Kinder Morgan Energy Partners (NYSE:KMP) is selling 6.9 million shares intended to repay commercial paper and for general partnership uses. The stock sale was severely criticized here at SeekingAlpha. Specifically, the article suggested the stock sale was poorly timed and should have been used to repay more expensive long-term debt rather than shorter-term debt. While no one likes having their positions diluted by equity offerings, this is how KMP and other MLPs finance themselves. Every year, KMP sells equity and debt "to repay commercial paper and for general partnership purposes." This February's offering is not a departure from KMP's previous equity offerings. The company makes debt and equity offerings each and every year. Anyone investing in KMP - or, for that matter, any MLP - should be prepared for this inevitable event. KMP does not time its stock issuance to take advantage of a high stock price. Rather, it sells stock when the company needs money to buy pipelines or repay debt.
Below is the history of KMP's equity offerings. Notice that its equity offerings are used almost always used to repay short-term debt and for general partnership uses and are not timed to take advantage of high share prices. Rather, KMP issues stock to meet its capital needs. However, stock offerings are often followed by higher share prices.
- February 2014: 6.9 million unit equity to repay commercial paper and for general partnership uses.
- February 2013: 4 million unit equity offering to repay commercial paper and for general partnership uses.
- December 2012: 3.9 million unit equity offering to repay commercial paper.
- June 2011: 6.7 million unit equity offering to repay to repay commercial paper debt and for general partnership purposes.
- May 2010: 6.5 million unit equity offering to repay short-term debt and for general partnership uses.
- November 2009: 4.5 million unit equity offering to repay revolving credit and for general partnership uses.
- December 2008: 3.9 million unit equity offering to repay revolving credit and for general partnership uses.
- May 2008: 5 million unit equity offering to repay revolving credit and for general partnership uses.
Kinder Morgan Energy Partners Always Prepares Investors For Its Stock Offerings.
This offering should come as no surprise. As it does every year, KMP alerted shareholders about its capital needs during its investors annual meeting in January.
KMP's stock offering provides the capital to fund the company's projects and debt. This issuance should not surprise anyone. Without stock and debt issuance, there would be no expansion capital. Over the last 20 years, these stock offerings have served KMP well. After all, KMP shares have increased in price by 1200% - not including their bountiful distributions.
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