Enters into agreement to acquire 60% of
Eureka Midstream and 100% of Hornet Midstream
- Attractive, fee-based gas gathering
systems with growing cash flows, underpinned by long-term contracts
from a diverse mix of active producers
- Adds approximately 200,000 acres
dedicated in core Marcellus and Utica development areas, with
minimum volume commitments representing roughly 50% of current
throughput
- Contiguous asset footprint creates
significant commercial opportunities and accelerates growth of EQM
Midstream Partners’ water services business
- Acquisition to be fully funded by a
committed, convertible preferred units issuance to lead investors
consisting of funds managed by BlackRock, GSO Capital Partners, and
Magnetar Capital
Equitrans Midstream Corporation (NYSE: ETRN) and EQM Midstream
Partners, LP (NYSE: EQM) today announced that EQM has entered into
a definitive agreement with a fund managed by Morgan Stanley
Infrastructure Partners to acquire a 60% interest in Eureka
Midstream Holdings, LLC (Eureka Midstream) and a 100% interest in
Hornet Midstream Holdings, LLC (Hornet Midstream) for total
consideration of $1,030 million, comprised of approximately $860
million in cash and approximately $170 million of assumed pro-rata
debt. The proposed acquisition is expected to close on or about
April 15, 2019, subject to customary regulatory and other closing
conditions.
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ETRN and EQM Strategic Acquisition - Map
of Assets (Graphic: Business Wire)
“This bolt-on acquisition, within our footprint, leverages our
existing assets and core operating competencies and is the first
step in executing our strategy to grow into a top-tier midstream
company,” said Thomas F. Karam, chief executive officer of EQM.
“These assets will complement EQM’s basin-leading gathering and
transmission system, allowing us to continue being the low-cost
provider for gas transportation and, increasingly, for water
handling as well. As we continue to implement our plan, we are
committed to maintaining our strong balance sheet and to delivering
shareholder value.”
“The Eureka team did a tremendous job in building out the system
during the last few years and attracting a strong mix of producer
customers,” added Diana M. Charletta, chief operating officer of
EQM. “With the ongoing natural gas development activity surrounding
the Eureka system, we see significant value in leveraging our
fast-growing water services business. We want to be the low-cost
provider and partner of choice across all aspects of our business.
This acquisition will help us achieve our goal by providing added
scale and by allowing us to facilitate new commercial opportunities
to deliver innovative and cost-effective solutions for our
customers.”
Asset Overview
Eureka Midstream is a 190-mile gathering header pipeline system
in Ohio and West Virginia that services both dry Utica and wet
Marcellus production. Hornet Midstream is a 15-mile, high-pressure
gathering system in West Virginia that connects to the Eureka
system.
Asset Highlights
- Averaged approximately 1.6 Bcf/d
gathered volume during Q4 2018
- Minimum volume commitments (MVCs) of
0.8 Bcf/d and growing to 1.3 Bcf/d by 2021
- Volume mix of 67% dry gas and 33% wet
gas
- Approximately 200,000 acres dedicated
in core Marcellus and Utica
- Multiple producer customers with
17-year weighted average contract life
- Several interstate pipeline
interconnects and access to four major processing plants
- Access to EQM system and downstream
pipelines at Clarington, OH and Mobley, WV
Combined, the gathering system assets and complementary water
services opportunities are expected to generate approximately $100
million of EQM EBITDA during the first twelve months. EQM forecasts
that the acquired assets and corresponding water services will
achieve greater than 20% annual EBITDA growth over the next several
years. The transaction is expected to be neutral to EQM
distributable cash flow over the first 12-months and accretive
thereafter.
Financing
EQM will fund the acquisition with cash proceeds from the
issuance of $1,100 million of newly issued Series A Convertible
Preferred Units (Convertible Preferred Units). The financing is
consistent with EQM’s leverage targets, and the Convertible
Preferred Units issuance is expected to close simultaneously with
the proposed acquisition close. EQM has entered into an agreement
to sell the Convertible Preferred Units to lead investors
consisting of funds managed by BlackRock, GSO Capital Partners, and
Magnetar Capital; and to supporting investors The Carlyle Group and
Foundation Infrastructure Partners in connection with Neuberger
Berman Private Credit. The Convertible Preferred Units will receive
quarterly cash distributions based on an 8.5% annual coupon. Two
years after issuance, the Convertible Preferred Units will be
convertible by the holders on a one-for-one basis into EQM Common
Units and convertible by EQM, under certain circumstances. The
Convertible Preferred Units will be priced at $48.77 per unit, a
20.0% premium to the 20-day volume weighted average price of the
EQM Common Units, prior to agreement signing.
Advisors
Citi and Guggenheim Securities, LLC are acting as financial
advisors and Latham & Watkins is acting as legal advisor to
ETRN and EQM. Citi and Guggenheim Securities, LLC are also acting
as joint placement agents for the Convertible Preferred Units
issuance.
Conference Call
ETRN and EQM will host a conference call today, March 14, 2019,
at 10:00 AM (ET) with security analysts to discuss the proposed
acquisition. A live webcast will be available on the internet via
the Investors pages at www.equitransmidstream.com and
www.eqm-midstreampartners.com. Security analysts may access the
call: U.S. tollfree at (877) 790-5829; and internationally at (647)
689-5636. The conference ID is 6890519.
Call Replay: For 14 days following the call, an audio replay
will be available at (800) 585-8367 or (416) 621-4642. The
conference ID: 6890519
Investor Presentation
A presentation highlighting the proposed acquisition is
available online via the companies’ respective Investors pages at
www.equitransmidstream.com and www.eqm-midstreampartners.com.
NON-GAAP DISCLOSURES
Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA)
As used in this news release, EBITDA means net income before
interest expense, income tax expense, depreciation and amortization
of the Eureka Midstream Holdings, LLC and Hornet Midstream
Holdings, LLC midstream assets (Target Assets).
As used in this news release, distributable cash flow means EQM
adjusted EBITDA (defined as net (loss) income attributable to EQM
plus net interest expense, depreciation, amortization of intangible
assets; impairment of goodwill; income tax expense; payments on
EQM's preferred interest in EQT Energy Supply, LLC (Preferred
Interest); non-cash, long-term compensation expense and transaction
costs less equity income; AFUDC-equity; pre-acquisition capital
lease payments for Allegheny Valley Connector, LLC; and adjusted
EBITDA of assets prior to acquisition) less net interest expense,
excluding interest income on Preferred Interest; capitalized
interest and AFUDC-debt; and ongoing maintenance capital
expenditures net of reimbursements. Distributable cash flow should
not be viewed as indicative of the actual amount of cash that EQM
has available for distributions from operating surplus or that EQM
plans to distribute.
EBITDA of the Target Assets and distributable cash flow are
non-GAAP supplemental financial measures that management and
external users of ETRN’s and EQM’s consolidated financial
statements, such as industry analysts, investors, lenders and
rating agencies, use to assess, in the case of EBITDA, the
potential contribution of the Target Assets to ETRN’s and EQM’s
future operating performance and cash flows and, in the case of
distributable cash flow, EQM’s operating performance as compared to
other publicly traded partnerships in the midstream energy industry
without regard to historical cost basis; the ability of EQM’s
assets to generate sufficient cash flow to make distributions to
EQM unitholders; EQM’s ability to incur and service debt and fund
capital expenditures; the viability of acquisitions and other
capital expenditure projects; and the returns on investment of
various investment opportunities.
ETRN and EQM believe that the projected EBITDA of the Target
Assets and distributable cash flow provide useful information to
investors in assessing the impact of the potential acquisition on
ETRN’s and EQM’s future results of operations. EBITDA and
distributable cash flow should not be considered as alternatives to
net income, operating income, net cash provided by operating
activities, or any other measure of financial performance or
liquidity presented in accordance with GAAP. EBITDA and
distributable cash flow have important limitations as analytical
tools because they exclude some, but not all, items that affect net
income and net cash provided by operating activities, respectively.
Additionally, because EBITDA and distributable cash flow may be
defined differently by other companies in ETRN’s and EQM’s
industry, the definition of EBITDA and distributable cash flow may
not be comparable to similarly titled measures of other companies,
thereby diminishing the utility of the measures.
ETRN and EQM have not provided projected net income from the
Target Assets, the most comparable financial measure calculated in
accordance with GAAP, or a reconciliation of projected EBITDA to
projected net income of the Target Assets. ETRN and EQM do not
control the Target Assets or prepare the related financial
statements. ETRN and EQM are unable to provide projected net income
of the Target Assets or a reconciliation of the projected EBITDA of
the Target Assets to projected net income from those assets because
the calculation of projected EBITDA was based on projected volume
growth and rate information combined with high-level, cash
operating cost assumptions related to the Target Assets. As such,
ETRN and EQM do not have sufficient information to project net
income from the Target Assets, such as the book value of the
assets, the depreciable lives of the assets and any interest
incurred in respect of the assets, nor does ETRN or EQM have
sufficient information regarding all of the reconciling items that
may exist between projected EBITDA and projected net income for the
Target Assets. Therefore, projected net income of the Target Assets
and a reconciliation of projected EBITDA of the assets to projected
net income from those assets are not available without unreasonable
effort.
About Equitrans Midstream Corporation
Equitrans Midstream Corporation (ETRN) has a premier asset
footprint in the Appalachian Basin and is one of the largest
natural gas gatherers in the United States. With a rich 135-year
history in the energy industry, ETRN was launched as a standalone
company in 2018 and, through its subsidiaries, has an operational
focus on gas gathering systems, transmission and storage systems,
and water services assets that support natural gas producers across
the Basin. ETRN is helping to meet America’s growing need for
clean-burning energy, while also providing a rewarding workplace
and enriching the communities where its employees live and work.
ETRN owns the non-economic general partner interest and an
approximate 60% limited partner interest in EQM.
For more information on Equitrans Midstream Corporation, visit
www.equitransmidstream.com
About EQM Midstream Partners
EQM Midstream Partners, LP (EQM) is a growth-oriented limited
partnership formed to own, operate, acquire, and develop midstream
assets in the Appalachian Basin. As one of the largest gatherers of
natural gas in the United States, EQM provides midstream services
to producers, utilities, and other customers through its
strategically located natural gas transmission, storage, and
gathering systems, and water services to support energy development
and production in the Marcellus and Utica regions. EQM owns
approximately 950 miles of FERC-regulated interstate pipelines and
approximately 2,200 miles of high- and low-pressure gathering
lines.
For more information on EQM Midstream Partners, LP, visit
www.eqm-midstreampartners.com
Cautionary Statements
The Convertible Preferred Units to be sold in the private
placement have not been registered under the Securities Act of
1933, as amended (Securities Act), or applicable state securities
laws, and accordingly may not be offered or sold in the United
States except pursuant to an effective registration statement or an
applicable exemption from the registration requirements of the
Securities Act and such applicable state securities laws. This news
release does not constitute an offer to sell or the solicitation of
an offer to buy these securities, nor shall there be any sale of
these securities in any state or jurisdiction in which the offer,
solicitation or sale of these securities would be unlawful prior to
registration or qualification under the securities laws of any such
state or jurisdiction.
Disclosures in this news release contain certain forward-looking
statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, and Section 27A of the Securities
Act. Statements that do not relate strictly to historical or
current facts are forward-looking. Without limiting the generality
of the foregoing, forward-looking statements contained in this news
release specifically include the expectations of plans, strategies,
objectives and growth and anticipated financial and operational
performance of Equitrans Midstream Corporation (ETRN) and its
subsidiaries, including EQM Midstream Partners, LP (EQM), including
guidance regarding EQM’s gathering and water services revenue and
volume growth; projected revenue and expenses; infrastructure
programs (including the timing, cost, capacity, and sources of
funding with respect to gathering and water projects); the cost,
capacity, timing of regulatory approvals, and anticipated
in-service dates of current projects; EQM’s ability to provide
produced water handling services and realize expansion and
optimization opportunities; acquisitions and other strategic
transactions, including the proposed acquisition of interests in
Eureka Midstream Holdings, LLC (Eureka) and Hornet Midstream
Holdings, LLC (Hornet), and EQM’s ability to complete the proposed
acquisition, effectively integrate the proposed acquisition and
achieve anticipated synergies and accretion associated with the
proposed acquisition, including, through increased scale, EQM’s
ability to access new customers for its water services business
associated with the proposed acquisition; the expected timing of
the closing of the proposed transaction and related financing
(including amounts); the expected accretion from the proposed
transaction; the expected ratings impact, if any, associated with
the proposed acquisition; the expected cash flows and minimum
volume commitments related to the acquired assets; capital
commitments, projected capital contributions and capital and
operating expenditures, including the amount and timing of
reimbursable capital expenditures, capital budget and sources of
funds for capital expenditures; liquidity and financing
requirements, including funding sources and availability; dividend
and distribution amounts, timing, rates and growth; projected
adjusted EBITDA, projected EBITDA, projected EBITDA of the acquired
assets, projected leverage, and projected coverage ratio; the
effects of government regulation, tariffs and litigation; and tax
position. These forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially
from projected results. Accordingly, investors should not place
undue reliance on forward-looking statements as a prediction of
actual results. ETRN and EQM have based these forward-looking
statements on current expectations and assumptions about future
events. While ETRN and EQM consider these expectations and
assumptions to be reasonable, they are inherently subject to
significant business, economic, competitive, regulatory and other
risks and uncertainties, many of which are difficult to predict and
are beyond ETRN’s and/or EQM’s control. The risks and uncertainties
that may affect the operations, performance, and results of ETRN’s
and EQM’s business and forward-looking statements include, but are
not limited to, those set forth under Item 1A, “Risk Factors” of
ETRN’s Form 10-K for the year-ended December 31, 2018 as filed with
the Securities and Exchange Commission (SEC), and Item 1A, “Risk
Factors” of EQM’s Form 10-K for the year-ended December 31, 2018 as
filed with the SEC, in each case as may be updated by any
subsequent Form 10-Qs. Any forward-looking statement speaks only as
of the date on which such statement is made, and neither ETRN nor
EQM intends to correct or update any forward-looking statement,
whether as a result of new information, future events or
otherwise.
Source: Equitrans Midstream Corporation
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190314005234/en/
Analyst/Investor inquiries:Nate TetlowVice President,
Corporate Development and Investor
Relations412-553-5834ntetlow@equitransmidstream.comMedia
inquiries:Natalie A. CoxDirector, Corporate
Communications412-395-3941ncox@equitransmidstream.com
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