As I noted I had started a position in the Energy Transfer 9.25% preferred (ET-I) last month at a price of $10.01.
Today I doubled up on the position at a price of $9.73. Obviously this meets my hurdle yield of the 8% area–currently yielding 8.7%ish.
This $9.13/share issue is related to the acquisition of Crestwood by Energy Transfer and has a number of interesting conditions. It is my understanding that for the most part even though the shares are trading much higher than $9.13 (liquidation value) that only in the event of a pure cash acquisition can shares be called at $9.13. There are a number of conversion features attached to these shares. As such investors should read the document linked in the ‘security page’ here.
Users who liked this:
Is a call in et-c/d/e expected that this lower yielding issue is preferred here? Or lower float yields?
I was a little confused about the dividend of ET-I series preferred at 9.25%. 9.25% of what? In case I’m not the only one confused, I learned that the dividend is 9.25% of the base value of $9.13. That gives an annual payment of $.8445. The actual rate gets calculated based on that. As an example at a price of $9.70 that would be .8445/9.70 = 8.7%.
Hi danzeb–sorry that was a confusion point for you–not surprising that folks get confused. The good part is that issues that have more complex details usually end up paying a higher yield because folks shy away from purchasing.
Before Energy Transfer acquired Crestwood, buying this security at $2 back in 2020 was a sweet deal with cashing out at $9.86.
Now this trade looks compelling again. On energy inflation and lowered rates, its very easily possible to see this trading north of $10 / share.
legend.vs–looking to hold quite a while – unless a crazy move higher ‘forces’ me to sell.
How are distributions treated for ET-I preferred? Are K-1s issued?
Major caveat from the prospectus for those looking to hold ET-I in retirement accounts:
“Virtually all of our income will be unrelated business taxable income and will be taxable to a tax-exempt holder.”
It is taxable if the amount is $1,000 or greater (per IRA account), and your broker “should” inform you that they filed a 990-T form.
Good note Alfalfa
“There are a number of conversion features attached to these shares. As such investors should read the document linked in the ‘security page’ here.”
YES! I need (12) Philadelphia lawyers to interpret the conditions?
Payday–I think that they do this on purpose so when they decide to break the rules the conditions are up for ‘debate’ thereby locking out us little folks since we can’t afford the lawyers needed to push back.
I like these units and took a position yesterday. I decided to try and understand the conversion feature but being math challenged I gave up. But in your excerpt (helpful by the way) in two places there is a calculation in a parenthetical [(i) $13.691 divided by (ii) the then applicable Conversion Ratio (or approximately $66.14 based on the initial Conversion Ratio), _____ **then similarly ** (or approximately $44.09 based on the initial Conversion.] My question is whether those amounts are the calculated amount the common would have to reach for the conversion to be effective? Kind of like calculating the conversion feature on BAC-L?
Or maybe only 2 1/2 Grids………….