Energy

2 MLP ETNs Bite the Dust

Jon C. Ogg

Published: January 20, 2016 2:12 pm

Last Updated: January 13, 2020 2:48 pm

There is another casualty in the land of exchange traded funds (ETFs) and exchange traded notes (ETNs). Make that two casualties. Should you be surprised to learn that they are also tied to energy or to master limited partnerships (MLPs)? Or would you be surprised if they are leveraged?

UBS Investment Bank announced on Wednesday that all outstanding notes of the ETRACS 2xMonthly Leveraged S&P MLP Index ETN due July 14, 2045 (MLPV) will be under a mandatory redemption. By these being redeemed, that sure sounds like it will invoke mandatory loss recognition.

UBS said that this is in accordance with the terms of the securities as a result of the occurrence of an acceleration event, triggered as a result of the intraday indicative value of the securities being equal to or less than $5.00 on January 20, 2016.

The UBS ETRACS 2xM Lvg Lng Alrn MLP Infr ETN (MLPL) is also being closed.

Investors hate seeing their ETFs get a mandatory redemption, but perhaps this should not be a surprise. Even back on December 4, UBS said that it was suspending further sales of the MLPL, as follows:

UBS AG announced today that it has suspended further sales from inventory of its outstanding ETRACS 2xMonthly Leveraged Long Alerian MLP Infrastructure Index ETN (NYSE Arca: MLPL). This suspension will remain in effect until further notice from UBS AG. As previously announced on October 8, 2015, UBS AG does not intend to issue any new notes of this ETN, which is part of a series of UBS AG debt securities designated as “Medium-Term Notes, Series A.” As a result, following this announcement, UBS does not intend to make further sales of previously issued but unsold notes of this ETN or notes of this ETN that UBS Securities LLC may acquire in the future. This ETN will continue to trade on the NYSE Arca.

The one day drop here (for MLPL) was last seen down 27% at $8.36 (versus a 52-week high of $56.25) on Wednesday, while the other drop (for MLPV) was down 29% at $4.70 (versus a 52-week high of $27.08).