Energy giant Energy Transfer (ET) has announced a huge preferred stock redemption this morning.
They will be calling the ET-C, ET-D and ED-E issues of preferred stock with proceeds from debt issuance. All these are fixed to floating issues. E will not be redeemable until May, but the C and D issues are currently callable.
All total they will be calling over 60 million shares. Currently the C and D issues are floating and have coupons around 10%.
Thanks to mbg for the ‘heads up’ on this one.
Users who liked this:
I had a decent sized position in ET-D. That call stung a little, especially since i bought well below par and it was in a taxable account.
Today I sold ET-D and replaced part of the position with ET’s Series A preferred (CUSIP 29273VAH3). It floats off of the 3 mo + 4.028%. It can be purchased through the bond desk. My price was $98.73.
Here is a link to the prospectus:
https://ir.energytransfer.com/static-files/a2501579-6ea6-4773-be92-5630299a6be2
i am reading all these comments and wish i knew what C,D,E and everything else was. i know what preferred shares are in general but i have sooo much to learn.
Hi Yem, good question.
Preferred usually comes in different series. These different series typically have different terms (coupon payments, call provisions etc) and are typically identified with different letters of the alphabet
These different preferred stock series generally all have the same payment priority or seniority in terms of dividend payments etc. They are junior to the bonds and senior to the common stock in terms of dividend payments and other matters.
C D and E are short hand for discussing the following issues:
Energy Transfer LP, 7.375% Series C Fixed/Float Cumul Red Prfd Units
Energy Transfer LP. 7.625% Series Fixed/Float Cumul Red Prfd Units
Energy Transfer LP. 7.60% Ser E Fix/Float Cumul Red Perp Prfd Units
The Red term here is what is relevant right now – these are Redeemable at the company’s option under certain restrictions.
From memory the C has about $400M outstanding, the D has about $450M outstanding and the E has about $805M outstanding. So this amount of preferred stock is being taken off the market.
What is happening here is the company is exercising their option to buy these back at $25 each plus accrued dividends.
The funds from the Sr and Jr bonds that were issued by ET are being used to finance these transactions.
All of these gymnastics has the effect of reducing ETs cost of capital which will benefit the common equity holders.
Hope that helps.
August, you are a prince
What a great, thoughtful, response
Hey Westie – thanks for the compliment. Somebody explained it to me once so it’s good to pass it along.
Yem207, I would suggest not only looking over this wonderful site-Innovative Investor but also Quantumonline.com . Quantum has an invaluable amount of information including a glossary of terms and many other listings that helped me when I started out. I use it to this day.
And of course I still read Innovative almost each and everyday. Thank you Tim!
Energy Transfer LP Announces Pricing of $3 Billion of Senior Notes and $800 Million of Fixed-to-Fixed Reset Rate Junior Subordinated Notes
https://www.businesswire.com/news/home/20240110912733/en/
BRIEF-Energy Transfer LP Announces Public Offering
8:53 AM ET, 01/10/2024 – Reuters
Jan 10 (Reuters) – Energy Transfer LP:
* ENERGY TRANSFER LP ANNOUNCES PUBLIC OFFERING OF SENIOR NOTES AND FIXED-TO-FIXED RESET RATE JUNIOR SUBORDINATED NOTES AND REDEMPTION OF SELECT PREFERRED UNITS
* ENERGY TRANSFER: INTENTION TO OFFER SENIOR NOTES DUE 2034, SENIOR NOTES DUE 2054, FIXED-TO-FIXED RESET RATE JUNIOR SUBORDINATED NOTES DUE 2054
This will generate quite the tax bill for many. This highlights an inherent problem with MLP preferred stock.
Hi August,
I don’t think this will generate much of a tax bill.
I have owned these for years, and the income on the preferreds is fully taxed each year (not like the common), so the redemption shouldn’t trigger recapture. The income is box 4b Guaranteed payments for capital (scares me that I can remember that).
I am pretty sure this is correct – but there are much smarter tax folks on the board who can correct me if I am wrong.
Private – thanks for the correction. That is good news indeed
Private – Any suggestion on owning this in a Tax deferred account. Is it OK or will it cause problems? Not sure how box 4b impacts tax deferred accounts
It should be fine in a tax deferred account. i own it in an IRA. It is a K-1 issuer, so you have to enter it manually, but it isn’t UBTI, so its a very simple K-1 (just box 4b). UBTI is in box 20V IIRC.
As an ET common unit holder – I like this move, but let’s hope that calling floating rate preferred issues it is not part of a broader trend…
has anyone mathed-out what current price should look like if they can execute the 5/15/24 calls? I am not in a place today where I can do that.
Looking at the D, seems the $25.47 price for the moment is about right ($0.22/month divi, and we are more than 2 months in), but that is just from using my fingers and toes…
Looking to park some money in a Closed End Fund Pfd. Does anyone have an opinion on which Gabelli pfd is good to look at….safety and reasonable yield??? Thanks
Scott – Might as well check out coverage ratios on Gabelli prfds as a starting point…. then cross reference what’s available by symbol – https://gab-misc-pdfs.s3.us-east-2.amazonaws.com/LevAnalysis.pdf
2whiteroses, what is the source of the pdf report? Thanks! Windy
Not sure what you’re asking… It’s from Gabelli… although I have the direct link, I’m not sure I could recreate the path from their site… Tim, can you?
See https://innovativeincomeinvestor.com/gabelli-funds-asset-coverage-ratios/
Go here:
https://www.gabelli.com/funds/closed_ends
Click on “Menu”
Click on “Leverage Analysis”
Go Team III………… thnx, SN
Thanks!
Scott S – I think that any of the Gabelli’s are fine–those around 5.7% This includes the Bancroft Fund and Ellsworth–both of which are managed by Gabelli.
https://innovativeincomeinvestor.com/preferred-stocks-of-closed-end-funds/
I like (have quite a bit of) GDV-K. It’s at a bigger discount to par than the rest so there’s a bigger opportunity for a capital gain if it gets called.
I’ve owned many closed end preferred shares over the years…well decades… and they’ve all been called eventually. That’s not a guarantee of course. At my age I might not be around for the call. But my rule is buy them below $20. It seems there used to be a lot more of them.
There goes a really nice source of income!!!
Due to how soon the next dividend is for ET-E your annualized return for it at $25.25 is about 9% if you are looking to park money. It should stay pinned near par until call I would imagine.
Scott- thanks for the heads up. I just put 4.5% of my port in ET-E @ $25.26 Will collect two dividends of $.475 each and be redeemed on 5/15/24. “Safe” yield of 8%.
Scott,
ET-E is paying 7.52% at $25.25. From what I see it does not start to float until 5/15/2024 – which at that date with be redeemed.
What am I missing that you are saying about a 9% annualized return?
We are 3 wks away from the next dividend so you are not holding the whole period to get it. That makes your annualized return more than it would otherwise because you are getting two payments in just a few weeks over a single dividend period. That is assuming the issue is called.
If you net $0.70 in dividends after you take out the $0.25 over par and put that over $25.25 times 52/16 (with 52 weeks being a year and 16 weeks being your holding period) you get right around 9%.
Everyone forgets that time is the denominator in both dividend rates and life.
Why wouldn’t the better play be to buy the D? It pays $0.66 per quarter, so $1.32 until redemption, and it is trading around $25.4x? – or about $0.85 net.
It sounded to me like C/D might be redeemed before May, and E would be redeemed when possible in May. So C/D would be better short term plays, and E longer. I’m doing some of both.
This was released late last night. C/D definately called before May, looks like Feb 9th (30 day notice).
Following the pricing of the concurrent offerings, Energy Transfer issued a notice to redeem all of its outstanding (i) Series C preferred units at a redemption price per unit of $25.607454, which is equal to $25.00 per unit plus unpaid distributions to, but excluding, February 9, 2024 (the “Redemption Date”) and (ii) Series D preferred units at a redemption price per unit of $25.619877, which is equal to $25.00 per unit plus unpaid distributions to, but excluding, the Redemption Date.
This is what they announced in regards to “E”.
Notice of redemption with respect to the Series E preferred units will be issued at a later date and such units will be redeemed once redeemable on May 15, 2024.
https://www.businesswire.com/news/home/20240110912733/en/
Because C and D can be redeemed sooner. They are currently callable with 30 days notice
E is not callable until 5/15/24
Thanks Mav. I had forgotten that.
I bought some D in the low $25.4xs this morning, but I may let it ride.
Doing the math in my head (which should frighten everyone) D is sitting just below $25.5, and there is about $0.50 of the $0.66 1/31 divi already “baked in”. So, even if it were called tomorrow, it should be above break even.
E is probably a safer play. have to see where prices go.
Sorry I didn’t see your question Private, but Maverick and Irish got the right answer as to what I was thinking. I haven’t read the documents though so I don’t know what the risk is of the others being called sooner, but I thought that was a possibility and I already own a large chunk of those issues anyway.
I have been busy trying to figure out what will happen with the options I owned on GPP after the merger. I got blindsided on that one.
C/D announced as called Feb 9th.
The announcement is driving up ET-I, the non-callable, busted convertible inherited from Crestwood. Currently trading at $10.37, up almost 4% and yielding 8.10% at that price.
ET-I up over 8% in past month and dividend is still almost 8%. Of course wish I had bought more.
In market today & hearing price talk of ~8.50% on the Jr sub ftf notes due in ’54 fwiw