Energy

Plains All American Maintains Payout, Adds $1.5B in Private Placement

Paul Ausick

Published: January 12, 2016 12:35 pm

Last Updated: January 13, 2020 3:08 pm

Two news items from Plains All American Pipeline L.P. (NYSE: PAA) released Tuesday morning pushed the midstream energy company’s shares up nearly 25% shortly after the opening bell. The company said that its fourth-quarter cash distribution will be $0.70 per common unit, unchanged from its third-quarter payout, and that the company had completed a private placement of $1.5 billion in 8% perpetual convertible preferred units at $26.25 per common unit.

Plains G.P. Holdings L.P. (NYSE: PAGP), the publicly traded portion of the Plains’s general partner, will also maintain its quarterly payout at $0.231 per class A share. Maintaining current distribution levels in the current energy price environment is virtually equal to increasing payouts.

Plains said that it has binding commitments for its convertible preferred unit offering from affiliates of EnCap Investments, EnCap Flatrock Midstream, Energy Minerals Group, Kayne Anderson Capital Advisors and First Reserve Advisors, among others. The preferred units will pay an annual distribution of $2.10 per unit (8%) and will be convertible to common units on a one-for-one basis after two years. Under certain conditions, the units are convertible to common units at Plains’s option after three years.

Plains also modified its incentive distribution rights (IDRs) in connection with the convertible unit offering:

[W]hen the Preferred Units convert into PAA common units, the IDRs associated with the resulting common units will only participate in distribution growth above PAA’s current distribution level of $2.80 per converted common unit. Assuming all Preferred Units convert into PAA common units, the modification represents a permanent IDR reduction of approximately $90 million per year.

24/7 Wall St.
Deutsche Bank Has 4 Blue Chip Dividend Oil Stocks With Big Upside Potential