- Acquisition by USA Compression of 1.6
million horsepower expands USA Compression’s geographic reach into
active basins, including Eagle Ford Shale, Gulf Coast, Rockies and
Permian Basin
- Essentially doubles USA Compression’s
fleet to 3.4 million horsepower; enhancing USA Compression’s focus
on large horsepower installations
- Transaction structure strengthens USA
Compression’s balance sheet and distribution coverage levels
- Enables ETP to reduce leverage with
$1.225 billion in cash consideration, strengthening ETP’s balance
sheet
- Energy Transfer Equity to acquire the
general partner interest in USA Compression
USA Compression Partners, LP (NYSE: USAC) (“USA Compression” or
“USAC”), Energy Transfer Partners, L.P. (NYSE: ETP) (“ETP”) and
Energy Transfer Equity, L.P. (NYSE: ETE) (“ETE”) today announced a
transaction valued at approximately $1.8 billion, providing for (i)
the contribution of ETP’s subsidiaries, CDM Resource Management LLC
and CDM Environmental & Technical Services LLC (collectively,
“CDM”), to USAC (the “Contribution”) and (ii) the cancellation of
the incentive distribution rights (“IDRs”) in USAC and conversion
of the general partner interest in USAC into a non-economic general
partner interest (the “IDR/GP Restructuring”). As part of the
transaction, ETE will acquire the ownership interests in the
general partner of USAC (the “GP Acquisition”) and approximately
12.5 million USAC common units from USA Compression Holdings.
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Transaction Impact
The transaction is expected to be accretive to USAC’s
distributable cash flow in 2018. In addition, as discussed in more
detail below, ETP’s receipt of a special class of common equity
that will not pay distributions for the first year will provide for
increased USAC LP coverage, which is expected to be in excess of
1.0x in 2018 and increase over time. In addition, USAC’s leverage
is expected to decrease to mid-4x by the end of 2018.
The transaction is also expected to strengthen ETP’s balance
sheet by allowing ETP to use the approximately $1.225 billion in
cash proceeds that it will receive in connection with the
transactions to reduce leverage.
CDM currently owns and operates approximately 1.6 million
horsepower of natural gas compression and is focused primarily on
large horsepower applications. The acquisition of CDM is expected
to provide significant benefits for USAC unitholders as the
combined business will have increased geographic coverage and will
be one of the leading domestic compression providers. The
acquisition will further expand USAC’s geographic presence into
regions where USAC is currently underrepresented and will result in
USAC having broad coverage across U.S. regions. As part of its
overall service offerings, CDM also provides a full range of gas
treating and emissions testing services. CDM’s treating activities
will also complement USAC’s growing station services offerings, in
which USAC provides turnkey gas handling solutions for customers.
With over 70% of horsepower greater than 1,000 horsepower and an
average unit size of approximately 700 horsepower, the CDM fleet
has an average age of approximately 7 years and a current operating
utilization rate of 87%. On a pro forma combined basis, USAC will
own and operate a compression fleet of approximately 3.4 million
HP.
For 2018, CDM’s EBITDA is estimated to be in the range of $160 -
$170 million, not including the benefit of synergies, which are
expected to be at least $20 million on a run-rate basis. Consistent
with past practice, USAC expects to provide full-year 2018 guidance
at the time of its fourth-quarter earnings call.
Management Commentary
Eric Long, President & CEO of USAC, commented, “This is an
exciting day for USA Compression to be able to announce this
strategic transaction with Energy Transfer. USAC’s acquisition of
CDM is a logical combination of two leading compression service
providers – each with nearly two decades of delivering exemplary
levels of customer service. Operating in different areas of
geographic focus with nominal overlap, CDM brings to USAC a
complementary and standardized fleet of large horsepower,
infrastructure-oriented equipment, a customer-focused operating
philosophy and a strong employee base consistent with those of
USAC’s. CDM has been very successful building its compression and
treating business; we are excited about the possibilities that the
combined partnership will continue to grow and deliver on the
exceptional customer service on which our customers depend.
"In addition to bringing on the compression and treating assets,
we look forward to welcoming talented and skilled CDM employees,
who have built the company into a strong market participant, into
the USAC organization. This transaction gives USAC the geographic
reach to compete in all the active producing regions.”
Transaction Details
The terms of the Contribution are governed by a contribution
agreement, pursuant to which ETP will contribute the CDM business
to USAC in exchange for (i) $1.225 billion in cash, (ii)
approximately 19.2 million USAC common units and (iii)
approximately 6.4 million USAC Class B units. The Class B units
will not pay quarterly cash distributions for the first four
quarters following closing and will convert into USAC common units
on a one-for-one basis after such time.
The terms of the GP Acquisition are governed by a purchase
agreement, pursuant to which ETE will acquire (i) all of the equity
interests in USAC’s general partner, USA Compression Partners GP,
LLC (“USAC GP”) and (ii) approximately 12.5 million USAC common
units from USA Compression Holdings in exchange for $250 million in
cash. Following the closing, USA Compression Holdings will continue
to own approximately 12.5 million USAC common units.
The terms of the IDR/GP Restructuring are governed by an equity
restructuring agreement, pursuant to which ETE will cause USAC GP
to cancel the IDRs and convert USAC GP’s general partner interest
in USAC into a non-economic general partner interest (the “General
Partner Interest”) . In exchange for the IDR cancellation and the
conversion of the General Partner Interest, USAC will issue 8.0
million USAC common units to USAC GP.
USAC has obtained, subject to customary closing conditions,
committed financing for the $1.225 billion cash consideration
payable to ETP through a $500 million perpetual preferred units
offering to investment funds managed or sub-advised by EIG Global
Energy Partners (“EIG”) and other investment vehicles unaffiliated
with EIG, as well as $725 million in committed debt financing from
JPMorgan and Barclays. The preferred units will pay a 9.75%
dividend and are redeemable after 10 years.
The Contribution, the GP Acquisition and the IDR/GP
Restructuring are expected to close during the first half of 2018,
subject to customary closing conditions, including approval
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
Advisors
Evercore acted as financial advisor to USA Compression Holdings,
LLC. Jefferies LLC acted as financial advisor to USAC’s conflicts
committee. Locke Lord LLP acted as legal counsel to USA Compression
Holdings, LLC. Vinson & Elkins L.L.P. acted as legal counsel to
USAC. Richards Layton & Finger acted as legal counsel to USAC’s
conflicts committee. Barclays acted as financial advisor to ETE and
ETP. Tudor, Pickering, Holt & Co. acted as financial advisor to
ETP’s conflicts committee. Latham & Watkins LLP acted as legal
counsel to ETE and ETP. Potter Anderson & Corroon LLP acted as
legal counsel to ETP’s conflicts committee.
Conference Call Information
USAC management will discuss the transaction during an investor
conference call starting at 11 a.m. EST (10 a.m. CST). The call
will be broadcast live over the internet. Investors may participate
either by phone or audio webcast.
By Phone: Dial (800) 239-9838 inside the U.S. and Canada at
least 10 minutes before the call and ask for the USA Compression
Partners Conference Call. Investors outside the U.S. and Canada
should dial (323) 794-2551. The passcode for both is 1388911.
A replay of the call will be available through January 23,
2018. Callers inside the U.S. and Canada may access the replay by
dialing (888) 203-1112. Investors outside the U.S. and Canada
should dial (719) 457-0820. The passcode for both is 1388911.
By Webcast:
Connect to the webcast via the “Events”
page of USA Compression’s Investor Relations website at
http://investors.usacpartners.com. Please log in at least 10
minutes in advance to register and download any necessary software.
A replay will be available shortly after the call.
ABOUT THE PARTNERSHIPS
USA Compression Partners, LP (NYSE: USAC) is a
growth-oriented Delaware limited partnership that is one of the
nation’s largest independent providers of compression services in
terms of total compression unit horsepower. The company partners
with a broad customer base composed of producers, processors,
gatherers and transporters of natural gas. USA Compression focuses
on providing compression services to infrastructure applications
primarily in high volume gathering systems, processing facilities
and transportation applications. More information is available at
www.usacpartners.com.
Energy Transfer Equity, L.P. (NYSE: ETE) is a master
limited partnership that owns the general partner and 100% of the
incentive distribution rights (IDRs) of Energy Transfer Partners,
L.P. (NYSE: ETP) and Sunoco LP (NYSE: SUN). ETE also owns Lake
Charles LNG Company. On a consolidated basis, ETE's family of
companies owns and operates a diverse portfolio of natural gas,
natural gas liquids, crude oil and refined products assets, as well
as retail and wholesale motor fuel operations and LNG terminalling.
For more information, visit the Energy Transfer Equity, L.P.
website at www.energytransfer.com.
Energy Transfer Partners, L.P. (NYSE: ETP) is a master
limited partnership that owns and operates one of the largest and
most diversified portfolios of energy assets in the United States.
Strategically positioned in all of the major U.S. production
basins, ETP owns and operates a geographically diverse portfolio of
complementary natural gas midstream, intrastate and interstate
transportation and storage assets; crude oil, natural gas liquids
(NGL) and refined product transportation and terminalling assets;
NGL fractionation assets; and various acquisition and marketing
assets. ETP’s general partner is owned by Energy Transfer Equity,
L.P. (NYSE: ETE). For more information, visit the Energy Transfer
Partners, L.P. website at www.energytransfer.com.
FORWARD-LOOKING STATEMENTS
This press release includes “forward-looking” statements.
Forward-looking statements are identified as any statement that
does not relate strictly to historical or current facts. Statements
using words such as “anticipate,” “believe,” “intend,” “project,”
“plan,” “expect,” “continue,” “estimate,” “goal,” “forecast,” “may”
or similar expressions help identify forward-looking statements.
ETE, ETP and USAC cannot give any assurance that expectations and
projections about future events will prove to be correct.
Forward-looking statements are subject to a variety of risks,
uncertainties and assumptions. These risks and uncertainties
include the risks that the proposed transactions may not be
consummated or the benefits contemplated therefrom may not be
realized. Additional risks include: the ability to obtain requisite
regulatory approval and the satisfaction of the other conditions to
the consummation of the proposed transactions, the potential impact
of the announcement or consummation of the proposed transactions on
relationships, including with employees, suppliers, customers,
competitors and credit rating agencies, the ability to achieve
revenue, DCF and EBITDA growth, and volatility in the price of oil,
natural gas, and natural gas liquids. Actual results and outcomes
may differ materially from those expressed in such forward-looking
statements. These and other risks and uncertainties are discussed
in more detail in filings made by ETE, ETP and USAC with the
Securities and Exchange Commission, which are available to the
public. ETE, ETP and USAC undertake no obligation to update
publicly or to revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
The information contained in this press release is available at
www.energytransfer.com and www.usacompression.com.
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version on businesswire.com: http://www.businesswire.com/news/home/20180116005771/en/
USA CompressionMatt Liuzzi, 512-369-1624Chief Financial
Officermliuzzi@usacompression.comorEnergy TransferInvestor
Relations:Helen Ryoo, 214-981-0795orLyndsay Hannah,
214-981-0795orBrent Ratliff, 214-981-0795orMedia Relations:Vicki
Granado, 214-840-5820
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