Does anyone know what interest rate EPD is paying on thier debt?
The dividend yield is 5.3%, if the interest rate on the debt is higher then I can understand issuing additional shares if not, then why take on the additional burden of paying the dividends at higher rate. Unless they plan to cut the dividend?
BBEP is another example. KWK had several million BBEP units that they were liquidating in the open market. It put a pall over BBEP's price for months. When BBEP got added to the Alerian index last week, the resulting natural demand allowed KWK to do an offering and get the remaining ~6M units out of the way in a day. With the overhang removed, BBEP shot up by ~10%.
MLPs by their nature of paying out their cash flow need to regularly issue a combination of equity and debt.
EPD issued their last debt as very long term. over 30 years if I remember correctly. As to issuing new shares/units - every company has two choices: #1 is to sell them in the open market. This puts a long term damper on the market as there effectively is X number of shares on the sell side every morning. This happened recently with ETE when a major shareholder sold about $40M in stock and that took over one month. The other method is to give the stcok to brokers who buy it as a block and then resell. They obviously are not going to do this for nothing - thus the discount.
As I write this if you tried to sell 6000 units it would drive the price down .07 from your order alone! Would think that say 20K shares would move it about .30 and EPD would need to sell 300K a day for a month. Won't work well that way and actually costs more.
Because selling that many shares on the open market would dramaically drop the price. To sell that many shares without slamming the price they sell privately through brokers. To get buyers they sell at a discount to the market. This was discounted 2.7%, a vry modest discount, showers excellent value. When they announce all shares and overalltment wertunity.e taken, shares will rebound. This looks good to me, and, if you're so inclined, a buying oppor
The last notes they issued (Aug) were in two tranches - $650M at 4.05% and $600M at 5.7%
This offering will be used to pay down their revolving line of credit. Normally those rates float with the market so it's hard to say what the current rate is.
I would not jump to any conclusions about cutting distributions. They have a meaningfully higher coverage ratio now than they did at this time last year and they've raised it four times in the interim.
Hard to know exactly why they decided to do it now, but with the units trading at an all-time high it seems like reasonable timing to me. If nothing else, the offering gives them added liquidity at a time when there is much uncertainty in the financial markets.