Dcp midstream lp 7.875% preferred units begin trading on nyse – dcp midstream (nyse dcp) seeking alpha 5 gases emitted from the exhaust pipe

Our main goal is purely to inform you about the product while refraining ourselves from an investment recommendation. Even though the product may not be of interest to us and our financial objectives, it definitely is worth taking a look at. The New Issue

DCP Midstream LP 7.875% Series B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (NYSE: DCP-B) pays a fixed dividend at a rate of 7.875% before 06/15/2023 and then switches to a floating dividend at a rate of the Three-month LIBOR plus 4.919%. The new preferred units carry a ‘B’ S&P rating and are callable as of 12/15/2023. Currently, the new issue trades at a price of $24.76 and has a Current Yield of 7.95% and Yield-to-Call of 8.11%. The dividends paid by this preferred stock are not eligible for the preferential 15-20% tax rate on dividends. They are also not eligible for the dividend received deduction for corporate holders. This means that the "qualified equivalent" Current Yield and YTC would be 6.63% and 6.76%, respectively.

We intend to furnish to each unitholder, within 90 days after the close of each taxable year, specific tax information, including a Schedule K-1, which describes each unitholder’s share of our income, gains, losses and deductions for our preceding taxable year. In preparing this information, which will not be reviewed by tax counsel, we will take various accounting and reporting positions, some of which have been mentioned earlier, to determine each unitholder’s share of income, gains, losses and deductions. We cannot assure you that those positions will yield a result that conforms to the requirements of the Code, Treasury Regulations, administrative interpretations of the IRS, or applicable court decisions. Neither we nor tax counsel can assure prospective unitholders that the IRS will not successfully contend in court that those positions are impermissible. Any challenge by the IRS could negatively affect the cash available for distributions and the value of the units.

At any time prior to June 15, 2023, within 120 days after the conclusion of any review or appeal process instituted by us following the occurrence of a Ratings Event (as defined below), we may, at our option, redeem the Series B Preferred Units in whole, but not in part, at a redemption price in cash per Series B Preferred Unit equal to $25.50 (102% of the liquidation preference of $25.00), plus an amount equal to all accumulated and unpaid distributions thereon to, but not including, the date fixed for redemption, whether or not declared. Any such redemption would be effected only out of funds legally available for such purpose and will be subject to compliance with the provisions of our outstanding indebtedness.

Upon the occurrence of a Change of Control Triggering Event (as defined below), we may, at our option, redeem the Series B Preferred Units, in whole or in part, within 120 days after the first date on which such Change of Control Triggering Event occurred, by paying $25.00 per Series B Preferred Unit, plus all accumulated and unpaid distributions to, but not including, the redemption date, whether or not declared. If, prior to the Change of Control Conversion Date, we exercise our redemption rights relating to the Series B Preferred Units, holders of the Series B Preferred Units that we have elected to redeem will not have the conversion right described under “Description of the Series B Preferred Units—Conversion Right Upon a Change of Control Triggering Event.” Any cash payment to holders of Series B Preferred Units will be subject to the limitations contained in our revolving credit facility and in any other agreements governing our indebtedness.

We intend to use the net proceeds from the sale of Series B Preferred Units for general partnership purposes, including funding capital expenditures and the repayment of indebtedness under our revolving credit facility. We may temporarily invest the net proceeds in short-term marketable securities until they are used for their stated purpose.

With the current market capitalization of the new issue of $150M, it is a potential addition to the S&P U.S. Preferred Stock iShares Index (NASDAQ: PFF). If the average monthly volume of DCP-B after its first six months trading on the NYSE is more than 250,000, it would be eligible to be included in the S&P U.S. Preferred Stock Index. With fewer than six months of trading history, issues are evaluated over the available period and may be included if available trading history infers the issue will satisfy this requirement.