According to HCLP's 8-K filed with the SEC on 2/5/13, the holders of subordinated units may not participate in distributions. However, when HCLP earns $2.13 per common unit for two consecutive quarters on an annualized basis and pays an annualized distribution of $2.10 for two consecutive quarters, the subordinated units may be converted into common units. That scenario will soon be upon us. When it happens that will be major distribution dilution as the owner of the general partner, which just sold $3 million units in the secondary, holds a huge number of subordinated units. Y'all may want to read the SEC filings which can be found in the left margin on Yahoo Finance for HCLP.
They're already paying distributions on those units, just look at the last income statement -- they already report "fully diluted" numbers to account for those units:
" The limited partners` interest in net income of $30.5 million for the second quarter of 2014 represents earnings of $0.94 per basic weighted average common * and subordinated unit* outstanding during the period. For purposes of calculating earnings per unit, $5.6 million of limited partners` interest in net income was allocated to the holder of incentive distribution rights and the Class B units, resulting in reported basic earnings per unit of $0.77 per common and subordinated unit.
... Distributable cash flow attributable to the Partnership for the second quarter of 2014 of $29.5 million corresponds to distribution coverage of 1.54 times the $19.1 million in distributions ** to be paid to common and subordinated unitholders ** on August 15, 2014.
Nothing "stealthy" about it, it's all right there.
Not All Gray - thanks for that info. I verified the numbers based on outstanding shares. The adjusted basic earnings of .77 DID include the distributions for class B shares. The .94 cents in basic income did not. As a further point of reference yahoo finance is currently still showing outstanding shares/units at 33.2m, while etrade has already updated outstanding shares/units to 37m.
I see 13.6m subordinated units referenced in the current 8k which would be a dilution of over 40% but in the 8k from 2/5/13 they reference 3.7m class b shares which would be just under 10%. Not good for share pricing in either case, thanks for the heads up.