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NuStar Energy Series A Preferred Shares - Safe Short Duration Play For An 8.4% Yield

Aug. 04, 2021 5:27 PM ETNuStar Energy L.P. (NS), NS.PR.A21 Comments
Binary Tree Analytics profile picture
Binary Tree Analytics


  • NuStar Energy Series A Preferred Shares have a Dec. 15, 2021 call date and are the first NuStar preferred tranche to become due for an optional redemption.
  • Despite the overall NuStar Energy leverage, which is on the high side, its Senior Secured Notes are trading well in the secondary market, signaling funding market's risk appetite for NuStar.
  • NuStar Energy has no other debt coming due until 2022, and not redeeming its Series A on their call date would virtually shut it out from that market.
  • If you think there might be a shallow correction coming in the risk markets, but still want to stay involved in the preferred space, a short duration play is best.

Oil pipeline in green landscape
spooh/E+ via Getty Images

NuStar Energy (NYSE:NS) is a pipeline MLP that relies heavily on preferred shares for its capital structure and has all three publicly traded outstanding tranches coming due from a call date perspective in the next

This article was written by

Binary Tree Analytics profile picture
With a financial services cash and derivatives trading background, Binary Tree Analytics aims to provide transparency and analytics in respect to capital markets instruments and trades.We are reachable at BinaryTreeAnalytics@gmail.com_____________________________http://www.BinaryTreeAnalytics.com

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in NS.PA over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The above references constitute an opinion and are for information purposes only.

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Comments (21)

Matt4Coffee profile picture
Will distributions paid on the Preferred units be treated as interest expense, or just like any other (common) distributions? I assume this it is the latter, in which case it probably makes the most sense to hold the Preferred C shares I'm considering buying at this time in a taxable account...

(Though my Preferred B's are currently held in my ROTH!)
houtex profile picture
You can, and should, always check the prospectus. For instance for Series C it says “We will treat distributions on the Series C Preferred Units as guaranteed payments for the use of capital that will generally be taxable to the holders of Series C Preferred Units as ordinary income and will be deductible by us. ” I think “guaranteed payments for the use of capital” is different than interest expense, though they may each get similar treatment on the partnership’s books, I don’t believe if you buy bonds you get a K-1 which you will get on the preferreds.
Eileen Dover profile picture
NS cut dividend big time TWICE in past 3 years. No thank you !!
@Eileen Dover A dividend (distribution) cut on the common is a positive for the preferreds.
ckarabin profile picture
@Eileen Dover The dividend coverage is 223% now too. The y cut the dividend to deleverage. Getting the preferred back will likely be part of that capital reduction
houtex profile picture
“the company's competitive yield on senior secured debt in the secondary”
Are the notes secured? The 10k indicates most of the notes are unsecured (“The 6.0% senior notes rank equally with existing senior unsecured indebtedness and senior to existing subordinated indebtedness of NuStar Logistics. The 6.0% senior notes contain terms comparable to our other senior notes, including the 5.75% and 6.375% senior notes described above.”), and the FINRA page says none are secured. Is the revolver even secured?
@houtex All their publically traded debt is unsecured. Revolvers are always secured.
houtex profile picture

“Revolvers are always secured.“

Revolvers aren’t always secured. Don’t make such assertions when they aren’t true.

Anyway, Nustar’s revolver is indeed unsecured according to Moody’s. I was looking yesterday and couldn’t find any mention of the security underpinning the revolver, so I thought it was unsecured, but I never saw any affirmation of that. “NuStar Logistics' various unsecured bonds and its 2020 revolving credit facility are unsecured and pari passu.” www.moodys.com/...
Preferred Stock Trader profile picture
Not calling a preferred stock in no way damages their access to the preferred market. There are a boatload of preferred stocks that are callable now that haven't been called. A preferred stock is not a bond, it has no maturity date, and nobody owning a preferred stock should expect a company to call it unless it makes sense for the company to do so. I will take the other side and predict they will not call the preferred stock. They let their NSS bond float rather than calling it and it will have the same yield as NS-A after NS-A's call date. If they are going to call something, which I don't think they are, it will be NSS and not NS-A.
Binary Tree Analytics profile picture
@Preferred Stock Trader hi - thank you for the comment. The NuStar Logistics L.P., 7.625% Fixed-to-Floating Rate Subordinated Notes due 1/15/2043 (NSS) which you seem to reference are categorized from an accounting standpoint as Debt Obligations (as per the SEC filings) and thus sit on the Liability side of the balance sheet. The Series A preferred shares are Partners’ equity and are issued via the standard 5 year non call feature and priced as such. The Sub Notes will not be called because the company has no benefit from doing that + they were issued as variable rate bonds to begin with - ie on pricing date you price cash-flows to maturity (2043) and you benefit from the capital structure subordination (upon an event of bankruptcy Sub Notes rank above preferred shares and common equity) - thus the more advantageous pricing. hope this helps.
Preferred Stock Trader profile picture
@Binary Tree Analytics NSS was not issued as a variable rate to begin with. It was issued as fixed-to-floating just like NS-A but hit its floating rate date earlier than NS-A. And it is much more to NS's benefit to call NSS as it would show up as reducing their leverage. Calling NS-A would not reduced their reported leverage. In fact, if they floated debt to raise money to call NS-A, it would increase leverage by adding to balanced sheet liabilities. The last thing NS wants to do is increase their leverage needlessly. I don't mean to be critical as I see you are a new author and I think you tried to do an interesting article. But all authors can learn from the comments. I encourage you to keep writing and learning.
Binary Tree Analytics profile picture
@Preferred Stock Trader hi - thank you for your comments. my feedback:

i) in all their SEC filings the company describes the 2043 Notes as "Variable-Rate-Debt" - please reference the Q1 2021 Form 10-Q (pg 30, "Item 3.Quantitative and Qualitative Disclosures About Market Risk")

ii) In respect to the 2043 Notes - these are not included in the debt / ebitda metric that the company reports b/c they follow the Revolver covenant and calculations (a fairly standard market practice in the MLP space). As a reference point please see pg 39 of the May Management Preso (investor.nustarenergy.com/...). Also in my article above i detail the company's methodology for coming up w/ their debt/Ebitda number as per the Revolver covenant

iii) the article is not of the opinion that NS.PA will be taken out by debt, but is talking about the ability of the company to refinance NS.PA via new 5-year non call preferred shares
Binary Tree Analytics profile picture
@petergo007 hi Peter - thank you for the comment. kindly see the above explanation given to the "Preferred Stock Trader" user.
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