners L.P. The Motley Fool recommends Enterprise Products Partners L.P. and Loews. The Motley Fool owns shares of Loews.

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