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
AUSTIN, Texas & DALLAS--(BUSINESS WIRE)--Jan. 16, 2018--
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
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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
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.
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.”
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.
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.
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.
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.
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
View source version on businesswire.com: http://www.businesswire.com/news/home/20180116005771/en/
Source: Energy Transfer Partners, L.P. and Energy Transfer Equity, L.P. and USA Compression Partners, LP
Matt Liuzzi, 512-369-1624
Lyndsay Hannah, 214-981-0795