DCP Midstream LP to Offer Fixed-to-Floating Preferred

Master Limited Partnership DCP Midstream (NYSE:DCP) has announced they will be selling an new issue of fixed-to-floating rate preferred units.

No pricing details are known at this time.  We do know that holders of the units will received a K-1 at tax time.

The company has 1 other f-t-f issue outstanding and units are trading at $25.11 right now with a coupon of 7.875% which implies a new issue will have a coupon in the 8% area.

This chart shows the current issue which is outstanding.




The preliminary prospectus can be found here.

7 thoughts on “DCP Midstream LP to Offer Fixed-to-Floating Preferred”

  1. Hi all,

    In a case like this….when a new issue comes out higher than the one you are holding (e.g., DCP-B), are you inclined to sell the current lower coupon issue asap in anticipation of it dropping….and then waiting to buy the new issue when it comes out? I know that the market is pretty fast about adjusting prices on the old vs new issues so as to probably make it a wash but I am wondering what you all would do if holding DCP-B at this time.

    1. Amy, I can offer my thoughts and facts on DCP.B. You first must delineate why you are investing from each individual security you buy: growth, income, safety, flip, stability, speculation, source of funds etc. DCP is a large MLP with over $9+ billion in revenue, almost a $6 billion market cap, has a $45+ per share book value, was founded in 2005, has operated approximately 60 NGL plants, 63,000 miles of natural gas and NGLs pipelines with operations in 17 states. How does that sound to you? Since this 7.875% Preferred is fixed to floating and has a junk rating of B1 by Moody’s and B by S&P, does it fit into your longer term portfolio or is it just a flip. Will you need this principle anytime soon, can you deal with the risk/volatility and what is your plan if interest rates rise dramatically or the MLP’s business turns down? Ultimately, only you can make the determination and what someone else’s portfolio is or if they hold it or should mean little to you. You can always call their IR department in Denver at 303-595-3331 and talk with them about any questions or concerns you have. Hope that helps, Nomad

    2. Nomad’s comments hold water. That said, on just the issue of switching DCP issues, don’t. The new issue offers zero advantages and has a slightly larger spread between initial rate and float rate. The float rate on both DCP issues is a good bit (more than 50 bp) below the issue rate, meaning a greater chance the issues never gets called. The Floating rate “protection” is working against you. It’s a head fake.

      As a general rule, I won’t but floaters when the float rate is more than 25 bp below the issue rate. If you do, you’re really buying a fixed rate at a sub par coupon.

      1. Considering that I sold B at ~$26 I’ll probably buy one of them in the next few days. While I agree that 50bp is too large a spread, there aren’t that many floaters to choose from at this point and they act better in the current environment. Any superior choices of similar quality welcomed.

  2. On Amy’s question, I was wondering about the other side of the coin. I have the impression that when a new issue is announced, the existing ones often dip. I think sometimes that is rational, because of either (1) increased credit risk–more preferreds to pay, or (2) increased call risk–the new preferred proceeds might be used to pay existing issues. Other times, it just strikes me as an irrational knee jerk reaction that there may be a more attractive security. From my perspective, the existing issue should be judged against the entire spectrum of securities, and not just the new issue. Do you sometimes find that the announcement of a new preferred is a buying opportunity in the existing issues? I was looking at DCP-B, but I think the libor spread is a little thin at 4.919. If it floated now, the dividend would decline.

  3. Thank you, all, for your responses. I appreciate your time.

    Nomad – I’m normally a buy-and-hold-for-income investor. I don’t have the time to flip and as far as capital gains go, that’s just icing on the cake but not my focus.

    I think I will just sit tight with DCP – B.

    1. Amy, holding the DCP.B is probably a quality idea if you are a longer term holder of this preferred. I always look at my long term “untouchable” holdings (equities, debt, preferreds etc) as if I have to hold them for 10 years. With DCP.B you would have collected approximately 78.75% of original face principle; of course this preferred will float (4.919% + 3 month LIBOR or what replaces LIBOR) beginning 6/15/2023 if not called so the exact amount is an unknown. Many years ago, I would only have 5-10 equities in my portfolio and wanted to be super concentrated for maximum gains. I made a fortune on (OLED) Universal Display Corporation and decided that I would heavily diversify by moving into quality income securities. Wishing you profitable investing, Nomad

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