What is the main purpose of issuing these Series A Cumulative Convertible Preferred Units?

While the specific strategic intent is not explicitly detailed, the issuance of preferred units typically serves to raise capital while offering a fixed return to investors, potentially strengthening the company's financial position or funding growth initiatives. The senior ranking and distribution preference suggest a focus on deleveraging or securing stable financing. The net proceeds of approximately $31.4 million indicate a significant capital infusion.

How will the new Preferred Units affect distributions to Common Unit holders?

The terms of the Series A Preferred Units significantly impact Common Unit distributions. EPD is prohibited from paying any distributions on its Common Units unless the full cumulative distributions on the Preferred Units (and any parity securities) have been paid or set aside for payment. This means Common Unit holders will not receive distributions until the 7.25% annual preference for Preferred Unit holders is satisfied.

Under what conditions can the Preferred Units be converted into Common Units?

Holders of the Preferred Units have the right to convert them into Common Units under specific circumstances. This conversion can occur on or after the fifth anniversary of the closing date, based on a formula involving the original purchase price and the weighted average price of common units. Additionally, conversion is possible upon an 'investment grade rating event' prior to the sixth anniversary, also at a specified conversion ratio.

Does EPD have the option to redeem these Preferred Units, and at what price?

Yes, EPD has the right to redeem the Preferred Units. The redemption price varies based on the timing of the redemption, starting at $1,100 per unit prior to the second anniversary and decreasing to $1,000 per unit on or after the sixth anniversary, in each case plus accrued and unpaid distributions. There are also specific redemption terms related to change of control events.

EPD 8-K: Leadership Changes, Material Agreements & More

Summary

Enterprise Products Partners L.P. (EPD) has announced a significant transaction involving the issuance of Series A Cumulative Convertible Preferred Units. This move includes an exchange of common units for preferred units with OTA Holdings, Inc., and a private placement of preferred units to a group of investors, raising $50.0 million in gross proceeds. The net proceeds, after fees and expenses, are expected to be approximately $31.4 million. This transaction establishes a new class of preferred units that rank senior to common units in terms of distributions and liquidation, and carries a fixed cumulative distribution rate of 7.25% per annum. Crucially, the issuance of these preferred units imposes restrictions on the payment of distributions to common unitholders. EPD will be prohibited from paying distributions on common units unless full cumulative distributions on the preferred units have been met. This structure suggests a strategic financial maneuver by EPD, potentially to strengthen its balance sheet or fund operations, while also signaling to investors a commitment to a fixed return for preferred holders before common holders receive distributions. The terms also outline conversion rights into common units under specific conditions, including after a five-year period or upon certain investment grade rating events, as well as redemption rights for EPD and change of control provisions.

Key Highlights

1EPD issued 855,915 Series A Cumulative Convertible Preferred Units in exchange for 54,807,352 Common Units from OTA Holdings, Inc.
2EPD raised $50.0 million in gross proceeds through a private placement of 50,000 Series A Cumulative Convertible Preferred Units to a group of investors.
3Net cash proceeds from the private placement are estimated at $31.4 million.
4The Series A Preferred Units have a senior preference over Common Units regarding distributions and liquidation and bear a 7.25% cumulative annual distribution rate.
5Distribution payments to Common Units are restricted unless full cumulative distributions on Preferred Units are met.
6Preferred Units can be converted into Common Units under specific conditions, including after five years or upon an investment grade rating event.
7EPD has the right to redeem the Preferred Units at specified prices and dates, with varying redemption values.

ENTERPRISE PRODUCTS PARTNERS L.P. 8-K Report, Material Agreement (Oct 1, 2020)

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