The banks are forcing the equity raise, not their wives. (Although you could make a lot of humorous comparisons between the two...) No doubt raising new equity is a requirement for amending their credit agreements (again).
People need to understand if SLCA buys Hi-Crush, they'll buy the GP, not the LP units. The GP owners will get a fat payday, and SLCA will control the company's assets for pennies, and LP holders will remain saddled with all the debt from 2013 & 2014. The only reason for SLCA to control HCLP is to shut down HCLP plants to improve pricing for SLCA, all they need to do that is control of the GP.
The problem isn't with what happens in a typical year, it's what happens in an extraordinary year when you don't expect it. Let's say they do complete the WMB deal for whatever reason, and in 2 years things start to go south. A debt-for-equity swap could trigger big tax bills (ask LINE folks about this.) None of the KMP unit holders ever thought in a million years that KMP as an MLP would be eliminated and simply rolled into a C-Corp and they would have to pay tax on years of recaptured losses. Again, this partnership is such a wild west of deal-making you can't predict what they might do that would trigger UBTI or any other sort of tax liability.
There's worse things you could do than buy WMB with the proceeds. If the deal goes through, you get, what, a 30% pop and you wind up with ETC shares that will be taxed as a C-Corp. If deal doesn't go through, you still own WMB which not terrible on its own and still taxed as a C-Corp.
If he sells now in the IRA and buys back in a taxable acct, he's eliminated tax on $8 shr in ST gains, which is almost his entire cost basis. By all means hold it for a couple years, but the longer you hold it, the more you're building up an embedded tax liability that can be ugly in an IRA. When I sold some ETE couple years ago I think I incurred something like $9/shr in recaptured losses. The problem with these MLPs is that you don't necessarily have a choice about when to realize that, especially (as we've seen in the past couple years) when things go south.
Someone should have archived the KMP board so people could read all of the posts from people who owned KMP in their IRA "and not going to ever sell it, so I'll never have a problem" and then when Kinder rolled KMP into KMI it triggered huge tax bills for them.
The distributions are not taxable, but all of the company's other tax-related entries are passed through to you. Typically ETE generates a taxable loss each year that will need to get recaptured when you sell and reported as regular income. ETE is far and away the most complicated MLP that I have ever dealt with and suggest that this is an awful choice to hold in an IRA -- with all of the complicated transactions that this company does, who knows what they might do that will trigger a tax-reporting obligation.
If you in fact have a large short-term gain, IMO this is an excellent opportunity to sell it, not pay any tax on the windfall gain, and buy it back in a regular account. There are thousands of posts all over the internet from people who held MLPs in an IRA and have dealt with ugly tax consequences -- if you need to post on a Yahoo message board to learn the basics, you probably shouldn't be doing it. If they close the WMB deal, you can also safely buy ETC in an IRA.
...is that, paradoxically, the higher ETE rallies in anticipation of the deal failing, the more likely it is to be approved. The implied value of the 1.5724 shrs + $8 cash is now $28 vs current WMB price of $20. The higher the premium gets, the more WMB shareholders will vote to approve the deal and pocket the premium and just dump ETC afterward. Obviously that would pressure share price post-close, but 30% premium gives you a lot of wiggle room.
Another post that nailed the low.
"o and nnn are near 52 week highs, having held up well and benefiting from the recent rotation to quality reits."
Since you posted this, STAG has returned 36% while O is down a couple pennies.
The very fact that you're rooting for a production freeze to protect your economic interest in an American energy company is exactly why the Saudis aren't going to do it... the whole point of creating the production glut is to cause economic harm to US energy companies. If you pay attention to all of these "production freeze" stories, it's always the Russians who want the freeze, not the Saudis (or god forbid the Iranians, who want to screw US interests even more than the Saudis). You really think the Iranians aren't enjoying screwing the US now to payback for years of sanctions?
Plus this was $14 at the end of last year... most MLPs are at least more or less flat so far this year since the rally began in Feb... ETE is still WAY oversold relative to other companies in its sector.
Short covering is my guess. The big factor is that the perceived odds of the merger closing have fallen dramatically since the WMB lawsuit last week -- looks like lots of folks who were short ETE / long WMB in anticipation of the merger are covering ETE. Look at the outperformance of ETE vs WMB over the past week, ETE has out-performed by something like +20%.
My broker won't accept a sell order for ETE below $15/shr. So you can do this, but you just need to be a bit more careful about not forgetting about the order if the stock price begins to recover.
Another good but completely different reason to do this is if your broker DOES lend the shares to short sellers, that could be a taxable event for you that will trigger recaptured losses, etc, as if you'd sold the units.
Although if you are an ETE investor and think this sucks, looking at what happened to LINE holders gives you some perspective on what "sucks" is really all about.
In terms of probabilities, IMO if the deal closes there is probably a 50:50 chance, or greater, of ETE's distribution getting eliminated. That will probably be enough to give Warren the space he needs to make everything work *eventually* and keep all the creditors happy, but if that happens ETE price will probably settle below 7 for an extended period.
My point is that worst cases do happen and you should be aware of them. Just look at all the people who invested in upstream MLPs like LINE and simply thought everything was OK because their production was hedged for next 2 years, or the frac sand MLPs who thought everything was OK because they had "secure take-or-pay contracts."
And to be fair, your upside is:
a) WMB deal collapses with minimal breakup fee from ETE.
b) ETP's two big projects come online as planned in 2016 and 2017,
c) Thanks to new ETP projects, by end of 2017, ETE is paying out $1.50 annually, with +10% annual growth going forward.
d) Stock price will never get back to the 3% yield days, but 5% yield gets you to $30/unit (or $25 for 6% yield).
e) CHK declares BK and forces re-negotiation of all their WMB contracts. WMB share price continues to collapse, and WMB board wishes they'd closed the deal with ETE when they had the chance. They come back to ETE board, hat in hand, looking to sell the company at any price just to save their sorry #$%$.
Your worst case is the following:
a) merger closes and ETE gets saddled with $6 billion in debt that it can barely afford.
b) continued litigation with former WMB shareholders drags on even after the merger closes and ETE is forced to pony up even more money.
c) ETE slashes/eliminates distribution to support added debt + reduce IDRs to ETP.
d) Cash flow at newly-acquired WMB declines.
e) Lake Charles LNG project turns into an expensive boondoggle because everyone is overbuilding LNG projects and LNG pricing continues to fall.
f) it turns out ETE can't reasonably refinance the $6 billion when it becomes due in two years and has to issue massive amounts of new equity at firesale prices, permanently diluting existing unitholders.
Not predicting that, mind you -- but *every* equity investment has a downside that you should be aware of. I personally think Warren will figure out a way through this mess but am sanguine about a messy year or two in the meantime, and do think that the distribution is likely to get cut if the WMB deal closes.
Could be simply waiting for Fed approval --
"CCAR submissions are IN … now we wait for the results. We are confident in the capital strength of the CS Large and Mid Cap Banks—and with that, their capacity for increased capital return. Capital positions and mix are uniformly stronger than one year ago, risk reductions continue and balance sheet efficiency has improved. That being the case, despite the harsher Fed severely adverse scenario, this balance sheet progress should translate to increased capital return as a result. Herein, we estimate stressed capital ratios and capital return capacity. Important to note, we have used a heavy hand in stressing PPNR and losses—including an estimated hit from negative interest rates, a harsher trading shock and more severe global recession. Still, capital ratios weather our stress scenario with ample cushion for increased capital return…
We estimate total net capital return (dividends and buybacks) increases, to 77% from 58% in CCAR 2015 with a median dividend payout ratio of 31% vs. 27% in 2015. Incremental dollars of capital return will skew to share repurchase given both valuation and the Fed’s clear preference for the flexibility afforded by buybacks.
Who is positioned for the most capital return? We expect Morgan Stanley, Regions Financial (RF), Goldman Sachs, Fifth Third Bancorp (FITB), PNC Financial Services Group (PNC), and U.S. Bancorp (USB) to be approved for the most amount of capital return during 2016 (ranging between 80-100% of estimated 2016 earnings)."
I believe that if even if you do the exchange, you will still be liable for reacapturing all of the past passive losses just as if you'd sold the units, so from that point of view, may as well just sell them. That way you at least get to realize the capital loss to offset some of your other income.
I am just fervently hoping that they don't sweeten the deal even more for WMB holders to make the lawsuit go away, at expense of ETE holders, like bumping up the number of shares WMB holders are getting.
as long as advertisers are dumb enough to pay for ads to be placed there, nothing will change. So you've got one set of bots creating garbage posts, and another set of bots placing ads on those posts, and another set of bots generating automated clicks on those pages. You, as an actual human user, are actually no longer necessary to the whole Internet business model. Actually, you're kind of a pain-in-the#$%$ to the whole process -- real human beings are more trouble than they're worth now that we have machines to click on links. Which is all the internet has become from a business standpoint.