Energy Transfer Partners’ secondary offering
Energy Transfer Partners (ETP) announced a public offering of 54 million common units in a press release published on August 14. The offering includes a 30-day option for the underwriter to purchase eight million additional units. The units were priced at $18.65 per common unit. The partnership expects to raise ~$1.2 billion from the offering, which would be used for debt repayment and funding growth projects.
Market reaction to equity offering
Energy Transfer Partners stock crashed 5.2% following the announcement due to the dilution from the equity offering and the expected rise in the cost of equity. On the other hand, Energy Transfer Equity (ETE) rallied 3.8%. ETE, which owns the IDRs (incentive distribution rights) in ETP, is expected to benefit from the equity offering. IDRs entitle its holder a higher share of incremental cash flows. The equity offering would drive ETE’s distributable cash flows and coverage ratio higher in the coming quarters.
ETP’s equity issuance at such a high cost of equity capital reflects its desperate attempt to reduce the outstanding borrowing while the cash flows from expansion projects are delayed due to project delays and its massive spending plans for 2H17. ETP expects to spend $2.2 billion in the second half of the year net of asset-level financing and a stake sale in the Rover Pipeline project.
Energy Transfer Equity’s YTD performance
ETE has lost 8.3% since the beginning of this year. In comparison, ETE’s MLP peers Plains GP Holdings (PAGP) and EnLink Midstream (ENLC) have lost 39.9% and 13.9%, respectively. ETE’s C corporation peers Williams Companies (WMB) and Kinder Morgan (KMI) have lost 3.8% and 9.0% in 2017. AMLP has lost 14.1% in 2017.
In this series, we’ll try to find out whether ETE can gain upward momentum from here. We’ll look into ETE’s price forecast and technical indicators. Following this, we’ll look into ETE’s valuation and analyst recommendations.