01—Abstract
Summary
Summary of the 8-K filed June 10, 2024. Cited figures are marked; the original filing is the authoritative source.
On June 6, 2024, Energy Transfer LP (NYSE: ET) priced two concurrent public debt offerings totaling $3.9 billiona in gross principal.
The senior notes offering raised $3.5 billionb across three tranches: $1.0 billion of 5.250% notes due 2029, $1.25 billion of 5.600% notes due 2034, and $1.25 billion of 6.050% notes due 2054. The offering also included $400 million of 7.125% fixed-to-fixed reset rate junior subordinated notes due 2054. Net proceeds are estimated at about $3.463 billion from the senior notes and $396 million from the junior subordinated notes, before offering expenses.
Both offerings are expected to close on June 21, 2024, and the closings are not conditioned on each other. The primary use of proceeds is to fund all or part of the cash consideration for the previously announced acquisition of WTG Midstream Holdings LLC. The partnership also plans to repay revolving credit facility borrowings and other indebtedness, and to redeem all of its outstanding Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units at $1,009.87899c per unit, which equals the $1,000 liquidation preference plus accrued distributions through the June 21 redemption date.
The financing is largely a refinancing and acquisition funding exercise that replaces higher-cost preferred equity and revolver debt with longer-dated fixed-rate notes. Investors should note the mix of rates and maturities, and that the junior subordinated notes carry subordination and reset features that rank them below the senior notes. The underwriters, Barclays, J.P.
Morgan, MUFG, TD Securities, and Wells Fargo Securities, will earn underwriting commissions. Affiliates of the underwriters are also lenders under the revolver and hold some of the Series A preferred units, so they will receive a share of the proceeds through those repayments and redemptions. The offerings were made under an effective Form S-3 shelf registration (File No. 333-279982) that became effective on June 5, 2024.
02—Key points
Key Highlights
- Total gross debt issuance of $3.9 billion: $3.5 billion of senior notes (2029, 2034, and 2054 maturities) plus $400 million of 7.125% fixed-to-fixed reset junior subordinated notes due 2054.
- Senior notes priced at 99.797%, 99.741%, and 99.461% of face value for the 2029, 2034, and 2054 tranches. The weighted-average coupon on the senior notes is roughly 5.7%.
- Estimated net proceeds are $3.463 billion from the senior notes and $396 million from the junior subordinated notes, before offering expenses.
- Primary use of proceeds is funding the cash consideration for the acquisition of WTG Midstream Holdings LLC, with additional proceeds used to refinance revolver borrowings and other debt.
- All outstanding Series A preferred units will be redeemed on June 21, 2024 at $1,009.87899 per unit, which is the $1,000 liquidation preference plus unpaid distributions.
- Expected closing on June 21, 2024, with the senior and junior notes closings independent of each other, so closing risk on one offering does not affect the other.
- Underwriter affiliates are lenders under the revolver and hold Series A preferred units, so they will receive a portion of the proceeds through debt repayment and preferred redemption.
03—Questions
Frequently Asked Questions
What securities did Energy Transfer sell and how much did it raise?
Energy Transfer sold $3.5 billion of senior notes in three tranches: $1.0 billion of 5.250% notes due 2029, $1.25 billion of 5.600% notes due 2034, and $1.25 billion of 6.050% notes due 2054. It also sold $400 million of 7.125% fixed-to-fixed reset rate junior subordinated notes due 2054. Net proceeds are about $3.463 billion from the senior notes and $396 million from the junior notes, before offering expenses.
Why is Energy Transfer issuing this debt?
The company plans to use the proceeds mainly to fund the cash consideration for its previously announced acquisition of WTG Midstream Holdings LLC. The remaining proceeds will repay revolver borrowings and other indebtedness, redeem the Series A preferred units, and fund general partnership purposes.
What happens to the Series A preferred units?
Energy Transfer issued a notice to redeem all outstanding Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units on June 21, 2024. The redemption price is $1,009.87899 per unit, equal to the $1,000 liquidation preference plus unpaid distributions through the redemption date.
When will the offerings close, and are they dependent on each other?
Both offerings are expected to close on June 21, 2024, subject to customary closing conditions. Each closing is independent of the other, so the senior notes can close even if the junior subordinated notes do not, and vice versa.
Do the underwriters have any conflicts of interest?
Yes. The filing notes that underwriters and their affiliates earn underwriting commissions and also receive part of the net proceeds. They are lenders under the revolving credit facility, which may be repaid with proceeds, and some hold Series A preferred units, which will be redeemed with proceeds.
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