Protecting Energy Transfer's VIPs

Kelcy Warren, the founder of Energy Transfer Partners, told Bloomberg Markets last summer that he made most of his wealth during the industry's "dark times." Luckily for him, his company's latest round of fund-raising should help him preserve his wealth. Ordinary investors may not be so fortunate.

I wrote here on Thursday about Energy Transfer's issue of convertible preferred units, which came with an unusual twist. Rather than pay for the converts upfront, the buyers agreed to forgo a portion of the dividend on their common units for up to nine quarters, after which the new securities convert into common equity. That way, Energy Transfer gets to conserve some cash when it needs it most, as it is on the hook to complete a multi-billion-dollar acquisition of Williams Cos. amid the energy industry's worst downturn in a generation.