Introduction
This Amendment No. 2 to the Transaction Statement on Schedule 13E-3 (as amended from time to time, this “Transaction Statement”), together with the exhibits hereto, is being jointly filed with the United States Securities and Exchange Commission (the “SEC”) pursuant to Section 13(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 13e-3 thereunder, by (i) Stonepeak Catarina Holdings, LLC, a Delaware limited liability company (“Stonepeak Catarina” and, together with its subsidiaries, other than SNMP (as defined herein) “Stonepeak”), SP Common Equity Subsidiary LLC, a Delaware limited liability company, Stonepeak Texas Midstream Holdco LLC, a Delaware limited liability company, Stonepeak Catarina Upper Holdings LLC, a Delaware limited liability company, Stonepeak Infrastructure Fund (Orion AIV) LP, a Delaware limited partnership, Stonepeak Associates LLC, a Delaware limited liability company, Stonepeak GP Holdings LP, a Delaware limited partnership, Stonepeak GP Investors LLC, a Delaware limited liability company, Stonepeak GP Investors Manager LLC, a Delaware limited liability company, and Michael Dorrell, a citizen of the United States of America, (ii) Sanchez Midstream Partners GP LLC, a Delaware limited liability company and the general partner of SNMP (the “General Partner”), and (iii) Sanchez Midstream Partners LP, a Delaware limited partnership (“SNMP”).
This Transaction Statement relates to the execution of a letter agreement, dated November 16, 2020 (the “Common Unit PIK Distribution Agreement”), pursuant to which Stonepeak Catarina, SNMP and the General Partner agreed that future quarterly distributions on the Class C Preferred Units representing limited partner interests in SNMP (“Class C Preferred Units”) are payable, at Stonepeak Catarina’s election, in common units representing limited partner interests in SNMP (“Common Units”) (any such quarterly distribution that is paid in Common Units, a “Common Unit PIK Distribution”) in lieu of a quarterly distribution paid in kind with additional Class C Preferred Units (such additional units, “Class C Preferred PIK Units”).
On February 1, 2021, Stonepeak Catarina acquired 22,274,869 Common Units with respect to the Common Unit PIK Distribution for the third quarter of 2020. In addition, on January 28, 2021, Stonepeak Catarina provided SNMP with its notice of election to receive a Common Unit PIK Distribution for the fourth quarter of 2020, pursuant to which it will receive 12,445,491 Common Units (the “Fourth Quarter Common Unit PIK Distribution”).
As of February 1, 2021, there were 42,228,749 outstanding Common Units, and Stonepeak owned (i) 27,318,599 Common Units, representing approximately 64.7% of the outstanding Common Units, (ii) all of the issued and outstanding Class C Preferred Units, (iii) a warrant (the “Warrant”) that entitles Stonepeak Catarina to receive junior securities of SNMP (including Common Units) representing 10% of all junior securities deemed outstanding when exercised, (iv) the non-economic general partner interest in SNMP and (v) all of SNMP’s incentive distribution rights. Following the Fourth Quarter Common Unit PIK Distribution, Stonepeak will own 39,764,090 Common Units (45,947,272 Common Units assuming the full exercise of the Warrant following the fourth Quarter Common Unit PIK Distribution), representing approximately 72.7% (75.5% assuming the full exercise of the Warrant following the Fourth Quarter Common Unit PIK Distribution) of the outstanding Common Units.
At any time Stonepeak holds more than 80% of the outstanding Common Units, whether as a result of Common Unit PIK Distributions, the exercise of the Warrant or other acquisition of Common Units, which could occur as early as the first quarter of 2021 (based on the price per Common Unit as of the date of this Transaction Statement), and completes the Stonepeak LCR Transfer (as defined herein), Stonepeak will be able to cause the General Partner or a controlled affiliate of the General Partner to exercise the limited call right (the “limited call right”) provided for in Section 15.1 of the Third Amended and Restated Agreement of Limited Partnership of SNMP (the “Partnership Agreement”) to purchase all outstanding Common Units (other than Common Units held by the General Partner or its controlled affiliates), at a price per Common Unit determined pursuant to Section 15.1 of the Partnership Agreement. As of the date of this Transaction Statement, the General Partner and its controlled affiliates do not own any Common Units.
The Common Unit PIK Distributions, the potential exercise of the Warrant and, if exercised, the exercise of the limited call right are referred to in this Transaction Statement as the “Transactions.”
As of the date of this Transaction Statement, Stonepeak has not exercised the Warrant and has not caused the exercise of the limited call right. However, the execution of the Common Unit PIK Distribution