10-K: Global Partners LP Outlines Common Unit and Preferred Unit Details in SEC Filing

Global Partners LP details the rights, transfer conditions, and distribution policies for its common and preferred units in a recent SEC filing.

Summary

• This document outlines the terms and conditions for Global Partners LP's common units, Series A Preferred Units, and Series B Preferred Units.
• Common unitholders are entitled to participate in partnership distributions and exercise rights available to limited partners.
• Transfer of common units requires the transferee to agree to the partnership agreement and request admission as a substituted limited partner.
• The partnership aims to distribute available cash quarterly, prioritizing common unitholders, Series A Preferred Units, and Series B Preferred Units.
• The minimum quarterly distribution for common units is $0.4625 per unit, or $1.85 per year, but this is not guaranteed.
• The general partner is entitled to 0.67% of all quarterly common unit distributions and has incentive distribution rights that can reach a maximum of 48.67% of distributable cash flow above $0.4625 per unit.
• Series A Preferred Units have a liquidation preference of $25.00 per unit and cumulative distributions, with a floating rate after August 15, 2023, based on a substitute or successor base rate comparable to the three-month LIBOR plus a spread of 6.774% per annum.
• Series B Preferred Units have a liquidation preference of $25.00 per unit and cumulative distributions at a fixed rate of 9.50% per annum.
• The partnership may redeem Series A Preferred Units at any time at $25.00 per unit plus accumulated unpaid distributions and Series B Preferred Units on or after May 15, 2026 at $25.00 per unit plus accumulated unpaid distributions.
• Distributions are characterized as either distributable cash flow or capital surplus, with different allocation methods.
• Upon liquidation, proceeds are distributed to creditors first, then to preferred unitholders, and finally to common unitholders based on capital account balances.
• The partnership agreement outlines voting rights, limited liability, and procedures for amendments, mergers, and dissolution.

Sentiment

Score: 7

Explanation: The document is neutral in tone, providing detailed information about the partnership's structure and distribution policies. It highlights both the potential benefits and risks for investors, making it a balanced and informative document.

Positives

• The partnership aims to distribute the majority of cash generated from its business to common unitholders.
• The partnership has a clear distribution policy that prioritizes common unitholders, Series A Preferred Units, and Series B Preferred Units.
• The partnership has the option to redeem Series A and Series B Preferred Units, providing flexibility in capital management.
• The partnership agreement outlines clear procedures for amendments, mergers, and dissolution, ensuring transparency and governance.

Negatives

• There is no guarantee that common unitholders will receive quarterly distributions.
• The general partner has broad discretion to establish reserves, which could reduce distributions.
• The partnership relies on external financing, which could impair its ability to grow if such financing is unavailable.
• Distributions may be prohibited if the partnership is unable to satisfy restrictions under debt agreements.
• The general partner has the right to transfer its general partner interest without a vote of the limited partners.

Risks

• The partnership may lack sufficient cash to pay distributions due to various factors, including increased expenses or decreased demand.
• Distributions may be prohibited if the partnership is unable to satisfy restrictions under debt agreements.
• The partnership relies on external financing, which could impair its ability to grow if such financing is unavailable.
• The general partner has broad discretion to establish reserves, which could reduce distributions.
• The partnership may not make distributions if its liabilities exceed the fair value of its assets.
• Limited partners could be held personally liable for the partnerships obligations if they participate in the control of the business.
• The general partner may be removed with a vote of not less than 66 2/3% of the outstanding common units, which may be difficult to achieve.

Future Outlook

The partnership intends to distribute the majority of cash generated from its business to common unitholders, but there is no guarantee of quarterly distributions.

Management Comments

• Our cash distribution policy reflects a basic judgment that our common unitholders will be better served by our distributing our available cash rather than retaining it.
• We intend to distribute to the holders of common units on a quarterly basis at least the minimum quarterly distribution of $0.4625 per unit, or $1.85 per year, to the extent we have sufficient cash from our operations after establishment of cash reserves and payment of fees and expenses, including payments to our general partner.

Industry Context

This document provides insight into the financial structure and distribution policies of a master limited partnership in the energy sector, which is common in the industry.

Comparison to Industry Standards

• The distribution structure, with tiered payouts and incentive distribution rights for the general partner, is a common feature of master limited partnerships (MLPs) like Enterprise Products Partners (EPD) and Magellan Midstream Partners (MMP).
• The use of preferred units with cumulative distributions and liquidation preferences is also a standard practice for MLPs to attract different types of investors, similar to how Energy Transfer (ET) and MPLX LP (MPLX) utilize preferred equity.
• The floating rate feature on the Series A Preferred Units is a less common but not unheard of structure, which can be compared to some debt instruments issued by other energy companies.
• The redemption options for preferred units are also a common feature, providing the company with flexibility in managing its capital structure, similar to how Kinder Morgan (KMI) and Williams Companies (WMB) manage their debt and equity.
• The detailed description of voting rights and limited liability is standard for MLP partnership agreements, ensuring transparency and investor protection, similar to what is seen in the partnership agreements of other MLPs.

Stakeholder Impact

• Common unitholders will receive quarterly distributions, subject to the availability of cash and other restrictions.
• Series A and Series B Preferred unitholders will receive cumulative quarterly distributions, with priority over common unitholders.
• The general partner will receive a portion of the distributions and incentive distributions based on performance.
• Potential transferees of common units will need to agree to the partnership agreement and request admission as a substituted limited partner.

Next Steps

• The partnership will continue to distribute available cash quarterly, subject to certain restrictions.
• The partnership may redeem Series A and Series B Preferred Units at its option, subject to certain conditions.
• The partnership will continue to operate under the terms and conditions outlined in the partnership agreement.

Key Dates

Keywords

common units, preferred units, distributions, partnership agreement, general partner, liquidation, incentive distribution rights, capital surplus, distributable cash flow, redemption