Equity and Distributions

6 Months Ended

Jun. 30, 2020

Equity and Distributions [Abstract]

Equity and Distributions

Note 8.  Equity and Distributions

Partners’ Equity

The following table summarizes changes in the number of our limited partner common units outstanding and treasury units since December 31, 2019:

	Limited Partner Common Units Outstanding			Treasury Units
Units outstanding at December 31, 2019		2,189,226,130			–
Common units issued in connection with settlement of Liquidity Option		54,807,352			–
Treasury units acquired in connection with settlement of Liquidity Option		(54,807,352	)		54,807,352
Common unit repurchases under 2019 Buyback Program		(6,357,739	)		–
Common units issued in connection with the vesting of phantom unit awards, net		2,912,214			–
Other		19,638			–
Units outstanding at March 31, 2020		2,185,800,243			54,807,352
Common units issued in connection with the vesting of phantom unit awards, net		96,190			–
Units outstanding at June 30, 2020		2,185,896,433			54,807,352

We have a universal shelf registration statement (the “2019 Shelf”) on file with the SEC which allows EPD and EPO (each on a standalone basis) to issue an unlimited amount of equity and debt securities, respectively. EPO issued $3.0 billion of senior notes in January 2020 using the 2019 Shelf (see Note 7).

In addition, EPD has a registration statement on file with the SEC covering the issuance of up to $2.54 billion of its common units in amounts, at prices and on terms to be determined by market conditions and other factors at the time of such offerings in connection with its at-the-market (“ATM”) program.  During the six months ended June 30, 2020 and 2019, EPD did not issue any common units under its ATM program.  After taking into account the aggregate sales price of common units sold under the ATM program through June 30, 2020, EPD has the capacity to issue additional common units under its ATM program up to an aggregate sales price of $2.54 billion.

We may issue additional equity and debt securities to assist us in meeting our future liquidity requirements, including those related to capital investments.

Settlement of Liquidity Option in March 2020

On February 25, 2020, the Partnership received notice from Marquard & Bahls AG (“M&B”) of its election to exercise its rights (the “Liquidity Option”) under the Liquidity Option Agreement among EPD, OTA Holdings, Inc., a Delaware corporation previously named Oiltanking Holding Americas, Inc. (“OTA”), and M&B dated October 1, 2014 (the “Liquidity Option Agreement”).  On March 5, 2020, we settled our obligations under the Liquidity Option Agreement by issuing 54,807,352 new EPD common units to Skyline North Americas, Inc. (“Skyline,” an affiliate of M&B) in exchange for the capital stock of OTA.  Upon settlement of the Liquidity Option, we indirectly acquired the 54,807,352 EPD common units owned by OTA (which were issued to OTA in October 2014) and assumed all future income tax obligations of OTA, including its deferred tax liability.  At March 5, 2020, OTA’s assets and liabilities consisted primarily of the EPD common units it owned and the related deferred tax liability, respectively.

At March 5, 2020, our accrual for the Liquidity Option liability was $511.9 million.  The Liquidity Option liability, at any measurement date, represents the present value of estimated federal and state income taxes that we believe a market participant would incur due to ownership of OTA, including its deferred income tax liabilities.  OTA’s deferred tax liability at March 5, 2020 was $439.7 million.  The market value of the new EPD common units issued to Skyline was $1.3 billion based on a closing price of $23.67 per unit on March 5, 2020.

The 54,807,352 new EPD common units issued to Skyline upon settlement of the Liquidity Option constitute “restricted securities” in the meaning of Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”) and may not be resold except pursuant to an effective registration statement or an available exemption under the Securities Act.  In connection with the settlement of the Liquidity Option, Enterprise entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with Skyline. Pursuant to the Registration Rights Agreement, Skyline has the right to request that we prepare and file a registration statement to permit and otherwise facilitate the public resale of all or a portion of such EPD common units that Skyline and its affiliates then own.  Our obligation to Skyline to effect such transactions is limited to five registration statements and underwritten offerings.  In May 2020, we filed a registration statement on behalf of Skyline for the resale of up to 54,807,352 EPD common units. This registration statement is effective and, in June 2020, we filed a prospectus supplement to this registration statement that allows Skyline to sell up to $500 million of the EPD common units it owns in connection with an “at-the-market” program that it administers.   We will not receive any proceeds from such offerings.

As a result of the Liquidity Option settlement, the partners’ equity balance for common units (as presented on our Unaudited Condensed Consolidated Balance Sheet) increased by the $1.3 billion market value of the new EPD common units issued to Skyline.  Since OTA does not meet the definition of a business as described in ASC 805, Business Combinations, the acquisition of OTA was accounted for as the purchase of treasury units and assumption of the related deferred tax liability.  In consolidation, we present the 54,807,352 EPD common units owned by OTA as treasury units, with their historical cost based on the $1.3 billion market value of the 54,807,352 new EPD common units issued to Skyline.

Upon settlement of the Liquidity Option, the Liquidity Option liability was effectively replaced by the deferred tax liability of OTA as calculated in accordance with ASC 740, Income Taxes.  See Note 11 for additional information regarding OTA’s deferred tax liability.

Common Unit Repurchases Under 2019 Buyback Program

In January 2019, we announced that the Board of Enterprise GP had approved a $2.0 billion multi-year unit buyback program (the “2019 Buyback Program”), which provides EPD with an additional method to return capital to investors. The 2019 Buyback Program authorizes EPD to repurchase its common units from time to time, including through open market purchases and negotiated transactions.  The timing and pace of buy backs under the program will be determined by a number of factors including (i) our financial performance and flexibility, (ii) organic growth and acquisition opportunities with higher potential returns on investment, (iii) EPD’s unit price and implied cash flow yield and (iv) maintaining targeted financial leverage with a debt-to-normalized adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) ratio of approximately 3.5 times. No time limit has been set for completion of the program, and it may be suspended or discontinued at any time.

In January 2020, management announced its intention to use approximately 2.0% of net cash flow provided by operating activities, or cash flow from operations (“CFFO”), in 2020 to repurchase EPD common units under the 2019 Buyback Program.  EPD repurchased 6,357,739 common units under the 2019 Buyback Program through open market purchases during the six months ended June 30, 2020.  The total purchase price of these repurchases (including commissions and fees) was $140.1 million. During the six months ended June 30, 2019, EPD repurchased 2,909,128 common units under the 2019 Buyback Program for a total purchase price of $81.1 million.  The units repurchased during the six months ended June 30, 2020 and 2019 were immediately cancelled upon acquisition.  At June 30, 2020, the remaining available capacity under the 2019 Buyback Program was $1.78 billion.

Common Units Issued in Connection With the Vesting of Phantom Unit Awards

During the six months ended June 30, 2020, after taking into account tax withholding requirements, EPD issued a net 3,008,404 new common units to employees in connection with the vesting of phantom unit awards.  See Note 13 for information regarding our phantom unit awards.

Common Units Delivered Under DRIP and EUPP

EPD has registration statements on file with the SEC in connection with its distribution reinvestment plan (“DRIP”) and employee unit purchase plan (“EUPP”). In July 2019, EPD announced that, beginning with the quarterly distribution payment paid in August 2019, it would use common units purchased on the open market, rather than issuing new common units, to satisfy its delivery obligations under the DRIP and EUPP.  This election is subject to change in future quarters depending on the partnership’s need for equity capital.  During the six months ended June 30, 2020, a total of 3,379,971 common units were purchased on the open market and delivered to participants in connection with the DRIP and EUPP.  Apart from $1.3 million attributable to the plan discount available to all participants in the EUPP, the funds used to effect these purchases were sourced from the DRIP and EUPP participants.  No other partnership funds were used to satisfy these obligations.  We plan to use open market purchases to satisfy DRIP and EUPP reinvestments in connection with the distribution expected to be paid on August 12, 2020.

Accumulated Other Comprehensive Income (Loss)

The following tables present the components of accumulated other comprehensive income (loss) as reported on our Unaudited Condensed Consolidated Balance Sheets at the dates indicated:

	Cash Flow Hedges
	Commodity Derivative Instruments			Interest Rate Derivative Instruments			Other			Total
Accumulated Other Comprehensive Income, December 31, 2019	$	55.1		$	13.9		$	2.4		$	71.4
Other comprehensive income (loss) for period, before reclassifications		396.9			(284.2	)		(0.1	)		112.6
Reclassification of losses (gains) to net income during period		(364.3	)		33.2			–			(331.1	)
Total other comprehensive income (loss) for period		32.6			(251.0	)		(0.1	)		(218.5	)
Accumulated Other Comprehensive Income (Loss), June 30, 2020	$	87.7		$	(237.1	)	$	2.3		$	(147.1	)

	Cash Flow Hedges
	Commodity Derivative Instruments			Interest Rate Derivative Instruments			Other			Total
Accumulated Other Comprehensive Income (Loss), December 31, 2018	$	152.7		$	(104.8	)	$	3.0		$	50.9
Other comprehensive income (loss) for period, before reclassifications		(13.7	)		(5.2	)		(0.6	)		(19.5	)
Reclassification of losses (gains) to net income during period		(60.5	)		18.4			–			(42.1	)
Total other comprehensive income (loss) for period		(74.2	)		13.2			(0.6	)		(61.6	)
Accumulated Other Comprehensive Income (Loss), June 30, 2019	$	78.5		$	(91.6	)	$	2.4		$	(10.7	)

The following table presents reclassifications of (income) loss out of accumulated other comprehensive income into net income during the periods indicated:

		For the Three Months Ended June 30,						For the Six Months Ended June 30,
Losses (gains) on cash flow hedges:	Location	2020			2019			2020			2019
Interest rate derivatives	Interest expense	$	9.7		$	9.2		$	33.2		$	18.4
Commodity derivatives	Revenue		(209.8	)		(2.5	)		(364.2	)		(67.8	)
Commodity derivatives	Operating costs and expenses		1.1			0.3			(0.1	)		7.3
Total		$	(199.0	)	$	7.0		$	(331.1	)	$	(42.1	)

For information regarding our interest rate and commodity derivative instruments, see Note 14.

Cash Distributions

On July 7, 2020, we announced that the Board declared a quarterly cash distribution to be paid to our limited partners with respect to the second quarter of 2020 of $0.4450 per common unit, or $1.78 per unit on an annualized basis.  The quarterly distribution associated with the second quarter of 2020 is payable on August 12, 2020, to unitholders of record as of the close of business on July 31, 2020.  This distribution represents a 1.1% increase over the distribution declared with respect to the second quarter of 2019.

In light of current economic conditions, management will evaluate future cash distributions in 2020 on a quarterly basis.  The payment of any quarterly cash distribution is subject to Board approval and management’s evaluation of our financial condition, results of operations and cash flows in connection with such payments.