Brookfield Infrastructure Partners LP to Sell Preferred Units

Giant Canadian partnership Brookfield Infrastructure Partners (BIP) will be selling a new issue of preferred units (preferreds issued by partnerships are call ‘units’, not ‘stock’).

This security will issue a K-1 at tax time.

The shares will trade on the NYSE under permanent ticker BIP-A after a short stint on the OTC grey market (ticker not announced).

They will have a optional redemption period starting on 7/31/2025.

The preliminary prospectus can be found here.

Eugene was right on top of this one.

20 thoughts on “Brookfield Infrastructure Partners LP to Sell Preferred Units”

  1. Brookfield is definitely one of Canada’s premier financial conglomerates – own a number of the preferreds and common in the parent. All held up well and have recovered nicely since March lows. (for what it’s worth)

  2. This is a notable issue in several respects.

    It’s a Brookfield company, which in itself makes it worth paying attention to. The issuer is Bermudian partnership as others have noted. That Brookfield, the sponsor, is Canadian, is of zero relevance.

    You will get a K-1, promise. It will be a simple K-1 with very few entries and no UBTI. It should be all “guaranteed payments”, the same as it is if you hold the preferred of a MLP.

    It is denominated in US$, SEC-registered and will be NYSE listed. BIP has a number of outstanding preferred, but they are all denominated in CA$, not SEC-registered, and trade on the TSX (a few trade OTC in the US).

    This issues is aimed at US investors.

    The taxes are simple, but that is not to say your brokerage firm will get it right. The issue itself is non QDI, so you should assume ordinary income tax rates on the distributions.

    In a qualified account (IRA etc) there should be zero withholding. But again your brokerage may or may not get it right. Assuming they do, this is an ideal security for an IRA. Brookfield designed it to be.

    1. The broker isn’t responsible at all for reporting it, the partnership issues a K-1 of box 4b on the K1 so it gets full freight income tax rates like interest.
      depending on your broker, they may or may not allow you to buy it in an IRA because of just the potential of UBTI, not whether they actually generate it.

      1. I hold shares of a BEP preferred in a Roth at Vanguard. BEP is a Bermudian partnership, just like BIP.

        Yes, you get a K-1 from BEP or BIP (held in an IRA or not) but I also got withholding on the dividend payment from Vanguard. The withholding, in this circumstance, in an IRA, should be zero. This was not BEP’s doing (they don’t withhold anything) but Vanguard’s doing. The withholding will also shop up on a Vanguard issued 1099.

        So, what should be and what is are not the same. It took a month of back and forth with Vanguard before they removed the withholding. We will see what happens with the next dividend payment.

        I can’t speak to whether a particular brokerage will allow a K-1 generating security into an IRA. It would be a stupid thing for the brokerage to do, but brokerages do lots of stupid things.

        But in any event, you don’t want a lot of UBTI in a qualified accounts. Brookfield is very conscious of the problem and for that reason runs both its Bermudian partnerships so as to produce none.

        1. Not sure why you say this:

          “I can’t speak to whether a particular brokerage will allow a K-1 generating security into an IRA. It would be a stupid thing for the brokerage to do, but brokerages do lots of stupid things.”

          Why is it stupid that a brokerage allow you to buy a K-1 security in an IRA? As long as you stay under the UBIT limit there is no issue at all. And even if you exceed the UBIT limit, a good broker will complete the annual tax form so again, it is no big deal.

          FWIW I have a number of K-1 generating securities in my rollover IRA at Fidelity. Fidelity has completed the tax filing each of the last 3 years for me. There are various components that go into it – not just the UBIT that shows up on your K-1s that year but also on any carry forward NOL K-1 amounts and recapture when you sell. To date, I have not had to pay anything in taxes even though I have exceeded the $1K limit due to the offsetting of carryforward NOLs that are on the K-1 but have no other impact on me

          1. I have Schwab and Etrade IRA and non-IRA accounts. Schwab every year sends me a letter reminding me to forward to them any K-1 either by mail or thru uploading it in my accounts secure message service. They take care of it and file with the IRS the applicable form if needed. As you stated I have had a couple of years with UBIT a little over $1,000 and have not had to pay anything and neither has schwab had to pay IRS out of my account for going over the $1,000. Etrade has never contacted my about K-1 procedure so until they do I make sure any K1 generators are kept in my Schwab accounts. 2017 I had an IRS audit and it was only for the qualified Charitable distributions out of my IRAs, They wanted further proof of distributions which I gladly provided…case closed. Nothing was mentioned about K1s and I think in that year I did go slightly over the $1,000 threshold.

          2. Mav – I knew what I meant to say but it came out opposite.

            Yes, I completely agree, brokerages have no business stopping you from putting K-1 issues into a qualified account. Yet, I know some will stop you. They are responsible for paying the tax on any UBTI and filing the return and they don’t really want the job or the liability.

            As a matter of style I stay away from K-1 issues that generate a lot of UBTI. Some issues generate a ton of UBTI; others none at all. Preferred issues generally characterize their distributions as “guaranteed payments”, with no UBTI. There are exceptions. Many K-1 issuers will put sample K-1s on their website, so you know what to expect at tax time. The Brookfield partnerships that don’t generate UBTI tell you so clearly on their websites.

            1. Ahhh, ok, thanks. Yeah, I was confused based on your statement but given you meant the opposite, it makes sense.

              I used to hold a number of K-1 entities in my tax deferred account but sold many of them. I do hold a few, EPD, MMP, BIP and BEP because I like those options in the space they are in – plus a handful of preferreds that as you note, generate no or very little UBTI but issue a K-1

  3. Thank you all for enlightening me on this. I will wait and see what will be the interest/dividend rate for these units/shares

  4. Or- skip the K-1 angst (if any) – BPYUP 6.375% Series A Cumulative Redeemable Preferred –formerly BPRAP Currently 16.90

    1. The only thing BPYUP has in common with BIP’s new preferred is Brookfield in the name. Separate distinct companies with very different risks

  5. To everyone interested in Brookfield, here is a statement I got from them earlier this year in regard to their K-1 on Preferred Units.

    Good Afternoon Mr. Hargreaves,
    Thank you for your inquiry. To confirm, Brookfield Property Partners is not expected to generate UBTI and has not generated it in the past. We can assume that line 20 V on the K-1 form will be blank for 2019.
    Please let me know if you have any additional questions.

    Best,
    Rachel

    Rachel​
    Nappi
    Manager |
    Investor Relations
    Real Estate
    Brookfield Asset Management
    Brookfield Place New York
    250 Vesey Street, 15th Floor , New York , New York
    10281
    T +1.212.417.7169
    rachel.nappi@brookfield.com
    http://www.brookfield.com

    1. Georges,
      The K-1 doesn’t introduce more risk to investors. It’s simply the manner in which taxes are reported. Some investors get really intimidated by K-1 issuers because come tax time – if you do your own taxes – and own K-1 issuers in a taxable brokerage account, you’ll have more burden placed on you to process the forms (potentially). This is especially true if you trade or flip the units. Calculating basis can be a real hassle. For this reason, many choose to hold them in retirement accounts (IRA’s). But if you ask 10 people if you should do this, you’ll likely get 15 different answers and each one will swear they are right and the others wrong. You also have to consider UBTI issues if held in retirement accounts should you buy large amounts of units.

      Lots to consider…

    1. They recently did a second class of stock BIPC that trades as a corporation with no K-1. Yield 3.83%.

    2. I personally see no issue buying this in a retirement account.

      I have owned BIP and BEP in a retirement account for a few years and while both issue K-1s, neither has generated any UBTI.

      Nothing is guaranteed of course but Brookfield essentially said the same thing when they issued preferred for BPY – that they anticipate no UBTI

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