MLP Energy Transfer Prices Preferred Units

Midstream MLP Energy Transfer (NYSE:ET) has priced their most recent fixed-to-floating rate preferred units with an initial 7.60% coupon—about as expected. The coupon will be fixed until 5/14/2024 at which point the coupon will float at the rate of 3 month Libor plus a spread of 5.161%. This spread is quite superior to the other 2 preferred unit issues that the company has outstanding–the currently outstanding issues have spreads of 4.738% and 4.53%.

The company will sell 28 million units–a fairly giant issue, with another 4.2 million units available for over allotment.

The issue is rated Ba2 by Moody’s and BB by Standard and Poor’s–not investment grade.

Dividends will be cumulative, but will not be qualified for favorable tax treatment. Of course there will be a K-1 issued to the investor at tax time.

The permanent ticker symbol will be ETP-E when the issue moves to the big board–in the meantime it will trade on the OTC Grey Market under the temporary ticker of ETPEP.

The pricing term sheet can be read here.

The preliminary prospectus can be read here.

We will watch pricing tomorrow on the Grey Market and if it trades in the $24.75 area we will be buying for a shorter term potential 2% gain–into the $25.25–$25.40 area.

5 thoughts on “MLP Energy Transfer Prices Preferred Units”

  1. ETP fundamentals are improving with notable growth in distributable cash flow and deleveraging hopefully to less than 4.5X debt/EBITA in the next few years. It would take two rating upgrades to get their preferreds to IG.

    I have very, very limited experience with K-1 generating preferreds (OAK-A&B come to mind) and in my few cases the full distribution has reduced the Tax Basis. Additionally in all these cases the distribution is classified as interest income, ordinary & qualified dividends and other income on the specific K-1s. No idea about what to expect for ETPEP so I don’t know if it is a candidate for taxable or tax preference accounts.

    Any thoughts?
    Thanks

    1. Jeffrey, you definitely want to make sure your K1 issues UBTI stays at $1000 or under in an IRA. Schedule K-1 will include any UBTI figure, and if the total UBTI for all investments in your IRA exceeds $1,000, then you’ll need to prepare Form 990-T to submit to your IRA custodian for filing. You’ll end up having to pay tax on the UBTI, even though you own the investment in a retirement account.
      One of my old clients got an IRS audit triggered because of excess UBTI that I warned him about many times. He insisted that he would “never be caught”.
      The hardest thing to explain is the glaringly evident which everybody had decided not to see, Nomad

    1. Don’t feel like chasing this one. Bought ETP-C at $24.75. Current yield 7.4%, should go ex-div end of this month. Reset rate not quite so good, but good enough for what I need.

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