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A leading master limited partnership (MLP), Enterprise Products Partners, L.P. (EPD - Analyst Report) recently announced a public offering of 8,000,000 common units to increase its liquidity. Enterprise Products offered a 30-day option to the underwriters to purchase an additional 1,200,000 units by exercising their full over-allotment option. The units were priced at $53.07 each.

The public offering – including underwriter allotment – will fetch approximately $473 million after deducting underwriting discounts, commissions and offering expenses.

The net proceeds from this offering will be utilized by Enterprise Products to reduce its debt under multi-year revolving credit facility and for other partnership purposes.

Enterprise Products holds a Zacks #3 Rank, equivalent to a Hold rating for a period of one to three months. Longer term, we maintain our Neutral recommendation.

Enterprise Products is engaged in providing a wide range of midstream energy services to the producers and consumers of natural gas, natural gas liquids, and crude oil.

The partnership has a track record of steadily increasing distributions over the years. Enterprise Products paid a distribution of 63.5 cents per unit in second quarter 2012, representing an increase of 5.0% year over year. Management intends to increase distribution for the third quarter and fourth quarters of 2012 by 6.1% and 6.5%, respectively.

Recently, the partnership entered into a 50/50 joint venture (JV) with Plains All American Pipeline, L.P. (PAA - Analyst Report) for a crude oil pipeline in South Texas. A 140-mile crude oil and condensate line − with capacity of 350,000 barrels per day (BPD)− from Gardendale in LaSalle County to Three Rivers in Live Oak County will form part of the JV.

We continue to view Enterprise Products as a core holding in an MLP portfolio, given its string of organic growth projects, potential acquisitions, strong balance sheet and solid liquidity position. The partnership is one of the largest fully-integrated midstream service providers with a positive long-term outlook given its significant geographic and business diversity.

While we believe the partnership’s massive expansion program provides clear growth visibility over the coming years, finding adequate projects of similar scale in the future could pose problems.

 

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