7770 / What distribution requirements must a master limited partnership (MLP) satisfy?

In general, MLPs attract investors by contractually agreeing to distribute quarterly all available cash. However, the “all available” cash provision is normally limited by the general partner’s (GP) discretion to hold a reserve required to carry on the MLP’s business operations. As further investor enticement, the MLP agreement generally establishes a subordination period for the sponsor’s limited partner interest that allows for sufficient cash flow to be distributed so that common units receive minimum distribution levels.