NGL preferred stock looks quite interesting for income investors.
The tickers are NGL-B and NGL-C.
Why interesting.
Both were originally fixed rate preferreds paying about 9%. The B's began floating last year, and now pay about 12.8%. The C's float from April 15th this year, and from then on will also pay about 12.8%.
All preferred stock is in arrears, and acruing obligations. The B's had earned $8.88 through Dec 31st last year, the C's about $8.06.
The B's and C's are perpetual.
There are also D's which are private held. The D's expire in summer 2027.
NGL has indicated that going forward their uses of free cash flows will be to retire the D's and increases Growth Cap ex. There may be some nominal common unit distribution, but also, there may not!
Since NGL plans to spend money to retire the D's (about $550m outstanding) it seems they may leave the B's and C's outstanding for, well, quite a long time. A quick rought financial look at NGL is as follows:
EBITDA = $650m, I think this is going up to around $700m next fiscal year (fiscal year ends March), but they haven't given guidance yet.
Debt interest + Preferred dividend payments = $350m
Cap Ex = $150m+
So they have $150m left over each year with nowhere to go, less if they spend on growth Cap Ex.
They have $550m preferred class D outstanding, and they plan to buy that back before 2027 (or perhaps they refinance it with other preferreds sooner?).
NGL has already announced plans to pay half the arrearage this month, and plan to pay the remainder soon after some planned asset sales which are expected to occur before March 31st, 2024.
finance.yahoo.com
Well, it seems to me a good idea to just sit in the B's and C's and collect 12.8% until NGL retires them. Both are now trading at about $32, and will pay $8.50-$9.25 in the next few months. So ignoring taxes, you've got a chance to buy 12.8% preferred stock for $32 - $9 = about $23. Seems like a not too bad idea. |
