Assessing NGL Energy Partners LP's PFD UNIT CL B: A High-Yield Dividend Investment Under Scrutiny

For income-focused investors, the NGL Energy Partners LP 9.00% Class B Fixed-to-Floating Rate Cumulative Preferred Units (NGL-B) present a tantalizing proposition: a trailing 12-month dividend yield of 12.7%Breaking Down NGL Energy Partners LP (NGL) Financial Health^[4]. However, this high yield comes with significant caveats tied to the company's financial health, sector dynamics, and structural risks. This analysis evaluates NGL-B's sustainability and relative value as a high-yield investment, drawing on recent financial data, credit metrics, and peer comparisons.

Dividend Volatility and Structural Risks

NGL-B's dividend history reveals a pattern of instability. In 2020, it paid a consistent $0.563 quarterly, totaling $2.25 annuallyDebt to equity ratio by industry - FullRatio^[2]. By 2024, payouts surged to $11.524, driven by a $4.444 February distribution—a spike likely tied to temporary liquidity measuresDebt to equity ratio by industry - FullRatio^[2]. However, 2025 has seen a sharp reversal, with mid-year totals at $2.963 and a recent payout of $0.735 in SeptemberBreaking Down NGL Energy Partners LP (NGL) Financial Health^[4]. This volatility underscores the unit's exposure to NGL Energy Partners LP's (NGL) operational performance and capital structure.

The preferred unit's dividend structure further complicates sustainability. Until July 2022, NGL-B paid a fixed 9% annualized yield on its $25 liquidation preferenceNGL Energy Partners LP | 9.00% Class B Fixed-to-Floating Rate^[1]. Post-July 2022, the rate reset to Three-Month LIBOR plus 721.3 basis pointsNGL Energy Partners LP | 9.00% Class B Fixed-to-Floating Rate^[1]. With LIBOR at historically low levels in recent years, this floating-rate mechanism has preserved yields temporarily but exposes investors to future rate hikes. For context, the current market price of $23.93—a 4.28% discount to liquidation value—reflects market skepticism about the unit's ability to maintain payoutsNGL Energy Partners LP | 9.00% Class B Fixed-to-Floating Rate^[1].

Financial Health: A Troubling Picture

NGL's financials paint a grim backdrop for dividend sustainability. As of 2025, the company's debt-to-equity ratio stands at 4.76NGL Energy Partners LP (NGL) Statistics & Valuation - Stock^[3], far exceeding the Energy MLP sector average of 1.0Debt to equity ratio by industry - FullRatio^[2]. This extreme leverage amplifies default risk, particularly given NGL's recent performance: its 12-month revenue fell to $3.33 billion, a 19.76% decline from $5.92 billion in 2024Breaking Down NGL Energy Partners LP (NGL) Financial Health^[4]. Worse still, the company reported a net loss of $54.47 million, or -$0.41 per shareNGL Energy Partners LP (NGL) Statistics & Valuation - Stock^[3], signaling operational distress.

Such losses strain NGL's ability to service debt and fund distributions. While preferred units like NGL-B have cumulative dividend features (unpaid dividends accrue and must be paid before common shareholders receive payoutsNGL Energy Partners LP | 9.00% Class B Fixed-to-Floating Rate^[1]), this does not guarantee coverage. The company's reliance on debt financing—combined with declining revenues—raises concerns about its capacity to meet obligations, particularly if interest rates rise or commodity prices stagnate.

Sector Comparisons and Credit Risk

The Energy MLP sector typically offers yields between 8% and 10%, with companies like Plains All American Pipeline and Western Midstream Partners standing out for stable, contract-backed cash flowsNGL Energy Partners LP | 9.00% Class B Fixed-to-Floating Rate^[1]. NGL-B's 12.7% yield appears attractive at first glance but must be weighed against its structural weaknesses. For instance, NGL's debt-to-equity ratio of 4.76 dwarfs the sector averageNGL Energy Partners LP (NGL) Statistics & Valuation - Stock^[3], suggesting it is more leveraged than peers. This imbalance increases vulnerability to economic downturns or refinancing risks.

Credit ratings provide further insight. While Moody's maintains a dedicated credit page for NGLNGL Energy Partners LP | 9.00% Class B Fixed-to-Floating Rate^[1], specific details on its September 2025 rating are unavailable in the provided sources. However, the company's recent financial performance—marked by declining revenues and net losses—would likely pressure credit agencies to adopt a negative outlook. For context, MLPs with stronger balance sheets, such as those highlighted in 247wallst.com's analysisNGL Energy Partners LP | 9.00% Class B Fixed-to-Floating Rate^[1], maintain debt-to-equity ratios closer to industry norms and avoid losses, reinforcing their dividend reliability.

Relative Value and Investor Considerations

NGL-B's current discount to liquidation preference ($23.93 vs. $25NGL Energy Partners LP | 9.00% Class B Fixed-to-Floating Rate^[1]) suggests market anticipation of dividend cuts or financial strain. While this discount could narrow if NGL stabilizes its operations, it also reflects skepticism about the company's ability to navigate its debt burden. For high-yield investors, the unit's risk-reward profile hinges on two factors:
1. NGL's ability to stabilize cash flows through cost reductions, asset sales, or debt restructuring.
2. The trajectory of interest rates, which directly impact NGL-B's floating-rate dividend post-July 2022NGL Energy Partners LP | 9.00% Class B Fixed-to-Floating Rate^[1].

Investors should also consider alternatives. The ALPS Alerian MLP ETF (AMLP), for example, offers a 7.67% yieldNGL Energy Partners LP | 9.00% Class B Fixed-to-Floating Rate^[1] with diversified exposure to MLPs like Western Midstream Partners and USA Compression Partners, which have stronger balance sheets and more predictable cash flows.

Conclusion: High Yield, High Risk

NGL-B's 12.7% yield is undeniably compelling, but it comes with elevated risks. The unit's structural volatility, NGL's weak financials, and sector comparisons all point to a high-risk profile. While the preferred unit's cumulative dividend feature offers some protection, it does not eliminate the possibility of cuts or defaults. For investors seeking income, NGL-B may warrant consideration only if they are prepared to tolerate significant downside risk and have a high conviction in NGL's turnaround potential. Otherwise, alternatives with more stable fundamentals and comparable yields may offer a safer path to income generation.