Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of oil & gas producer BreitBurn Energy Partners L.P. (OTC:BBEPQ) dropped as much as 13% after announcing an equity offering and being downgraded by an analyst.
So what: Yesterday, it was announced that EIG Global Energy Partners will invest in $350 million of perpetual convertible preferred equity and $650 million in senior secured notes. The convertible equity notes will come with a monthly distribution that equates to an 8% yield annually and will convert at $7.50 per share.
Coinciding with the move, BreitBurn's management said it would lower its normal distribution to $0.50 annually. Analysts at Wunderlich Securities took the day's moves as enough to downgrade the stock from hold to a sell rating.
Now what: This is a highly dilutive offering to current shareholders and really gives EIG Global Energy Partners more upside than shareholders have, which is one reason the stock is down. Just the fact that the company needs the money is a sign of how bad the energy industry has gotten recently.
To make matters worse, oil is down over 2% to $47.82 per barrel as I'm writing and with little recovery in the foreseeable future in oil prices I wouldn't be buying this move today.