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Capital Accounts | 9 Months Ended
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Sep. 30, 2020
Capital Accounts [Abstract] |
Equity and Distributions | Note 8. Capital Accounts Common Limited Partner Interests The following table summarizes changes in the number of our common units outstanding since December 31, 2019:
Common units outstanding at December 31, 2019 |  |  | 2,189,226,130 |
Common units issued to Skyline North Americas, Inc. in connection with settlement of Liquidity Option in March 2020 |  |  | 54,807,352 |
Treasury units acquired in connection with settlement of Liquidity Option in March 2020 |  |  | (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 |
Common units outstanding at March 31, 2020 |  |  | 2,185,800,243 |
Common units issued in connection with the vesting of phantom unit awards, net |  |  | 96,190 |
Common units outstanding at June 30, 2020 |  |  | 2,185,896,433 |
Common units exchanged for preferred units in September 2020, with the common units received being immediately cancelled |  |  | (1,120,588 | )
Common unit repurchases under 2019 Buyback Program |  |  | (1,984,507 | )
Common units issued in connection with the vesting of phantom unit awards, net |  |  | 89,641 |
Units outstanding at September 30, 2020 |  |  | 2,182,880,979 |
Registration Statements We have a universal shelf registration statement (the “2019 Shelf”) on file with the SEC which allows the Partnership and EPO to issue an unlimited amount of equity and debt securities, respectively. EPO issued $4.25 billion of senior notes during 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 nine months ended September 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 September 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. The existing ATM registration statement expires in November 2020, at which time we expect to file a replacement ATM registration statement with the SEC in order to maintain our financial flexibility. We may issue additional equity and debt securities to assist us in meeting our future liquidity requirements, including those related to capital investments. March 2020 Issuance of Common Units to Skyline North Americas, Inc. and related acquisition of Treasury Units In February 2020, the Partnership received notice from Marquard & Bahls AG (“M&B”) of M&B’s election to exercise its rights (the “Liquidity Option”) under the Liquidity Option Agreement among the Partnership, 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, the Partnership settled its obligations under the Liquidity Option Agreement by issuing 54,807,352 new common units to Skyline North Americas, Inc. (“Skyline,” an affiliate of M&B) in exchange for the capital stock of OTA. As a result of the settlement, OTA became a consolidated subsidiary of ours and we indirectly acquired the 54,807,352 Partnership common units owned by OTA (which were issued by the Partnership 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 Partnership common units it owned and the related deferred tax liability, respectively. At March 5, 2020, the Partnership’s accrual for the Liquidity Option liability was $511.9 million. The Liquidity Option liability, at any measurement date, represented the fair value of estimated federal and state income taxes that we believe a market participant would assume 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 common units issued by the Partnership to Skyline was $1.30 billion based on a closing price of $23.67 per unit on March 5, 2020. The 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, the Partnership 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 the Partnership prepare and file a registration statement to permit and otherwise facilitate the public resale of all or a portion of the Partnership’s common units owned by Skyline and its affiliates. The Partnership’s obligation to Skyline to effect such transactions is limited to five registration statements and underwritten offerings. In May 2020, the Partnership filed a registration statement on behalf of Skyline for the resale of up to 54,807,352 common units. This registration statement is effective and, in June 2020, the Partnership filed a prospectus supplement to this registration statement that allows Skyline to sell up to $500 million of the Partnership’s common units it owns in connection with an “at-the-market” program that it administers. We do 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 $1.30 billion, representing the market value of the Partnership’s common units issued to Skyline. Since OTA does not meet the definition of a business as described in Accounting Standards Codification (“ASC”) 805, Business Combinations, the OTA transaction was accounted for as the reacquisition of limited partner units and the assumption of OTA’s related deferred tax liability by the Partnership. In consolidation, we present the limited partner units owned by OTA as treasury units, with their historical cost equal to the $1.30 billion market value of the Partnership common units issued to Skyline. On September 30, 2020, OTA exchanged the common units it holds for preferred units issued by the Partnership. For information regarding the preferred units and exchange transaction, see “Redeemable Preferred Limited Partner Interests” within this Note 8. 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. Prior to March 5, 2020, changes in the estimated fair value of the Liquidity Option liability were recognized in earnings as a component of other income (expense) on our Unaudited Condensed Statements of Consolidated Operations. We recognized $2.3 million of expense for the period January 1, 2020 to March 5, 2020 attributable to changes in the estimated fair value of the Liquidity Option. We recognized $38.7 million and $123.1 million of such expense for the three and nine months ended September 30, 2019, respectively. Common Unit Repurchases Under 2019 Buyback Program In January 2019, we announced that the Board had approved a $2.0 billion multi-year unit buyback program (the “2019 Buyback Program”), which provides the Partnership with an additional method to return capital to investors. The 2019 Buyback Program authorizes the Partnership 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) the Partnership’s unit market 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. The Partnership repurchased an aggregate 8,342,246 common units under the 2019 Buyback Program through open market and private purchases during the nine months ended September 30, 2020. The total purchase price of these repurchases was $173.8 million including commissions and fees. During the nine months ended September 30, 2019, the Partnership repurchased 2,909,128 common units under the 2019 Buyback Program for a total purchase price of $81.1 million including commissions and fees. Units repurchased under the 2019 Buyback Program are immediately cancelled upon acquisition. At September 30, 2020, the remaining available capacity under the 2019 Buyback Program was $1.75 billion. Common Units Issued in Connection With the Vesting of Phantom Unit Awards During the nine months ended September 30, 2020, after taking into account tax withholding requirements, the Partnership issued a net 3,098,045 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 The Partnership 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, the Partnership 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 nine months ended September 30, 2020, a total of 5,148,468 common units were purchased on the open market and delivered to participants in connection with the DRIP and EUPP. Apart from $1.8 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 November 12, 2020. Redeemable Preferred Limited Partner Interests On September 30, 2020, the Partnership issued and sold an aggregate of 50,000 Series A Cumulative Convertible Preferred Units in a private placement transaction. The stated value of each preferred unit is $1,000 per unit. The total offering price for the preferred units was $50.0 million, of which $32.5 million was received in cash with the remaining $17.5 million funded through the exchange of 1,120,588 of the Partnership’s common units owned by the purchasers. Cash proceeds from the preferred unit offering include $15.0 million received from a privately held affiliate of EPCO for the purchase of 15,000 preferred units. Concurrently, the Partnership exchanged all of the 54,807,352 Partnership common units owned directly by OTA for 855,915 of the Partnership’s new preferred units having an equivalent value. The preferred units held by OTA, like the common units OTA held prior to the exchange, are accounted for as treasury units by the Partnership in consolidation. The historical cost of the treasury units did not change as a result of the exchange and remains at the $1.30 billion recognized in March 2020 in connection with settlement of the Liquidity Option. The preferred units represent a new class of limited partner interests authorized under the Partnership’s Seventh Amended and Restated Agreement of Limited Partnership dated September 30, 2020 (the “Amended Partnership Agreement”). As described in the Amended Partnership Agreement, key terms of the preferred units include the following:
• | With respect to distribution and liquidation rights, the preferred units rank senior to the Partnership’s common units. Preferred units held by persons other than the Partnership, its subsidiaries and its affiliates generally will vote on an as-converted basis with the Partnership’s common units and have certain class voting rights with respect to certain protective matters.
• | Holders of the preferred units are entitled to receive cumulative quarterly distributions at a rate of 7.25% per annum. The Partnership is prohibited from paying distributions on its common units unless full cumulative distributions on the preferred units are paid or set aside for payment. The Partnership may satisfy its obligation to pay distributions to the preferred unitholders through the issuance, in whole or in part, of additional preferred units (referred to as paid-in kind or “PIK” distributions), with the remainder in cash, subject to certain rights of a holder to elect all cash and other conditions as described in the Amended Partnership Agreement. The exchange by OTA of its common units for PIK-eligible preferred units enables the Partnership to more effectively manage its consolidated cash balances.
• | Subject to certain limitations, each preferred unitholder may elect to convert its preferred units on or after September 30, 2025 into a number of the Partnership’s common units equal to (a) the number of preferred units to be converted multiplied by (b) the quotient of (i) $1,000 plus any accrued and unpaid distributions per preferred unit, divided by (ii) 92.5% of the volume-weighted average price of the Partnership’s common units at the time of conversion (as defined in the underlying agreements). In addition, each preferred unitholder may convert its preferred units into common units if EPO’s senior notes cease to have an investment grade rating or a Change of Control (as defined in the Amended Partnership Agreement) occurs, in each case based on the conversion ratio specified in the Amended Partnership Agreement.
• | The Partnership may elect to redeem the preferred units for cash, in whole or in part, based on a redemption price outlined in the following schedule, plus any accrued and unpaid distributions at the redemption date:
• | $1,100 per preferred unit from September 30, 2020 through September 29, 2022;
• | $1,070 per preferred unit from September 30, 2022 through September 29, 2024;
• | $1,030 per preferred unit from September 30, 2024 through September 29, 2025;
• | $1,010 per preferred unit from September 30, 2025 through September 29, 2026; and
• | $1,000 per preferred unit on or after September 30, 2026; however,
• | if a Change of Control event occurs prior to September 30, 2026, the redemption price is $1,010 per preferred unit.
In connection with a redemption at the Partnership’s election, the Partnership may convert up to 50% of the preferred units being redeemed into common units (and to pay cash with respect to the remainder), with each such preferred unit being converted on the applicable redemption date into a number of common units equal to (i) the then-applicable preferred unit redemption price divided by (ii) 92.5% of the volume-weighted average price of the Partnership’s common units at the time of conversion (as defined in the underlying agreements). The Partnership has agreed to prepare and file a registration statement that would permit or otherwise facilitate the public resale of any common units resulting from the conversion of the preferred units to common units. Our Unaudited Condensed Consolidated Balance Sheet at September 30, 2020 presents the capital accounts of the third-party and related party purchasers of the preferred units as mezzanine equity since the terms of the preferred units allow for cash redemption by the holders in a Change of Control event, without regard to the likelihood of such an event. The preferred units held by OTA are presented as treasury units in consolidation since their ultimate disposition remains under the control of the Partnership. 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 |  |  | 392.7 |  |  |  | (207.7 | ) |  |  | (0.1 | ) |  |  | 184.9 |
Reclassification of losses (gains) to net income during period |  |  | (334.8 | ) |  |  | 29.2 |  |  |  | – |  |  |  | (305.6 | )
Total other comprehensive income (loss) for period |  |  | 57.9 |  |  |  | (178.5 | ) |  |  | (0.1 | ) |  |  | (120.7 | )
Accumulated Other Comprehensive Income (Loss), September 30, 2020 |  | $ | 113.0 |  |  | $ | (164.6 | ) |  | $ | 2.3 |  |  | $ | (49.3 | )
|  | 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 |  |  | 58.6 |  |  |  | (23.8 | ) |  |  | (0.6 | ) |  |  | 34.2 |
Reclassification of losses (gains) to net income during period |  |  | (152.0 | ) |  |  | 27.8 |  |  |  | – |  |  |  | (124.2 | )
Total other comprehensive income (loss) for period |  |  | (93.4 | ) |  |  | 4.0 |  |  |  | (0.6 | ) |  |  | (90.0 | )
Accumulated Other Comprehensive Income (Loss), September 30, 2019 |  | $ | 59.3 |  |  | $ | (100.8 | ) |  | $ | 2.4 |  |  | $ | (39.1 | )
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 September 30, |  |  | For the Nine Months Ended September 30, |
Losses (gains) on cash flow hedges: | Location |  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Interest rate derivatives | Interest expense |  | $ | 9.9 |  |  | $ | 9.4 |  |  | $ | 29.2 |  |  | $ | 27.8 |
Commodity derivatives | Revenue |  |  | 19.5 |  |  |  | (93.6 | ) |  |  | (344.7 | ) |  |  | (161.4 | )
Commodity derivatives | Operating costs and expenses |  |  | 10.0 |  |  |  | 2.1 |  |  |  | 9.9 |  |  |  | 9.4 |
Total |  |  | $ | 39.4 |  |  | $ | (82.1 | ) |  | $ | (305.6 | ) |  | $ | (124.2 | )
For information regarding our interest rate and commodity derivative instruments, see Note 14. Cash Distributions On October 7, 2020, we announced that the Board declared a quarterly cash distribution of $0.4450 per common unit, or $1.78 per unit on an annualized basis, to be paid to the Partnership’s common unitholders with respect to the third quarter of 2020. The quarterly distribution is payable on November 12, 2020 to unitholders of record as of the close of business on October 30, 2020. In light of current economic conditions, management will evaluate any future increases in cash distributions on a quarterly basis. The payment of any quarterly cash distribution is subject to management’s evaluation of our financial condition, results of operations and cash flows in connection with such payments and Board approval.

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