In an August 26th article in Oil & Gas Financial Journal, contributors Seth Appel and Roger Weiss reported that Vanguard Natural Resources (NASDAQ:VNR) became the first energy Master Limited Partnership (MLP) to issue non-convertible perpetual preferred equity, which allows MLPs to access capital markets without diluting existing investors. This move opens the doors for other MLPs to pursue less expensive equity capital to help sustain growth in the rapidly expanding energy sector.
Non-convertible perpetual shares also offer significant benefits to both retail and institutional investors.
For retail investors, an investment in an energy-related MLP can offer higher yields than those found in today’s low interest rate environment. A preferred share’s investor-friendly $25 par value and national exchange trading options make it easy to diversify into an income-generating energy option to enhance portfolio performance.
The perpetual share option also allows institutional portfolio managers to tap into opportunities in the robust domestic midstream oil and natural gas industry. In the past, institutional investors have not been able to take advantage of energy MLPs due to tax timing differences associated with MLP K-1s. With perpetual shares, MLPs can now issue a simplified K-1 similar to a 1099, which eliminates the tax timing conflict. Now, institutional portfolio managers can enjoy the freedom to pursue serious investments in MLPs that are driving domestic energy production, support, and transportation.