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A Tasty Fixed-to-Floating-Rate Preferred Sold

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Teekay LNG Partners (NYSE: TGP), a limited partnership, has sold 6 million units of a $25/unit fixed-to-floating-rate preferred with an initial coupon of 8.50%.

This coupon will remain fixed for a period of 10 years prior to the coupon floating at three-month LIBOR, plus 624.1 basis points. LIBOR, also known as the London InterBank Offered Rate, is the annualized average interest rate at which selected large banks that participate in the London interbank money market can borrow unsecured funds from other banks.

Recall that only two weeks ago, Hoegh LNG Partners (NYSE: HMLP), another limited partnership, sold a new issue with a fixed-rate coupon of 8.75%. We had noted at the time that we expected the issue to trade strongly to the $26/share area. Strong coupons from relatively strong issuers usually result in strong preferred unit prices.

TGP has ownership interests in liquefied natural gas (LNG) and liquefied petroleum gas (LPG) ships, as well as conventional tankers numbering 85 ships in total. This total includes 21 new builds, which are on order.

In general, owners of LNG ships have done well, since the marketplace for natural gas has expanded globally with the shale gas revolution in the United States. But the number of new builds the company has on order allows potential problems down the road if the LNG marketplace weakens.

Teekay LNG Partners pays a 14-cent-per-share distribution on its partnership units and this provides a minor margin of safety for holders of the preferred units.

We note that TGP currently has a 9% coupon issue outstanding. That older issue, (NYSE:TGP-A), was issued in 2016 and is trading around $25.95/share. Thus, there is some upside to the new issue, but it is relatively minor and buyers should consider the coupon with more modest expectations for share-price gains.

The new issue should be trading on the OTC Grey Market under the temporary ticker of TKYYF.

Details of the new issue can be found here.

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