Enterprise Products Partners L.P. (NYSE: EPD) is effectively the largest of master limited partnerships out there, and now it wants to get larger. The MLP is selling some 8,000,000 common units representing limited partner interests in the partnership via a public offering. This is the same as a secondary offering of stock.
Enterprise said in its release that it plans to use the net proceeds from this offering for general partnership purposes. Those general purposes include debt repayment, “including the repayment of amounts outstanding under its multi-year revolving credit facility or commercial paper program, working capital, capital expenditures and acquisitions.”
The offering group is rather large. Barclays, BofA Merrill Lynch, Citigroup, J.P. Morgan, Morgan Stanley, UBS Investment Bank and Wells Fargo Securities were all listed as joint book-running managers for the offering. Enterprise will give the underwriters an overallotment option to purchase up to 1,200,000 additional common units.
Enterprise closed down 0.7% at $55.99 on Monday against a 52-week trading range of $45.67 to $56.83. If you adjust for a January distribution, Enterprise’s units are up a sharp 13% since the end of December as investors do not have to fear any major tax changes now. This is the chase for income and distribution taking place.
We would caution that if Enterprise is going to raise more capital that other MLPs are likely to follow suit if this is well received. That being said, this is only $450 million or so before any dilution and Enterprise has a market value of nearly $50 billion. The MLP is indicated down almost 3% after the news.
We would be sure to watch the shares of ALPS Alerian MLP ETF (NYSEMKT: AMLP) and JPMorgan Alerian MLP Index ETN (NYSEMKT: AMJ) in the MLP ETFs and we would watch Kayne Anderson MLP Investment Company (NYSE: KYN) in closed-end funds on this news. With Enterprise being the MLP king, this is a top holding all three products. If the largest MLP raises cash and dilutes, the other large MLPs and second-tier MLPs are likely to follow suit. If that happens, then profit taking and possible near-term short selling are likely to come back as a temporary theme in the MLP sector.
Credit Suisse also just released its favorite MLPs for the year ahead as well.
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