UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): April 28, 2016 (April 27, 2016)
Tallgrass Energy Partners, LP
(Exact name of registrant as specified in its charter)
Delaware | 001-35917 | 46-1972941 | ||
(State or Other Jurisdiction of Incorporation or Organization) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
4200 W. 115th Street, Suite 350 Leawood, Kansas |
66211 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrants telephone number, including area code: (913) 928-6060
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 1.01. Entry into a Material Definitive Agreement.
On April 27, 2016, Tallgrass Energy Partners, LP (the Partnership) and certain of its subsidiaries entered into Amendment No. 4 (the Amendment) to the Credit Agreement dated as of May 17, 2013 with Barclays Bank PLC, as administrative agent, and a syndicate of lenders (as amended, the Credit Agreement).
As discussed below under Item 8.01, the Partnership has received an offer from Tallgrass Development, LP (Tallgrass Development) to acquire an interest in Rockies Express Pipeline LLC (REX). The Amendment provides, among other things, that the revolving credit commitments under the Credit Agreement will increase by $250 million to a total of $1,750 million if the Partnership closes on such acquisition, subject to certain conditions listed in the Amendment. The Amendment also modifies certain provisions of the Credit Agreement related to a potential investment in REX, including, among other things, removing the limitation on the percentage of REX that the Partnership may acquire without lender consent and increasing to 50% the maximum percentage of Consolidated EBITDA (as defined in the Credit Agreement) that may be attributable to REX for purposes of calculating the financial covenants under the Credit Agreement.
The foregoing description is not complete and is qualified in its entirety by reference to the full text of the Amendment, which is filed as Exhibit 10.1 to this Current Report on Form 8-K and incorporated into this Item 1.01 by reference.
Item 2.02. Results of Operations and Financial Condition.
On April 28, 2016, the Partnership and Tallgrass Energy GP, LP issued a joint press release announcing first quarter 2016 earnings. A copy of the press release is attached hereto, furnished as Exhibit 99.1, and incorporated in this report by reference.
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
The description of the Amendment provided above under Item 1.01 is incorporated into this Item 2.03 by reference.
Item 3.02. Unregistered Sales of Equity Securities.
On April 28, 2016, the Partnership issued 2,416,987 common units representing limited partnership interests in the Partnership for an aggregate offering price of $90,008,596 in a private placement transaction (the Private Placement) to certain funds managed by Tortoise Capital Advisors, L.L.C.
The securities offered in the Private Placement have not been registered under the Securities Act or any state securities laws, and unless so registered, the securities may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. This announcement shall not constitute an offer to sell or a solicitation of an offer to buy any of these securities.
Item 7.01. Regulation FD Disclosure.
On April 28, 2016, the Partnership issued a press release announcing, among other things, first quarter 2016 earnings, the receipt of an offer from Tallgrass Development
to assume the rights and obligations of Rockies Express Holdings, LLC (REX Holdings) under the Purchase Agreement (as defined below), the Private Placement and the Amendment. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K.
In accordance with General Instruction B.2 to Form 8-K, the information provided under Item 2.02 and Item 7.01 and the information attached to this Current Report on Form 8-K as Exhibit 99.1 shall be deemed to be furnished and shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act except as expressly set forth by specific reference in such filing.
Item 8.01. Other Events.
Potential Assumption of Purchase Agreement
On March 29, 2016, Tallgrass Developments indirect wholly owned subsidiary REX Holdings signed a purchase agreement (the Purchase Agreement) with a unit of Sempra U.S. Gas and Power (Sempra) to acquire Sempras 25% membership interest in REX for cash consideration of $440 million, subject to adjustment under the Purchase Agreement. The transaction (the REX Interest Acquisition) is subject to closing conditions. In addition, a subsidiary of Phillips 66 (Phillips 66), which owns a 25% membership interest in REX, has a right under the limited liability company agreement of REX to purchase its proportionate share of Sempras 25% membership interest being sold to REX Holdings (the Right of First Refusal). On April 27, 2016, Phillips 66 elected not to exercise the Right of First Refusal. In exchange, Tallgrass Development and Sempra agreed to amend the REX limited liability company agreement to (i) increase the percentage with respect to matters that require approval, consent, or presence of the members of REX from 75% to 80%, and (ii) with respect to certain fundamental decisions, increase the required vote from 85% to 90% of the membership interests (the REX Amendment). The REX Amendment would be effective immediately prior to closing of the REX Interest Acquisition.
On April 28, 2016, the Partnership announced that Tallgrass Development offered the Partnership the right to assume the rights and obligations of REX Holdings under the Purchase Agreement (the Assumption). Terms of the potential assumption have not been finalized, but it is currently expected that, if consummated, the Partnership would assume the right to purchase the membership interest in REX from Sempra on the terms set forth in the Purchase Agreement.
A conflicts committee of the board of directors of the Partnerships general partner, consisting solely of independent directors, has been formed and will be evaluating the offer with assistance from external advisors engaged by the conflicts committee. The Partnership desires to consummate the Assumption on terms that the conflicts committee and the board of directors of the Partnerships general partner determine to be fair and reasonable to, and in the best interests of, the Partnership and its unitholders. However, the Assumption has not been finalized at this time and is subject to review, negotiations and approval by the conflicts committee and by the board of directors of the Partnerships general partner.
REX is a Delaware limited liability company engaged in the ownership and operation of the Rockies Express Pipeline, an approximately 1,712-mile natural gas pipeline transportation system regulated by the FERC, which the Partnership refers to as the REX Pipeline System. The REX Pipeline System effectively functions as one of the nations northernmost natural gas supply header systems, traversing an area from the Rocky Mountain Region to the Appalachian Mountain Region. The REX Pipeline System consists of three zones:
| Zone 1 a 328-mile pipeline from the Meeker Hub in Northwest Colorado, across Southern Wyoming to the Cheyenne Hub in Weld County, Colorado capable of transporting 2.0 Bcf/d of natural gas from west to east; |
| Zone 2 a 714-mile pipeline from the Cheyenne Hub to an interconnect in Audrain County, Missouri capable of transporting 1.8 billion cubic feet per day of natural gas from west to east; and |
| Zone 3 a 643-mile pipeline from Audrain County, Missouri to Clarington, Ohio, which is bi-directional and capable of transporting 1.8 Bcf/d of natural gas from west to east and 1.8 Bcf/d of natural gas from east to west. |
REX either connects with or is near numerous natural gas supply basins, including the Marcellus and Utica shales located throughout much of the Appalachian Basin, the Denver Julesburg basin in Colorado, the Niobrara shale in northern Colorado and Wyoming, the Piceance Basin in northwestern Colorado, the Wind River Basin in central Wyoming, the Opal Hub in southeastern Wyoming, the Illinois Basin in Illinois and the Mississippi Lime play in Kansas. REXs strategy is to connect markets for natural gas located in the northern United States to a diverse supply of natural gas from both the Rocky Mountain and Appalachian regions. The Partnership believes REXs unique positioning provides supply diversity to industrial customers and local distribution companies. As REX continues to expand its services, the Partnership expects it to provide demand markets with the ability to source term and daily supply based on pricing and availability, which provides significant optionality and value for REXs customers. Many aspects of REXs evolving business strategy involve significant risks and uncertainties.
Since Tallgrass Development acquired a 50% ownership interest in and became the operator of REX in November 2012, REX has continued to develop this business plan. For example, the Seneca Lateral Pipeline in Ohio, which was initially placed into commercial service in June 2014, can receive up to 0.6 Bcf/d of natural gas for delivery to points west on the mainline in Zone 3. REXs Zone 3 East-to-West Project was placed into commercial service on August 1, 2015 and created an additional 1.2 Bcf/d of east-to-west takeaway capacity in Zone 3 to deliver natural gas received from the Utica and Marcellus Shale Plays and the Appalachian Basin to points in Illinois and Ohio. REX is currently constructing what the Partnership refers to as the REX Zone 3 Capacity Enhancement Project to add an incremental 0.8 Bcf/d of east to west capacity within Zone 3. When that project is complete, REX will be capable of transporting a total of 2.6 Bcf/d of natural gas east to west within Zone 3. The REX Zone 3 Capacity Enhancement Project has a reported total cost of approximately $532 million, with approximately $285 million expected to be spent from April 1, 2016 through April 2017. REX expects to fund the remaining 2016 capital budget through capital contributions from its members. This project is currently expected to be placed into service in December 2016.
REX has long-term agreements to provide west-to-east firm transportation services for approximately 1.6 Bcf/d as of March 31, 2016, with a weighted average remaining contract life on such contracts of approximately 4 years as of December 31, 2015. REX also has long-term agreements (including binding precedent agreements with respect to the REX Zone 3 Capacity Enhancement Project) to provide east-to-west firm transportation services in Zone 3 for approximately 2.6 Bcf/d (assuming completion of the REX Zone 3 Capacity Enhancement Project), with a weighted average remaining contract life on such contracts of approximately 17 years as of December 31, 2015.
REXs daily operations are managed by Tallgrass Development. Under the current limited liability company agreement of REX, substantially all matters are decided by a vote of 75% of the membership interests, other than certain fundamental decisions that require a vote of 85% of the membership
interests. As noted above, the REX Amendment would increase the 75% vote to 80% and increase the vote for certain fundamental decisions from 85% to 90%. Pursuant to the REX limited liability company agreement, REX is required to distribute all of its unrestricted cash and cash equivalents to its members on a quarterly basis, less any portion set aside to maintain reasonably adequate reserves for REXs operations, as well as to make certain distributions to its members for reimbursement of development costs incurred in connection with the construction and ownership of the REX Pipeline System. Pursuant to the REX limited liability company agreement, REXs members are required to provide capital contributions on a quarterly basis to fund expenditures contemplated by REXs annual budget, as well as under certain other circumstances specified in the REX limited liability company agreement if determined to be reasonably necessary by REXs board of directors.
Update on TIGT Rate Case Settlement
Tallgrass Interstate Gas Transmission, LLC (TIGT) has reached an agreement in principle with customers representing a majority of 2015 firm fee revenue on the Tallgrass Interstate Gas Transmission system to settle all rate related issues set for hearing in its existing FERC rate case, including the issues of a cost recovery mechanism and a non-Electronic Flow Measurement charge. The settlement remains subject to the final approval of the FERC.
Risks Relating to the Potential Assumption and REX Interest Acquisition
The Assumption and the REX Interest Acquisition may not be completed, and even if the Assumption and the REX Interest Acquisition are completed, the Partnership may fail to realize the growth anticipated as a result of the Assumption and the REX Interest Acquisition.
The Partnership expects the Assumption and the REX Interest Acquisition to close in the second quarter of 2016. The Assumption is subject to approval by the conflicts committee and the board of directors of the Partnerships general partner and may be subject to conditions precedent. The REX Interest Acquisition is subject to the satisfaction or waiver of customary closing conditions.
There are a number of risks and uncertainties relating to the Assumption and the REX Interest Acquisition. For example, the Assumption may not be approved by the conflicts committee or the board of directors of the Partnerships general partner. The REX Interest Acquisition may not be completed, or may not be completed in the time frame, on the terms, or in the manner currently anticipated, as a result of a number of factors, including, among other things, the failure to satisfy one or more of the conditions to closing. The parties to the Purchase Agreement may fail to satisfy or waive the conditions to closing of the REX Interest Acquisition or other events could intervene to delay or result in the failure to close the REX Interest Acquisition. Failure to complete the REX Interest Acquisition would prevent the Partnership from realizing the anticipated benefits of the Assumption and the REX Interest Acquisition at all. The Partnership would also remain liable for significant transaction costs, including legal, accounting and financial advisory fees. In addition, the market price of the Partnerships common units may reflect various market assumptions as to whether the Assumption and the REX Interest Acquisition will be completed. Consequently, the completion of, the failure to complete or complete in full, or any delay in the completion of the Assumption or the closing of the REX Interest Acquisition could result in a significant change in the market price of the Partnerships common units.
If the Assumption and the REX Interest Acquisition are consummated, such consummation would involve potential risks, including, without limitation, the failure to realize expected profitability, growth or accretion; the incurrence of liabilities or other compliance costs related to environmental, pipeline safety or regulatory matters, including potential liabilities that may be imposed without regard to fault or the legality of conduct; and the incurrence of unanticipated liabilities and costs for which indemnification is unavailable or inadequate. For example, on April 8, 2016, the Pipeline and Hazardous Materials Safety Administration published a notice of proposed rulemaking that would revise safety requirements for natural gas transmission and gathering lines. Though this is still a notice of proposed rulemaking, if it were to become final, this rule and others like it could result in significant costs. If the Assumption and the REX Interest Acquisition are consummated and if these risks or other unanticipated liabilities were to materialize, any desired benefits of the Assumption and the REX Interest Acquisition may not be fully realized, if at all, and the Partnerships future financial performance and results of operations could be negatively impacted.
Risks Relating to Ownership of REX
If the Assumption and the REX Interest Acquisition are consummated, the Partnership will become subject to additional risks associated with the development, ownership and operation of REX. If any of the following risks were to occur, they may have a material adverse effect on the Partnerships business, financial condition and results of operations, including the Partnerships cash available for distribution to unitholders. The following risks assume that the Partnership consummates the Assumption and the REX Interest Acquisition.
Approximately 74% of REXs revenue in 2015 was derived under long-term firm fee contracts for west-to-east service expiring in 2019 or earlier, and it is expected that a majority of REXs revenue in 2016 will be derived under these contracts. REX may not be able to renew or replace expiring contracts at favorable rates or on a long-term basis. If REX is not able to renew or replace its expiring customer contracts at favorable rates or on a long-term basis, the Partnerships financial condition, results of operations, cash flows and ability to make cash distributions to its unitholders will be adversely affected.
Substantially all of REXs west-to-east pipeline capacity is subject to long-term firm fee contracts that expire at various dates in 2019 or earlier and approximately 74% of REXs revenue in 2015 was derived under these contracts. The Partnership expects a majority of REXs revenue in 2016 to be derived under these contracts despite the completion of the Zone 3 East-to-West Project that was placed into commercial service on August 1, 2015.
If an existing REX shipper terminates or breaches its long-term firm contract or elects to not renew its contract at the end of its term, REX may be subject to a loss of revenue if REX is unable to promptly resell the capacity to another shipper on substantially equivalent terms. REXs ability to enter into a long-term firm fee contract with another shipper on substantially equivalent terms and conditions is uncertain and depends on a number of factors beyond the Partnerships control, including:
| the timing, volume and location of new market demands; |
| competition from alternative sources of natural gas and other fuels; |
| differences in the supply and price of natural gas in the Rocky Mountain region and supply basins outside the Rocky Mountain region, including the Marcellus and Utica shales; |
| the demand for natural gas in markets served by REX; |
| the effects of federal and state regulation on customer contracting practices; and |
| the availability and competitiveness of alternative gas transportation services in the markets REX serves. |
The rapid increase in the production of natural gas over the past several years from the Marcellus and Utica shale formations, among other supply basins, has resulted in a decreased demand for the transportation of Rocky Mountain gas to the Northeast. In addition, this increase has resulted in a market price for natural gas in the Marcellus and Utica shale formations that is lower relative to NYMEX Henry Hub. A continuation of this trend will make it difficult for REX to replace its existing long-term firm fee contracts for shipments from west-to-east on terms and with pricing similar to that contained in REXs existing contracts to ship gas from west-to-east.
The Partnership cannot assure you that REX will be able to negotiate replacements of its existing contracts on terms and conditions, including pricing, that are as favorable to REX as its existing contracts. If REX is unable to extend its current transportation contracts when they expire or replace them with new contracts that have terms as favorable as the existing contracts, the Partnership could suffer a material reduction in its revenues, earnings and cash flows and its ability to make cash distributions to its unitholders may be materially impaired.
REX is exposed to the creditworthiness and performance of its customers, suppliers and contract counterparties, and any material nonpayment or nonperformance by one or more of these parties could adversely affect the Partnerships financial condition, cash flows, and operating results.
Although REX attempts to assess the creditworthiness of its customers, suppliers and contract counterparties, there can be no assurance that its assessments will be accurate or that there will not be a rapid or unanticipated deterioration in their creditworthiness, which may have an adverse impact on the Partnerships business, results of operations, financial condition and ability to make cash distributions to its unitholders. REXs long-term firm fee contracts obligate its customers to pay reservation charges regardless of whether they utilize REXs assets, except for certain circumstances outlined in applicable customer agreements. As a result, during the term of REXs long-term firm fee contracts, and absent an event of force majeure, REXs revenues will generally depend on its customers financial condition and their ability to pay rather than upon the amount of natural gas transported. The recent decline in natural gas prices has negatively impacted the financial condition of some of REXs customers and further declines, sustained lower prices, or continued volatility could impact their ability to meet their financial obligations to REX. Further, REXs contract counterparties may not perform or adhere to REXs existing or future contractual arrangements. To the extent one or more of REXs contract counterparties is in financial distress or commences bankruptcy proceedings, contracts with these counterparties may be subject to renegotiation or rejection under applicable provisions of the United States Bankruptcy Code or other bankruptcy and insolvency laws. Any material nonpayment or nonperformance by REXs contract counterparties due to inability or unwillingness to perform or adhere to contractual arrangements, whether due to a filing under the United States Bankruptcy Code or otherwise, could have a material adverse impact on REXs business, results of operations, financial condition and ability to make distributions to its members.
For example, in early 2016, Ultra Resources, Inc., or Ultra, defaulted on its firm transportation service agreement for approximately 0.2 Bcf/d through November 11, 2019. Approximately 13% of REXs revenue in 2015 was derived from the Ultra contract. In late March 2016, REX terminated Ultras service agreement. As of April 4, 2016, in addition to other amounts owed under law or equity, REX has asserted that Ultra owes approximately $303 million for past transportation service charges and for reservation charge fees that REX would have received over the term of the service agreement had Ultra not defaulted. In a Form 10-K filed with the SEC by Ultra Petroleum Corp., Ultras parent, on February 29, 2016, significant liquidity and capital structure issues were outlined that suggested Ultra might pursue a filing under Chapter 11 of the United States Bankruptcy Code or the Canadian Bankruptcy and Insolvency Act. Ultra Petroleum Corp. announced on April 1, 2016 that it was deferring a $26 million interest payment to its noteholders, starting a 30 day grace period to make the interest payment. As of April 25, 2016, Ultra has not made any announcement regarding a planned restructuring or any such filing under Chapter 11 for protection from its creditors. REX intends to pursue all available legal remedies to maximize its recovery, and on April 14, 2016 REX filed a lawsuit against Ultra for breach of contract and damages in Harris County, Texas, in which REX seeks approximately $303 million in damages and other relief. REX currently believes it may be unlikely that it will be able to collect all of the amounts it seeks from Ultra and it is uncertain how much, if any, REX will ultimately be able to recover. Further, it is also unlikely that REX will be able to remarket the capacity that was subject to the service agreement at the rate stated in the now-terminated Ultra
service agreement and, as a result, REX may be unable to remarket the capacity at all for a term longer than one year due to the most favored nations rights in the Partnerships other original long term transportation contracts described in the risk factor below.
In addition, Triad Hunter, LLC, or Triad, together with certain of its affiliates, filed voluntary petitions for relief pursuant to Chapter 11 of the United States Bankruptcy Code in December 2015, which the Partnership refers to as the Chapter 11 Cases. Triad and REX are parties to a precedent agreement that will provide Triad with an approximate 0.1 Bcf/d of firm capacity in connection with the REX Zone 3 Capacity Enhancement Project, subject to certain terms and conditions of service. Upon the commencement of the Chapter 11 Cases, REX and Triad entered into negotiations to amend certain terms of the precedent agreement. These negotiations resulted in an agreement in principle to amend certain material terms of the precedent agreement, exclusive of the rate or term. On April 18, 2016, the Bankruptcy Court conducted a hearing to consider the plan of reorganization submitted by Triad and its debtor affiliates, which included the as-amended precedent agreement with REX. During the hearing, Triad stated on the record that it had reached agreement with REX on an amended precedent agreement and that it intended to assume the same. Following the hearing, the Bankruptcy Court entered an order on April 18, 2016 confirming the plan of reorganization. The amended precedent agreement became effective and binding on REX and Triad immediately upon the entry of the Bankruptcy Courts order confirming the plan.
The procedures and policies REX uses to manage its exposure to credit risk, such as credit analysis, credit monitoring and, in some cases, requiring credit support, cannot fully eliminate counterparty credit risks. In accordance with FERC regulations and REXs own internal credit policies, counterparties with investment grade credit ratings are deemed able to meet their financial obligations to REX without requiring credit support in the form of a letter of credit or prepayment. With the recent decline in natural gas prices and the corresponding deterioration of the financial condition of some of REXs customers, it is possible that some may lose their investment grade credit rating. If this were to occur, REX would likely ask for credit support and the customer may be unwilling or unable to provide it due to liquidity constraints. To the extent REXs procedures and policies prove to be inadequate or REX is unable to obtain credit support, the Partnerships financial position and results of operations may be negatively impacted.
Some of REXs counterparties may be highly leveraged or have limited financial resources and are subject to their own operating and regulatory risks. Even if REXs credit review and analysis mechanisms work properly, REX may experience financial losses in its dealings with such parties. As seen with the recent decline in natural gas prices, prices for natural gas are subject to large fluctuations in response to changes in supply and demand, market uncertainty and a variety of other factors that are beyond REXs control. Such volatility in commodity prices might have an impact on many of REXs counterparties and their ability to borrow and obtain additional capital on attractive terms, which, in turn, could have a negative impact on their ability to meet their obligations to REX and may also increase the magnitude of these obligations.
Certain projects may also be subject to the financial risks of key suppliers and contractors. For example, REX has a critical engineering, procurement and construction contract with QPS Engineering, LLC with respect to the REX Zone 3 Capacity Enhancement Project, and would be harmed financially in the event QPS Engineering, LLC were to enter bankruptcy or receivership, or experience other financial difficulty.
Any material nonpayment or nonperformance by REXs counterparties could require REX to pursue substitute counterparties for the affected operations, renegotiate contract terms, reduce operations or provide alternative services. There can be no assurance that any such efforts would be successful or would provide similar financial and operational results.
REX depends on certain key customers for a significant portion of its revenues and is exposed to credit risks of these customers. The loss of or material nonpayment or nonperformance by any of these key customers could adversely affect the Partnerships cash flow and results of operations.
REX relies on certain key customers for a portion of its revenues. For example, for the year ended December 31, 2015, REXs three largest non-affiliated shippers accounted for approximately 24%, 21%, and 13%, respectively, of REXs total revenues.
REX may be unable to negotiate extensions or replacements of contracts with key customers on favorable terms. In addition, some of these key customers may experience financial problems that could have a significant effect on their creditworthiness. For example, REX terminated its contract with its third largest non-affiliated shipper by total revenue, Ultra, in March 2016. See REX is exposed to the creditworthiness and performance of its customers, suppliers and contract counterparties, and any material nonpayment or nonperformance by one or more of these parties could adversely affect the Partnerships financial condition, cash flows, and operating results. Severe financial problems encountered by REXs customers could limit REXs ability to collect amounts owed to it, or to enforce performance of obligations under contractual arrangements. To the extent one or more of REXs key customers is in financial distress or commences bankruptcy proceedings, contracts with these customers may be subject to renegotiation, rejection or assignment to unknown third parties under applicable provisions of the United States Bankruptcy Code. Additionally, many of REXs customers finance their activities through cash flow from operations, the incurrence of debt or the issuance of equity. The combination of reduction of cash flow resulting from declines in commodity prices, a reduction in borrowing bases under credit facilities and the lack of availability of debt or equity financing may result in a significant reduction of REXs customers liquidity and limit their ability to make payments or perform on their obligations to the Partnership. Furthermore, some of REXs customers may be highly leveraged and subject to their own operating and regulatory risks, which increases the risk that they may default on their obligations to REX. The loss of all or even a portion of the contracted volumes of these key customers, as a result of competition, creditworthiness or otherwise, could have a material adverse effect on the Partnerships business, cash flows, ability to make distributions to its unitholders, the price of its units, its results of operations and ability to conduct its business.
Most of REXs revenues are from long-term negotiated rate contracts for west-to-east service that contain most favored nations rate provisions, limiting its flexibility to offer any available or expiring west-to-east long-term capacity to new shippers on the REX Pipeline System at less than the rates of long-term negotiated rate shippers without substantial financial impacts to REXs revenues.
REXs foundation and anchor shippers for west-to-east service hold certain most favored nations rights, or MFNs, granting them a right to a rate reduction in certain limited instances where REX provides service to another shipper at a rate lower than the foundation or anchor shipper rate for a term of one year or greater or, in the case of the foundation shipper, from certain specified receipt locations. The MFNs effectively limit REXs flexibility in negotiating rates for some of its services with other shippers, because triggering the MFNs of the foundation and anchor shippers could lead to a reduction in the rates that REX charges, which could have a material adverse effect on REXs revenues, cash flow and results of operations.
REX has a substantial amount of debt.
As of April 25, 2016 REX had approximately $2.575 billion of total indebtedness outstanding.
The scheduled maturities of REX outstanding debt balances as of December 31, 2015 are summarized as follows (in millions):
Year Maturities |
Scheduled | |||
2018 |
550.0 | |||
2019 |
525.0 | |||
2020 |
750.0 | |||
Thereafter |
750.0 |
In addition, REX has a revolving credit facility, which will mature on January 31, 2020, with approximately $150 million of additional borrowing capacity available as of April 25, 2016.
The substantial debt held by REX could have important consequences. For example, it could:
| make it more difficult for REX to satisfy its obligations with respect to its debt; |
| increase the vulnerability of REX to general adverse economic and industry conditions; |
| limit the ability of REX to obtain additional financing for future working capital, capital expenditures and other general corporate purposes; |
| require REX to dedicate a substantial portion of its cash flow from operations to payments on its debt, thereby reducing the availability of cash flow for operations and other purposes; |
| limit its flexibility in planning for, or reacting to, changes in its business and the industry in which REX operates; |
| place REX at a competitive disadvantage compared to its competitors that have less debt; and |
| have a material adverse effect if REX fails to comply with the covenants in the indenture relating to its notes or in the instruments governing its other debt. |
The terms of the indentures governing the existing REX notes do not restrict the amount of additional unsecured debt REX may incur, and the agreement governing its credit facility permits additional unsecured borrowings. If new debt is added to the current debt levels, these related risks could increase.
REXs debt instruments may limit its financial flexibility and increase its financing costs.
REXs credit facility contains restrictive covenants that may prevent it from engaging in various transactions that REX deems beneficial and that may be beneficial to REX. The credit facility generally requires REX to comply with various affirmative and negative covenants, including a limit on the leverage ratio (as defined in the credit agreement) of REX and restrictions on:
| incurring secured debt; |
| entering into mergers, consolidations and sales of assets; |
| granting liens; |
| entering into transactions with affiliates; and |
| making restricted payments. |
The instruments governing any future debt may contain similar or more restrictive provisions. REXs ability to respond to changes in business and economic conditions and to obtain additional financing, if needed, may be restricted.
REX may not be able to generate a sufficient amount of cash flow to meet its debt service obligations.
REXs ability to make scheduled payments or to refinance its obligations with respect to its debt will depend on its financial and operating performance, which, in turn, is subject to prevailing economic conditions and to financial, business, and other factors beyond its control. In addition, a significant amount of REXs revenue is generated by long term contracts that expire in 2019 and REX may not be able to renew or replace expiring contracts at favorable rates or on a long-term basis, which may result in lower cash flows in periods subsequent to 2019 . If REXs cash flow and capital resources are insufficient to fund its debt service obligations, it may be forced to sell material assets, obtain additional capital, including through capital contributions from its members, or restructure its debt. The payment of additional capital contributions by the Partnership to REX to fund such obligations would reduce the Partnerships amount of cash available to pay distributions to its common unitholders.
The Partnership cannot assure you that REXs operating performance, cash flow and capital resources will be sufficient for payment of its debt in the future. In the event that REX is required to dispose of material assets or restructure its debt to meet its debt service and other obligations, the Partnership cannot assure you as to the terms of any such transaction or how soon any such transaction could be completed.
Constructing new assets subjects REX to risks of project delays, cost overruns, potential litigation and lower-than-anticipated volumes of natural gas once a project is completed. Operating cash flows from REXs capital projects may not be immediate or meet its expectations.
One of the ways REX may grow its business is by constructing additions or modifications to its existing facilities. For example, REX is currently undertaking the REX Zone 3 Capacity Enhancement Project, a large scale construction project on the REX Pipeline System that, when complete, will add three (3) new compressor stations, modify two (2) existing compression stations and construct certain ancillary facilities. The proposed facilities are expected to increase the Zone 3 east-to-west mainline delivery capacity on the REX Pipeline System by approximately 0.8 Bcf/d from receipts at Clarington, Ohio to corresponding deliveries of approximately 0.52 Bcf/d and approximately 0.28 Bcf/d to Lebanon, Ohio and Moultrie County, Illinois, respectively. It is currently expected to be placed in service sometime during December 2016 and has a reported total cost of approximately $532 million, with approximately $285 million expected to be spent from April 1, 2016 through April 2017. Completion of construction projects such as the REX Zone 3 Capacity Enhancement Project require significant amounts of capital and involve numerous regulatory, environmental, pipeline safety, political, legal and operational uncertainties, many of which are beyond REXs control. These projects also involve numerous economic uncertainties, including the impact of inflation on project costs and the availability of required resources, and are often subject to cost overruns, delays in completion and potential litigation claims. For example, on June 17, 2014, Michels Corporation, or Michels, filed a complaint and request for relief against REX as a result of work performed by Michels to construct the Seneca Lateral Pipeline in Ohio. Michels seeks unspecified damages from REX and asserts claims of breach of contract, negligent misrepresentation, unjust enrichment and quantum meruit, and has also filed notices of Mechanics Liens in Monroe and Noble Counties, asserting $24.2 million as the amount due. REX believes Michels claims are without merit and plans to continue to vigorously contest all of the claims in this matter, but the outcome and impact of these legal proceedings cannot be predicted with certainty.
REX may be unable to complete announced construction projects such as the REX Zone 3 Capacity Enhancement Project on schedule, at the budgeted cost, or at all, which could have a material adverse effect on REXs business and results of operations. For example, certain of REXs customers will have the right to terminate their contracts with REX in the event that the additional capacity of the REX Zone 3 Capacity Enhancement Project has not been made available to those customers by June 30, 2017. Moreover, REX may not receive any material increase in its operating cash flow from any such projects for some time. For instance, with respect to the REX Zone 3 Capacity Enhancement Project, substantially all of the construction expenditures are expected to have occurred during 2015 and 2016, yet REX will not receive any material increases in cash flow until the project is completed and fully operational, which is currently expected to be during December 2016. In addition, REXs cash flow from a project like the REX Zone 3 Capacity Enhancement Project may be delayed or may not meet its expectations. REXs project specifications and expectations regarding project cost, timing, asset performance, investment returns and other matters usually rely in part on the expertise of third parties such as engineers, technical experts and construction contractors. These estimates may prove to be inaccurate because of numerous operational, technological, economic and other uncertainties.
REX may occasionally also rely in part on estimates from producers regarding the timing and volume of anticipated natural gas production. Production estimates are subject to numerous uncertainties, all of which are beyond REXs control. These estimates may prove to be inaccurate, and new facilities may not attract sufficient volumes to achieve the Partnerships expected cash flow and investment return.
The Partnerships investment in REX is a minority interest and could be adversely affected by its lack of sole decision-making authority and its reliance on the financial condition of the other members.
Entering into REX as a minority-interest partner, the Partnership would not control REXs strategies and operations. Thus, the Partnerships investment in REX involves risks that are not present when the Partnership is able to exercise control over an asset, including the possibility that the other members of REX might become bankrupt, fail to fund their required capital contributions or otherwise make business decisions with respect to REX that the Partnership does not believe is in its best interest. The other members of REX, including Tallgrass Development, may have economic or other business interests or goals that are inconsistent with the Partnerships business interests or goals, and may be in a position to take actions contrary to the Partnerships policies or objectives. The REX limited liability company agreement expressly permits REX members to make decisions with respect to their ownership interest without taking into account the interests of REX or any other member of REX. Moreover, under the REX limited liability company agreement, the Partnership will be required to provide certain capital contributions in order to fund expenditures contemplated by REXs annual budget, and may be required to provide capital contributions under certain circumstances specified in the REX limited liability company agreement if determined to be reasonably necessary by a vote of REXs members. Under the limited liability company agreement of REX, substantially all matters are decided by a vote of 75% of the membership interests, other than certain fundamental decisions that require a vote of 85% of the membership interests. As noted above, the REX Amendment would increase the threshold for matters requiring a 75% vote to a 80% vote, and increase the threshold for certain fundamental decisions from an 85% vote to a 90% vote. Further, TEP will not be the operator of REX, and the Partnership may disagree with the proposals of the operator of REX from time to time.
The Partnerships membership interest in REX will be subject to a right of first refusal, which may make it more difficult to sell its interest in REX in the future.
Under the terms of REXs limited liability company agreement, if any member desires to transfer its membership interest to an unaffiliated third party, each other member first has a right to purchase its proportionate share of the membership interest being sold. If the Partnership desires to sell all or any portion of its interest in REX in the future, the Partnership will be required to first offer the sale of its membership interest to the other members, who will have 30 days to elect to purchase their proportionate interest before any sale or transfer to a third party may be consummated. This requirement could make it difficult for the Partnership to sell its interest in REX.
If the Assumption and the REX Interest Acquisition are completed, TEP and Tallgrass Development will control a significant percentage of REXs voting power but will vote independently of each other.
If the Assumption and the REX Interest Acquisition are completed, TEP and Tallgrass Development will collectively hold 75% of the voting power of REX. Although TEP and Tallgrass Development may act together to exercise their combined voting power under the terms of the REX LLC Agreement, the Partnership will be entitled to act separately and in its own interest with respect to its membership interest in REX and the Partnership does not currently expect to have a voting trust or other arrangement in place requiring the Partnership or Tallgrass Development to vote jointly.
REXs daily operations are managed by Tallgrass Development. Under the current limited liability company agreement of REX, substantially all matters are decided by a vote of 75% of the membership interests, other than certain fundamental decisions that require a vote of 85% of the membership interests. As noted above, the REX Amendment would increase the threshold for matters requiring a 75% vote to an 80% vote, and increase the threshold for certain fundamental decisions from an 85% vote to a 90% vote. Pursuant to the REX limited liability company agreement, REX is required to distribute all of its unrestricted cash and cash equivalents to its members on a quarterly basis, less any portion set aside to maintain reasonably adequate reserves for REXs operations, as well as to make certain distributions to its members for reimbursement of development costs incurred in connection with the construction and ownership of the REX Pipeline System. Pursuant to the REX limited liability company agreement, REXs members are required to provide capital contributions on a quarterly basis to fund expenditures contemplated by REXs annual budget, as well as under certain other circumstances specified in the REX limited liability company agreement if determined to be reasonably necessary by REXs board of directors.
Cautionary Statement Regarding Forward-Looking Statements
This Current Report on Form 8-K includes forward-looking statements. All statements, other than statements of historical facts, included in this Form 8-K that address activities, events or developments that the Partnership expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements include but are not limited to forward-looking statements about the potential Assumption and the REX Interest Acquisition. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Partnership, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. These include risks relating to market conditions, receipt of conflicts committee approval, satisfaction of closing conditions, the Partnerships and REXs financial performance and results, timing and projected costs to complete construction of the REX Zone 3 Capacity Enhancement Project and other important factors that could prevent the potential Assumption or the REX Interest Acquisition from being consummated, including those set forth in reports filed by the Partnership with the Securities and Exchange Commission. Any forward-looking statement speaks only as of the date on which such statement is made and the Partnership undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.
Item 9.01. Financial Statements and Exhibits.
(a) | Financial Statements of Rockies Express Pipeline LLC |
Audited financial statements of Rockies Express Pipeline LLC as of December 31, 2015 and 2014, and for the years ended December 31, 2015, 2014 and 2013, the notes related thereto, and the Report of Independent Auditors issued by PricewaterhouseCoopers, LLP are filed as Exhibit 99.2 to this Current Report on Form 8-K.
(b) | Pro Forma Financial Information |
Unaudited pro forma condensed consolidated financial statements of the Partnership as of and for the year ended December 31, 2015, and the notes related thereto as of December 31, 2015, in the case of the unaudited pro forma condensed consolidated balance sheet, or as of January 1, 2015, in the case of the unaudited pro forma condensed consolidated statements of income, are filed as Exhibit 99.3 to this Current Report on Form 8-K.
(d) | Exhibits. |
EXHIBIT
|
DESCRIPTION |
|
10.1 | Amendment No. 4 to Credit Agreement, dated as of April 27, 2016, by and among Tallgrass Energy Partners, LP, Barclays Bank PLC, as administrative agent, and a syndicate of lenders named therein. | |
23.1 | Consent of Independent Auditors. | |
99.1 | Press Release of Tallgrass Energy Partners, LP dated April 28, 2016. | |
99.2 | Audited Financial Statements of Rockies Express Pipeline LLC as of December 31, 2015 and 2014, and for the years ended December 31, 2015, 2014 and 2013, including the notes related thereto. | |
99.3 | Unaudited Pro Forma Condensed Consolidated Financial Statements of Tallgrass Energy Partners, LP as of and for the year ended December 31, 2015, including the notes related thereto. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
TALLGRASS ENERGY PARTNERS, LP | ||
By: | Tallgrass MLP GP, LLC, | |
its general partner | ||
By: |
/s/ David G. Dehaemers, Jr. |
|
David G. Dehaemers, Jr. | ||
President and Chief Executive Officer | ||
Date: April 28, 2016 |
INDEX TO EXHIBITS
EXHIBIT
|
DESCRIPTION |
|
10.1 | Amendment No. 4 to Credit Agreement, dated as of April 27, 2016, by and among Tallgrass Energy Partners, LP, Barclays Bank PLC, as administrative agent, and a syndicate of lenders named therein. | |
23.1 | Consent of Independent Auditors. | |
99.1 | Press Release of Tallgrass Energy Partners, LP dated April 28, 2016. | |
99.2 | Audited Financial Statements of Rockies Express Pipeline LLC as of December 31, 2015 and 2014, and for the years ended December 31, 2015, 2014 and 2013, including the notes related thereto. | |
99.3 | Unaudited Pro Forma Condensed Consolidated Financial Statements of Tallgrass Energy Partners, LP as of and for the year ended December 31, 2015, including the notes related thereto. |
Exhibit 10.1
AMENDMENT No. 4 TO CREDIT AGREEMENT
This AMENDMENT No. 4 (this Fourth Amendment ), dated April 27, 2016, to the Credit Agreement referred to below by and among Tallgrass Energy Partners, LP, a Delaware limited partnership (the Borrower ), the other Loan Parties party hereto (collectively, the Grantors ), the Lenders party hereto, the Issuing Banks party hereto, the Swing Line Lenders party hereto and Barclays Bank PLC, as administrative agent (in such capacity, the Administrative Agent ) and collateral agent (in such capacity, the Collateral Agent ).
RECITALS
WHEREAS, the Borrower, the several Lenders parties thereto, the Issuing Banks party thereto, the Swing Line Lenders party thereto and the Administrative Agent and Collateral Agent have entered into that certain Credit Agreement, dated as of May 17, 2013, as amended by (i) Amendment No. 1 to Credit Agreement, dated as of June 25, 2014, among the Borrower, the several Lenders party thereto, the Issuing Banks party thereto, the Swing Line Lenders party thereto and the Administrative Agent and Collateral Agent, (ii) Amendment No. 2 to Credit Agreement, dated as of November 24, 2015, among the Borrower, the other Loan Parties party thereto, the Lenders party thereto, the Issuing Banks party thereto, the Swing Line Lenders party thereto and the Administrative Agent and Collateral Agent, and (iii) Amendment No. 3 to Credit Agreement, dated as of January 11, 2016, among the Borrower, the other Loan Parties party thereto, the Lenders party thereto and the Administrative Agent and Collateral Agent (together with the exhibits and schedules attached thereto, as amended, restated, supplemented or otherwise modified prior to the date hereof, the Credit Agreement ; capitalized terms used but not defined herein shall have the meanings assigned to them in the Credit Agreement);
WHEREAS, the Borrower has requested this amendment to the Credit Agreement, as described in more detail in this Fourth Amendment;
WHEREAS, the Lenders party hereto, the Issuing Banks party hereto, the Swing Line Lenders party hereto, the Administrative Agent and the Collateral Agent are willing, on the terms and subject to the conditions set forth below, to consent to the amendment of the Credit Agreement as provided herein; and
WHEREAS, pursuant to that certain letter agreement, dated as of April 22, 2016, by and among the Borrower and Wells Fargo Securities, LLC and Barclays Bank PLC, as joint lead arrangers (collectively, the Arrangers ), the Borrower has retained the Arrangers to act as joint bookrunners and joint lead arrangers in connection with this Fourth Amendment (the Engagement Letter ).
NOW, THEREFORE, in consideration of the covenants and agreements contained herein, as well as other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Certain Definitions . Capitalized terms used (including in the preamble and recitals hereto) but not defined herein shall have the meanings assigned to such terms in the Credit Agreement. As used in this Fourth Amendment:
Administrative Agent is defined in the preamble hereto.
Arrangers is defined in the preamble hereto.
Assignee Lender is defined in Section 3.2 .
Assignor Lender is defined in Section 3.2 .
Borrower is defined in the preamble hereto.
Collateral Agent is defined in the preamble hereto.
Credit Agreement is defined in the first recital hereto.
Engagement Letter is defined in the fourth recital hereto.
Fourth Amendment is defined in the preamble hereto.
Fourth Amendment Effective Date shall mean the date on which the conditions set forth in Article IV of this Fourth Amendment are satisfied or waived.
REX Acquisition means the acquisition by a REX HoldCo, directly or indirectly through REX Holdings, of not less than a 16-2/3% membership interest in Rockies Express Pipeline LLC, a Delaware limited liability company, pursuant to the REX MPA.
REX Closing Date is defined in Section 3.1(a) .
REX MPA means that certain Membership Interest Purchase Agreement dated as of March 29, 2016 by and between Sempra REX Holdings, LLC and Rockies Express Holdings, LLC.
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ARTICLE II
AMENDMENTS TO LOAN DOCUMENTS
Effective as of the Fourth Amendment Effective Date, the Credit Agreement is hereby amended as follows:
SECTION 2.1 Amendments to Defined Terms . The following defined terms in Section 1.01 of the Credit Agreement are amended as follows:
(a) The definition of Amended Engagement Letter is hereby deleted in its entirety and replaced with the following definition:
Amended Engagement Letter shall mean the Engagement Letter dated April 22, 2016 by and among the Borrower and the Arrangers, as the same may be amended, restated, amended and restated, supplemented or otherwise modified from time to time.
(b) The definition of Consolidated EBITDA is hereby deleted in its entirety and replaced with the following definition:
Consolidated EBITDA shall mean, at any Date of Determination for the Applicable Period related thereto, an amount equal to Consolidated Net Income in respect of such Applicable Period plus
(x) the sum of the following, without duplication, and in the cases of clauses (a) and (b) , to the extent deducted in calculating such Consolidated Net Income:
(a) (i) provision for all Taxes (whether or not paid, estimated or accrued) based on income, profits or capital (including penalties and interest, if any), net of any applicable credits, (ii) Consolidated Interest Expense and (iii) depreciation, amortization and all other non-cash charges or non-cash losses, plus
(b) any costs or expenses pursuant to any equity-related benefit plan, or any stock subscription or shareholder agreement, to the extent funded with cash proceeds contributed to the capital of the Borrower as common equity, plus
(c) for any Material Projects commenced (or acquired) by the Borrower or any Restricted Subsidiary with a Commencement Date occurring on or prior to the Date of Determination, Consolidated EBITDA Material Project Adjustments for such Material Project for such period; provided that the aggregate amount of adjustments included in this clause (c) for any period (1) in respect of all Material Projects taken together (other than the Pony Express Material Project) shall not exceed 15% of pro forma Consolidated EBITDA (calculated without giving effect to this clause (c) ) and (2) in respect of the Pony Express Material Project shall not exceed the Pony Express Adjustment Limit,
minus
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(y) the following to the extent included in calculating such Consolidated Net Income, without duplication:
(a) without duplication of the netting provided in clause (x)(a)(i) above, Federal, state, local and foreign income tax credits of the Borrower and its Subsidiaries for such period;
(b) all cash payments made during such period on account of reserves, restructuring charges, and other non-cash charges added to Consolidated Net Income pursuant to clause (x)(a)(iii) above; and
(c) other income of the Borrower and the Restricted Subsidiaries increasing Consolidated Net Income which does not represent a cash item in such period;
provided, however , that if REX is a Restricted Subsidiary, the amount of any adjustment pursuant to clause (x) or (y) above attributable to REX shall be equal to the total amount of such item multiplied by the percentage of the Equity Interests of REX directly or indirectly owned by the Borrower and its Wholly-Owned Restricted Subsidiaries.
Notwithstanding the foregoing, (a) for purposes of calculating the Total Leverage Ratio for purposes of Section 4.02(n) , Consolidated EBITDA for the Applicable Period shall be deemed to be $76,300,000, (b) for purposes of calculating the Total Leverage Ratio and Interest Coverage Ratio for any period (A) the Consolidated EBITDA of any Person that becomes a Restricted Subsidiary acquired by the Borrower or any Restricted Subsidiary pursuant to either a Permitted Acquisition for Acquisition Consideration greater than $10,000,000 or an investment made pursuant to Section 6.04(k) , (l) (but only beginning at the end of the third full fiscal quarter after the Commercial Operation Date of the Pony Express Material Project; it being understood that prior to such date the Consolidated EBITDA Material Project Adjustment for Pony Express shall be included in the Borrowers Consolidated EBITDA), (n) , (o) or (p) greater than $10,000,000 during such period shall be included on a pro forma basis for such period (assuming the consummation of such acquisition and the incurrence or assumption of any Indebtedness in connection therewith occurred as of the first day of such period) and (B) the Consolidated EBITDA of any Person or line of business sold or otherwise disposed of for consideration greater than $10,000,000 by the Borrower or any Restricted Subsidiary during such period shall be excluded for such period (assuming the consummation of such sale or other disposition and the repayment of any Indebtedness in connection therewith occurred as of the first day of such period), (c) for purposes of determining the Interest Coverage Ratio and the Total Leverage Ratio as of or for the periods ended on September 30, 2013, December 31, 2013 and March 31, 2014 Consolidated EBITDA
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will be deemed to be equal to (i) for the fiscal quarter ended December 31, 2012, $19,100,000, (ii) for the fiscal quarter ended March 31, 2013, $19,100,000 and (iii) for the fiscal quarter ended June 30, 2013, $19,100,000, (d) the Consolidated EBITDA attributable to REX shall not exceed the Consolidated EBITDA of the Borrower and its Restricted Subsidiaries (other than Consolidated EBITDA attributable to REX) and (e) if REX is not a Restricted Subsidiary, cash dividends or distributions received from REX during any Applicable Period shall only be included in Consolidated EBITDA if, as of the applicable Date of Determination, (x) the Borrower and Affiliates of the Borrower own Equity Interests representing greater than 50.0% of the voting and economic rights of all issued and outstanding Equity Interests of REX, (y) the Borrower or an Affiliate of the Borrower is the operator of the REX assets and (z) the consent of the Borrower or its Affiliates (or their representatives) is required to determine the amount and frequency of distributions made from REX to its equity holders.
(c) The definition of Consolidated Interest Expense is hereby deleted in its entirety and replaced with the following definition:
Consolidated Interest Expense shall mean, for any period, the sum of (a) the interest expense (including imputed interest expense in respect of Capital Lease Obligations and Synthetic Lease Obligations) of the Borrower and the Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP, plus (b) any interest accrued during such period in respect of Indebtedness of the Borrower or any Restricted Subsidiary that is required to be capitalized rather than included in consolidated interest expense for such period in accordance with GAAP; provided, however , that if REX is a Restricted Subsidiary, Consolidated Interest Expense attributable to REX shall only include the interest expense of REX multiplied by the percentage of the Equity Interests of REX directly or indirectly owned by the Borrower and its Wholly-Owned Restricted Subsidiaries. For purposes of the foregoing, interest expense shall be determined after giving effect to any net payments made or received by the Borrower or any Restricted Subsidiary with respect to interest rate Hedging Agreements. For purposes of determining the Interest Coverage Ratio for the period of four consecutive quarters ended September 30, 2013, December 31, 2013 and March 31, 2014, Consolidated Interest Expense shall be deemed to be equal to (i) for the fiscal quarter ended December 31, 2012, $2,100,000, (ii) for the fiscal quarter ended March 31, 2013, $2,100,000 and (iii) for the fiscal quarter ended June 30, 2013, $2,100,000.
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(d) The first and fourth paragraphs in the definition of Consolidated Net Income are hereby deleted and replaced with the following paragraphs:
Consolidated Net Income shall mean, as of any Date of Determination for the Applicable Period related thereto, the net income (or loss) of the Borrower and its Restricted Subsidiaries on a consolidated basis in accordance with GAAP; provided, however , that Consolidated Net Income shall exclude (a) extraordinary gains, losses, charges or expenses for such Applicable Period, (b) the net income of any Restricted Subsidiary during such Applicable Period to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of such income is not permitted on such Date of Determination by operation of the terms of its Organizational Documents or any agreement, instrument or law applicable to such Restricted Subsidiary, except that the Borrowers equity in any net loss of any such Restricted Subsidiary for such Applicable Period shall be included in determining Consolidated Net Income, (c) any income (or loss) for such Applicable Period of any Person if such Person is not a Restricted Subsidiary of the Borrower, except that the aggregate amount distributed by such Person during such Applicable Period to the Borrower or a Restricted Subsidiary of the Borrower as a cash dividend or other cash distribution (as long as, in the case of a cash dividend or other cash distribution to a Restricted Subsidiary of the Borrower, such Restricted Subsidiary is not precluded from further distributing such amount to the Borrower as described in clause (b) of this proviso) shall be included in Consolidated Net Income (but only to the extent such cash dividends or distributions do not exceed the Borrowers proportional share in the EBITDA (less Consolidated Interest Expense) of such Person (calculated based on Borrowers and any Restricted Subsidiarys aggregate percentage ownership of the total outstanding Equity Interests of such Person and with EBITDA and Consolidated Interest Expense of such Person being calculated using the same methodology for Consolidated EBITDA and Consolidated Interest Expense, as applicable, as if such Person were a Restricted Subsidiary hereunder)), (d) non-cash gains and losses attributable to movement in the mark-to-market valuation of Hedging Agreements pursuant to Financial Standards Accounting Board ( FASB ) Accounting Standards Codification ( ASC 815 ), (e) the cumulative effect of a change in accounting principles, (f) any charges or expenses relating to severance, relocation and one-time compensation charges, (g) gain or loss realized upon the sale or other disposition of assets, (h) deferred financing costs written off and premiums paid in connection with any early extinguishment of Indebtedness or any Hedging Agreement, (i) non-cash charges, expenses or other impacts of purchase or recapitalization accounting, including, to the extent applicable, any accruals and reserves established under purchase or recapitalization accounting as a result of the Transactions in accordance with GAAP, (j) non-cash impairment charges or asset write-offs, and any amortization of intangibles, (k) cash charges or costs in connection with any investment, sale or other disposition of assets, issuance of Equity Interests or Indebtedness, or amendment relating
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to any Indebtedness (in each case, whether or not completed), (l) to the extent covered by insurance and actually reimbursed, any expenses with respect to liability or casualty events or business interruption and (m) in the case of any Restricted Subsidiary, the net income of such Restricted Subsidiary attributable to any minority or other membership interest in such Restricted Subsidiary held directly or indirectly by a Person other than the Borrower and its Wholly-Owned Restricted Subsidiaries.
Notwithstanding the foregoing, for purposes of calculating the Total Leverage Ratio and Interest Coverage Ratio for any period (A) with respect to any Person whose Equity Interests are acquired by the Borrower or any Restricted Subsidiary pursuant to an investment made pursuant to Section 6.04(k) , (l) (but only beginning at the end of the third full fiscal quarter after the Commercial Operation Date of the Pony Express Material Project; it being understood that prior to such date the applicable Projected Pony Express Distributable Amount calculated pursuant to the second paragraph of this definition shall be included in the Borrowers Consolidated Net Income), (o) or (p) greater than $10,000,000 during such period (but does not become a Restricted Subsidiary as a result of such acquisition), the aggregate amount of cash distributions made by such Person to the holders of its Equity Interests during such Applicable Period multiplied by the percentage of the Equity Interests of such Person acquired by the Borrower or any Restricted Subsidiary shall be included on a pro forma basis for such period (assuming the consummation of such acquisition and the incurrence or assumption of any Indebtedness in connection therewith occurred as of the first day of such period), (B) if any Equity Interests in REX Holdings or REX are acquired pursuant to an investment made pursuant to Section 6.04(n) during such period (but REX Holdings or REX, as applicable, does not become a Restricted Subsidiary as a result of such acquisition), the aggregate amount of cash distributions made by REX to the holders of its Equity Interests during such Applicable Period multiplied by the percentage of the Equity Interests of REX directly or indirectly acquired by a REX HoldCo shall be included on a pro forma basis for such period (assuming the consummation of such acquisition and the incurrence or assumption of any Indebtedness in connection therewith occurred as of the first day of such period) and (C) the aggregate amount of cash distributions made by any Person that is not a Restricted Subsidiary whose Equity Interests are sold or otherwise disposed of for consideration greater than $10,000,000 by the Borrower or any Restricted Subsidiary during such period shall be excluded for such period (assuming the consummation of such sale or other disposition and the repayment of any Indebtedness in connection therewith occurred as of the first day of such period).
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(e) The definition of Defaulting Lender is hereby deleted in its entirety and replaced with the following definition:
Defaulting Lender shall mean, subject to Section 2.21(b) , any Lender that (a) has failed to (i) fund all or any portion of its Loans within two (2) Business Days of the date such Loans were required to be funded hereunder unless such Lender notifies the Administrative Agent and the Borrower in writing that such failure is the result of such Lenders determination that one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) has not been satisfied, or (ii) pay to the Administrative Agent, any Issuing Bank or any other Lender any other amount required to be paid by it hereunder (including in respect of its participation in Swing Line Loans and Letters of Credit) within two (2) Business Days of the date when due, (b) has notified the Borrower, the Administrative Agent or any Issuing Bank in writing that it does not intend to comply with its funding obligations hereunder, or has made a public statement to that effect (unless such writing or public statement relates to such Lenders obligation to fund a Loan hereunder and states that such position is based on such Lenders determination that a condition precedent to funding (which condition precedent, together with any applicable default, shall be specifically identified in such writing or public statement) cannot be satisfied), (c) has failed, within three (3) Business Days after written request by the Administrative Agent or the Borrower, to confirm in writing to the Administrative Agent and the Borrower that it will comply with its prospective funding obligations hereunder (provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the Administrative Agent and the Borrower), or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity or (iii) become the subject of a Bail-In Action; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any Equity Interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender, provided, further, that the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official by a supervisory authority or regulator with respect to a Lender or a direct or indirect parent company of a Lender under the Dutch Financial Supervision Act 2007 (as amended from time to time and including any
8
successor legislation) shall not be deemed an event described in clause (d) of this definition. Any determination by the Administrative Agent that a Lender is a Defaulting Lender under clauses (a) through (d) above shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 2.21(b) ) upon delivery of written notice of such determination to the Borrower, each Issuing Bank and each Lender.
(f) The definition of Permitted Drop Down Acquisition is hereby deleted in its entirety and replaced with the following definition:
Permitted Drop Down Acquisition shall mean any Drop-Down Acquisition approved after the Closing Date by the Conflicts Committee in accordance with the terms of the LP Agreement.
(g) The following sentence is hereby inserted at the end of the existing definition of subsidiary :
The appointment of REX HoldCo as the managing member of REX Holdings in connection with an acquisition of an Equity Interest in REX Holdings pursuant to Section 6.04(n) shall not cause REX Holdings or REX to be a subsidiary of the Borrower or any of its Restricted Subsidiaries for purposes of this Agreement so long as the Borrower and its Wholly-Owned Restricted Subsidiaries, directly and indirectly, do not own more than 50.0% of the issued and outstanding Equity Interests of REX.
(h) The definition of Total Debt is hereby deleted in its entirety and replaced with the following definition:
Total Debt shall mean, at any time, (a) the total Indebtedness (excluding Indebtedness of the type described in clause (h), clause (i), clause (j) and clause (k) of the definition of Indebtedness, except, in the case of clause (k), to the extent of any unreimbursed drawings thereunder) of the Borrower and the Restricted Subsidiaries at such time; and minus (b) Unrestricted Cash of up to $7,500,000; provided, however , that, if REX is a Restricted Subsidiary, Total Debt attributable to REX shall only include the Indebtedness of REX multiplied by the percentage of the Equity Interests of REX directly or indirectly owned by the Borrower and its Wholly-Owned Restricted Subsidiaries.
SECTION 2.2 New Defined Terms . Section 1.01 of the Credit Agreement is amended by adding the following definitions in the appropriate alphabetical order:
Bail-In Action shall mean the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.
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Bail-In Legislation shall mean, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.
EEA Financial Institution shall mean (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent;
EEA Member Country shall mean any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
EEA Resolution Authority shall mean any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
EU Bail-In Legislation Schedule shall mean the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.
Fourth Amendment shall mean that certain Amendment No. 4 dated as of April 27, 2016, by and among the Borrower, the other Loan Parties party thereto, the Lenders party thereto, the Issuing Banks party thereto, the Swing Line Lenders party thereto and Barclays Bank, PLC, as Administrative Agent and Collateral Agent.
Fourth Amendment Effective Date shall have the meaning assigned to the term Fourth Amendment Effective Date in Section 1.1 of the Fourth Amendment.
REX Closing Date shall have the meaning assigned to the term REX Closing Date in Section 3.1(a) of the Fourth Amendment.
Write-Down and Conversion Powers shall mean, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.
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SECTION 2.3 Amendment to Section 2.21(a)(iv) . Section 2.21(a)(iv) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:
(iv) All or any part of such Defaulting Lenders obligation to fund participations in respect of Swing Line Loans and Letters of Credit shall be reallocated among the Revolving Credit Lenders that are Non-Defaulting Lenders in accordance with their respective Pro Rata Percentages (calculated without regard to such Defaulting Lenders Commitment) but only to the extent that (x) the conditions set forth in Section 4.01 are satisfied at the time of such reallocation (and, unless the Borrower shall have otherwise notified the Administrative Agent at such time, the Borrower shall be deemed to have represented and warranted that such conditions are satisfied at such time), and (y) such reallocation does not cause the aggregate Revolving Credit Exposure of any such Non-Defaulting Lender to exceed such Non-Defaulting Lenders Revolving Credit Commitment. Subject to Section 9.21 , no reallocation hereunder shall constitute a waiver or release of any claim of any party hereunder against a Defaulting Lender arising from that Lender having become a Defaulting Lender, including any claim of a Non-Defaulting Lender as a result of such Non-Defaulting Lenders increased exposure following such reallocation.
SECTION 2.4 Amendments to Section 5.04 . Section 5.04 of the Credit Agreement is hereby amended by inserting the following new subsection (c):
(c) After the REX Closing Date, furnish to the Administrative Agent, which shall furnish to each Lender:
(i) within sixty (60) days after the end of each of the first three fiscal quarters of each fiscal year of REX, an unaudited consolidated balance sheet and income statement for such fiscal quarter and cash flow statement for such year-to-date period of REX and its Subsidiaries prepared in accordance with GAAP (subject to normal year-end audit adjustments and the absence of footnotes to such financial statements), setting forth in each case in comparative form the figures for the corresponding periods in the previous year, all in reasonable detail; and
(ii) within one hundred and twenty (120) days after the end of each fiscal year of REX, an audited consolidated balance sheet, income statement and cash flow statement of REX and its Subsidiaries for such fiscal year prepared in accordance with GAAP (with footnotes to such financial statements).
SECTION 2.5 Amendments to Section 5.12(b) . The last sentence of Section 5.12(b) of the Credit Agreement is hereby deleted in its entirety and replaced with the following sentence:
Notwithstanding anything to the contrary herein or in any other Loan Document, (A) neither the Borrower nor any of its Subsidiaries shall be required to grant a Lien in the Equity Interests of any Unrestricted Subsidiary, (B) none of Pony Express HoldCo, any JV HoldCo, REX
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HoldCo or REX Holdings shall be required to grant a Lien in the Equity Interests of any Person that is not a Wholly Owned Domestic Subsidiary if the Borrower, its Restricted Subsidiaries and its Affiliates own or control less than 100% of the issued and outstanding Equity Interests issued by such Person and (C) REX shall not be required to become a Guarantor or a Grantor or take any of the other actions required by this Section 5.12(b) or the Guarantee and Collateral Agreement so long as any of the Indebtedness (including any Permitted Refinancing Debt thereof) permitted by Section 6.01(o) is outstanding.
SECTION 2.6 Amendment to Section 5.14 . Section 5.14 of the Credit Agreement is hereby amended by inserting the following new subsection (d):
(d) Notwithstanding anything to the contrary in this Section 5.14 and to the extent that REX is a Subsidiary, the Board of Directors of the Borrower may at any time designate REX as an Unrestricted Subsidiary so long as any of the Indebtedness (including any Permitted Refinancing Debt thereof) permitted by Section 6.01(o) is outstanding. Notwithstanding anything to the contrary in this Section 5.14, (i) REX HoldCo may not be designated an Unrestricted Subsidiary and (ii) if REX is designated as an Unrestricted Subsidiary, REX and its subsidiaries shall be disregarded for the purposes of determining Consolidated Total Assets in connection with Section 5.14(a) above.
SECTION 2.7 Amendments to Section 6.01 . The word and is deleted from the end of Section 6.01(n), Section 6.01(o) is re-designated as Section 6.01(p) and the following is added as a new Section 6.01(o):
(o) If REX is a Restricted Subsidiary, the $2,575,000,000 principal amount of Senior Notes of REX outstanding as of the Fourth Amendment Effective Date (and any Permitted Refinancing Debt in respect thereof), plus up to $200,000,000 of Indebtedness of REX incurred under an unsecured, revolving credit facility with banks or other institutional lenders or investors.
SECTION 2.8 Amendment to Section 6.04(b) . Section 6.04(b) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:
(b) (i) investments by the Borrower and the Restricted Subsidiaries existing on the Closing Date in Equity Interests of the Borrower and its Subsidiaries and (ii) additional investments by the Borrower and any Restricted Subsidiary in the Equity Interests of the Subsidiaries; provided that (A) any such Equity Interests held by the Borrower and any Restricted Subsidiary shall be pledged, to the extent required, pursuant to the Guarantee and Collateral Agreement (subject to the limitations applicable to Voting Stock of a Foreign Subsidiary referred to therein), (B) the amount of any such investment made after the Closing Date pursuant to
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this Section 6.04(b) by the Borrower and any Restricted Subsidiary in, and loans and advances made after the Closing Date by the Borrower and any other Loan Party to, any such Subsidiaries that are not Loan Parties or do not become Loan Parties after giving effect to such investments shall not exceed an amount equal to the Available Amount at the time any such investment, loan or advance is made and (C) immediately before and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing; provided , further , that acquisitions of Equity Interests of REX and REX Holdings shall not be permitted under this subsection;
SECTION 2.9 Amendment to Section 6.04(d) . Section 6.04(d) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:
(d) (x) loans or advances made by the Borrower to any Restricted Subsidiary and made by any Restricted Subsidiary to the Borrower or any other Restricted Subsidiary; provided that (i) any such loans and advances made by a Loan Party shall be evidenced by a promissory note (which may be revolving in nature) pledged to the Collateral Agent for the benefit of the Secured Parties pursuant to the Guarantee and Collateral Agreement, (ii) such loans and advances shall be unsecured and subordinated to the Obligations pursuant to an Affiliate Subordination Agreement, (iii) the amount of such loans and advances made after the Closing Date pursuant to this Section 6.04(d) by Loan Parties to any such Restricted Subsidiaries that are not Loan Parties shall not exceed an amount equal to the Available Amount at the time any such investment, loan or advance is made and (iv) immediately before and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing and (y) any guarantees by the Borrower and the Restricted Subsidiaries of the operating or commercial obligations (to the extent not constituting Indebtedness) of the Borrower or any Restricted Subsidiary (other than REX) incurred in the ordinary course of business; provided , further , that acquisitions of Equity Interests of REX and REX Holdings shall not be permitted under this subsection;
SECTION 2.10 Amendment to Section 6.04(n) . Section 6.04(n) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:
(n) acquisitions by REX HoldCo of Equity Interests in REX Holdings or in REX; provided that (i) any such acquisition that is a Drop Down Acquisition shall be a Permitted Drop Down Acquisition, (ii) the Borrower and all Affiliates of the Borrower shall after giving effect to such acquisition, own Equity Interests representing at least 50.0% of the voting and economic rights of all issued and outstanding Equity Interests of REX, (iii) the Borrower or an Affiliate of the Borrower shall be the operator of the REX assets, (iv) the consent of the Borrower or its Affiliates (or their representatives) is required to determine the amount and frequency of distributions made from REX to its equity holders, and (vi) immediately before and after consummating such acquisition the Borrower must be in Financial Covenant Compliance;
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SECTION 2.11 Amendment to Section 6.04(o) . Section 6.04(o) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:
(o) in addition to investments permitted by paragraphs (a) through (n) above, additional investments, loans and advances by the Borrower or any Restricted Subsidiary so long as (i) the amount invested, loaned or advanced pursuant to this paragraph (o) does not exceed an amount equal to the Available Amount at the time such amount is invested loaned or advanced and (ii) both immediately before and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing; provided that acquisitions of Equity Interests of REX and REX Holdings shall not be permitted under this subsection; and
SECTION 2.12 Amendment to Section 6.04(p) . Section 6.04(p) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:
(p) in addition to investments permitted by paragraphs (a) through (o) above, other investments, loans and advances by the Borrower or any Restricted Subsidiary not to exceed the greater of $15,000,000 and an amount equal to 1.50% of Consolidated Total Assets at any time outstanding; provided that acquisitions in Equity Interests of REX and REX Holdings shall not be permitted under this subsection.
SECTION 2.13 Amendments to Section 6.06(b) . Section 6.06(b) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:
(b) Enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (i) the ability of the Borrower or any Loan Party to create, incur or permit to exist any Lien upon any of its property or assets to secure the Obligations, or (ii) the ability of any Restricted Subsidiary to pay dividends or other distributions with respect to any of its Equity Interests, to make or repay loans or advances to the Borrower or any other Restricted Subsidiary or to transfer property to the Borrower; provided that (A) the foregoing shall not apply to restrictions and conditions imposed by law or by any Loan Document, (B) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Restricted Subsidiary pending such sale, provided such restrictions and conditions apply only to the Restricted Subsidiary that is to be sold and such sale is permitted hereunder, (C) clause (i) of the foregoing shall not apply to the restrictions or conditions imposed by any documentation relating to secured Indebtedness permitted by Section 6.01(a) , (d) , (e) , (g) , (i) (solely in respect of guarantees of other Indebtedness permitted under Section 6.01(a) , (d) , (e) , (g) and (j) ) and (j) in each case, to the extent limited to
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the assets subject to such Indebtedness, (D) clause (i) of the foregoing shall not apply to customary provisions in leases, licenses and other contracts restricting the assignment thereof and (E) the foregoing shall not apply to the restrictions or conditions imposed by any documentation relating to Indebtedness (including any Permitted Refinancing Debt thereof) permitted by Section 6.01(o) .
SECTION 2.14 Amendment to Article IX . Article IX is hereby amended by inserting the following new Section 9.21:
SECTION 9.21 Acknowledgement and Consent to Bail-In of EEA Financial Institutions . Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any EEA Financial Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the write-down and conversion powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a) the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and
(b) the effects of any Bail-In Action on any such liability, including, if applicable:
(i) a reduction in full or in part or cancellation of any such liability;
(ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or
(iii) the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of any EEA Resolution Authority.
SECTION 2.15 Amendment to Exhibit I . Exhibit I to the Credit Agreement is deleted in its entirety and replaced with Exhibit I attached hereto.
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ARTICLE III
LENDERS
SECTION 3.1 Increase to Revolving Credit Commitments .
(a) On or after the Fourth Amendment Effective Date and prior to the REX Acquisition pursuant to Section 6.04(n) , the Borrower shall deliver a written notice to the Administrative Agent setting forth the proposed closing date for such acquisition (which shall not be less than three Business Days nor more than 60 days after the date of such notice (or such other number of days as the Administrative Agent may agree to in its sole discretion)) (the REX Closing Date ).
(b) Subject to Section 3.4 below, on the REX Closing Date, the definitions of Incremental Loan Amount and Total Revolving Credit Commitment in the Credit Agreement shall automatically be deleted in their entirety and replaced with the following definition:
Incremental Loan Amount shall mean $150,000,000.
Total Revolving Credit Commitment shall mean, at any time, the aggregate amount of the Revolving Credit Commitments, as in effect at such time. The Total Revolving Credit Commitment as of the REX Closing Date is $1,750,000,000.
(c) Subject to Section 3.4, the Administrative Agent, the Borrower and each Lender agree on the REX Closing Date, the amounts of such Lenders Revolving Credit Commitment shall automatically be as set forth on Schedule 2.01 annexed hereto, on the terms and subject to the conditions set forth herein. The Administrative Agent shall promptly notify each Lender as to the REX Closing Date.
SECTION 3.2 Reallocations . Upon the effectiveness of the increase in the Revolving Credit Commitment contemplated in Sections 3.1(b) and (c) above, the Revolving Credit Commitment of each of the Lenders and the amount of all outstanding Revolving Loans and participations in Letters of Credit and Swing Line Loans shall be reallocated on the REX Closing Date among the Lenders in accordance with their respective Revolving Credit Commitments, and to effect such reallocations, each Lender whose Revolving Credit Commitment on the REX Closing Date exceeds its Revolving Credit Commitment immediately prior to the REX Closing Date (each an Assignee Lender ) shall be deemed to have purchased all right, title and interest in, and all obligations in respect of, the Revolving Credit Commitments of the Lenders whose Revolving Credit Commitments are less than their respective Revolving Credit Commitment immediately prior to the REX Closing Date (each an Assignor Lender ), so that the Revolving Credit Commitments of each Lender will be as set forth on Schedule 2.01 attached hereto. Such purchases shall be deemed to have been effected by way of, and subject to the terms and conditions of, Assignment and Acceptances without the payment of any related assignment fee, and, except for replacement Revolving Loan Notes to be provided to the Assignor Lenders and Assignee Lenders in the principal amount of their respective Revolving Credit Commitments (after giving effect to this Fourth Amendment and the REX Closing Date), no other documents or instruments shall be, or shall be required to be, executed in connection with such assignments (all of which are hereby waived). The Assignor Lenders and Assignee Lenders shall make such cash settlements among themselves, through the Administrative Agent, as the Administrative Agent may direct (after giving effect to any netting effected by the Administrative Agent) with respect to such reallocations and assignments.
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SECTION 3.3 Interest; Breakage; Prepayments . Upon the effectiveness of the increase of the Revolving Credit Commitments contemplated in Sections 3.1(b) and (c) above:
(a) The Borrower hereby agrees that it shall pay to the Revolving Credit Lenders on the REX Closing Date accrued and unpaid interest to and including the REX Closing Date, on the outstanding amount of Revolving Loans;
(b) Each Revolving Lender hereby waives any right to receive any payments under Section 2.15 of the Credit Agreement as a result of the payment of any existing Revolving Loans pursuant to this Amendment; and
(c) It is understood and agreed that the Borrower, in coordination with the Administrative Agent, may elect on or prior to the REX Closing Date that after giving effect to the reallocations provided for in Section 3.2, the existing Eurodollar Loans outstanding on the REX Closing Date shall continue to remain outstanding in the same aggregate dollar amount and with the same ending date for each Interest Period.
SECTION 3.4 Conditions to Effectiveness . The increase in the Revolving Credit Commitments contemplated by this Article III is subject to the satisfaction of the following conditions:
(a) the effectiveness of this Fourth Amendment in accordance with Article IV below;
(b) the rights, title and interest of Rockies Express Holdings, LLC under the REX MPA shall have been assigned to a REX HoldCo pursuant to assignment documentation approved by the Conflicts Committee pursuant to the terms of the LP Agreement;
(c) the REX Acquisition shall have been (or, contemporaneously with the increase of the Revolving Credit Commitments, will be) consummated on the REX Closing Date in accordance with the REX MPA (as assigned to a REX HoldCo pursuant to clause (b) above);
(d) the conditions set forth in Sections 4.01(b) and 4.01(c) of the Credit Agreement shall be satisfied and the Administrative Agent shall have received a certificate to that effect executed by a Financial Officer of the Borrower;
(e) immediately before and after giving effect to the REX Acquisition, the Borrower is in Financial Covenant Compliance and the Administrative Agent shall have received a certificate to that effect executed by a Financial Officer of the Borrower;
(f) the Arrangers shall have received, on behalf of the Administrative Agent, the Collateral Agent and the Lenders, the favorable written opinion of Stinson Leonard Street LLP, counsel for the Borrower, in form and substance satisfactory to the Arrangers, (A) dated the REX Closing Date, (B) addressed to the Administrative Agent, the Collateral Agent and the Lenders, and (C) covering such matters relating to this Fourth Amendment and the transactions contemplated hereby as the Arrangers shall
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reasonably request (including a no conflicts opinions as to any material debt documents to which REX is a party), and the Borrower hereby requests such counsel to deliver such opinions;
(g) the Borrower shall have paid all accrued and unpaid interest on the aggregate principal amount of the Revolving Loans and all amounts due under Section 3.3;
(h) the Administrative Agent, the Arrangers and each applicable Lender shall have received reimbursement or payment by the Borrower of all fees and expenses incurred in connection with this Fourth Amendment or owed in respect of such increased Revolving Credit Commitments (including any fees due and payable pursuant to the Engagement Letter); and
(i) the REX Closing Date shall have occurred on or before July 1, 2016.
ARTICLE IV
CONDITIONS TO EFFECTIVENESS
The effectiveness of this Fourth Amendment (including the amendments contained in Article II but excluding the transactions contemplated in Article III which, for avoidance of doubt, shall only be effective upon the satisfaction of the conditions contemplated in Section 3.4 above) are subject to the satisfaction (or waiver) of the following conditions:
SECTION 4.1 This Fourth Amendment shall have been duly executed by the Borrower, the Administrative Agent, the Collateral Agent, the Swing Line Lenders, the Lenders, the Issuing Banks and the other Loan Parties, and delivered to the Arrangers;
SECTION 4.2 The Arrangers shall have received with respect to the Borrower and each other Loan Party (i) certificates of good standing as of a recent date issued by the appropriate Governmental Authority of the state or jurisdiction of its incorporation or organization, where applicable; (ii) a certificate of the Secretary or Assistant Secretary of each Loan Party dated the Fourth Amendment Effective Date and certifying (A) that attached thereto is a true and complete copy of the Organizational Documents of such Loan Party or that there have been no changes to the Organizational Documents of such Loan Party from those most recently delivered to the Administrative Agent in connection with the Credit Agreement and that such documents remain in full force and effect, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the board of directors or other governing body of such Loan Party (and, if applicable, any parent company of such Loan Party) authorizing the execution, delivery and performance of this Fourth Amendment and any related Loan Documents and the increase in the Revolving Credit Commitments contemplated hereby, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, and (C) as to the incumbency and specimen signature of each officer executing any Loan Document or any other document delivered in connection herewith on behalf of such Loan Party; and (iii) a certificate of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to clause (ii) above;
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SECTION 4.3 No Default or Event of Default has occurred and is continuing under the Credit Agreement both before and immediately after giving effect to the transactions contemplated hereby;
SECTION 4.4 The representations and warranties of the Borrower set forth in Article V of this Fourth Amendment are true and correct;
SECTION 4.5 The Borrower shall have delivered to the Collateral Agent a control agreement in form and substance reasonably satisfactory to the Collateral Agent for each deposit account and securities account required to be subject to such a control agreement as set forth in Section 5.2 of the Guarantee and Collateral Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
To induce the other parties hereto to enter into this Fourth Amendment, the Borrower represents and warrants to each of the Lenders, each Issuing Bank, the Arrangers and the Administrative Agent that, as of the Fourth Amendment Effective Date and after giving effect to the transactions and amendments to occur on the Fourth Amendment Effective Date:
(a) This Fourth Amendment has been duly authorized, executed and delivered by each of the Loan Parties party hereto and constitutes, and the Credit Agreement (after giving effect to this Fourth Amendment, will (as to the Borrower) constitute, its legal, valid and binding obligation, enforceable against each of the Loan Parties party hereto or thereto in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting creditors rights generally, and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law;
(b) The representations and warranties of the Borrower set forth in the Credit Agreement and the other Loan Documents are true and correct on and as of the Fourth Amendment Effective Date (after giving effect to this Fourth Amendment), except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct as of such earlier date;
(c) After giving effect to this Fourth Amendment and the transactions contemplated hereby, no Default or Event of Default has occurred and is continuing on the Fourth Amendment Effective Date; and
(d) Immediately prior to and immediately after the consummation of the transactions contemplated under this Fourth Amendment on the Fourth Amendment Effective Date, after taking into account all applicable rights of indemnity and contribution, the Borrower and its subsidiaries on a consolidated basis, are Solvent.
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ARTICLE VI
EFFECTS ON LOAN DOCUMENTS
Except as specifically amended herein, all Loan Documents shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. The execution, delivery and effectiveness of this Fourth Amendment shall not operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under any of the Loan Documents, nor constitute a waiver of any provision of the Loan Documents or in any way limit, impair or otherwise affect the rights and remedies of the Lenders or the Administrative Agent under the Loan Documents. The Borrower and the other Loan Parties acknowledge and agree that, on and after the Fourth Amendment Effective Date, this Fourth Amendment and each of the other Loan Documents to be executed and delivered by a Loan Party in connection herewith shall constitute a Loan Document for all purposes of the Credit Agreement. On and after the Fourth Amendment Effective Date, each reference in the Credit Agreement to this Agreement, hereunder, hereof, herein or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to Credit Agreement, thereunder, thereof or words of like import referring to the Credit Agreement shall mean and be a reference to the Credit Agreement as amended by this Fourth Amendment, and this Fourth Amendment and the Credit Agreement shall be read together and construed as a single instrument. Nothing herein shall be deemed to entitle the Borrower to a further consent to, or a further waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document in similar or different circumstances.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 Expenses . The Borrower agrees to pay all reasonable out-of-pocket costs and expenses incurred by the Arrangers in connection with this Fourth Amendment and any other documents prepared in connection herewith, in each case to the extent required by Section 9.05 of the Credit Agreement. The Borrower hereby confirms that the indemnification provisions set forth in Section 9.05 of the Credit Agreement shall apply to this Fourth Amendment and such losses, claims, damages, liabilities, costs and expenses (as more fully set forth therein as applicable) which may arise herefrom or in connection herewith.
SECTION 7.2 Amendments; Execution in Counterparts; Severability .
(a) This Fourth Amendment may not be amended nor may any provision hereof be waived except in accordance with the terms of Section 9.08 of the Credit Agreement; and
(b) In the event any one or more of the provisions contained in this Fourth Amendment should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the
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validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
SECTION 7.3 Reaffirmation; Mortgage Modification Requirements .
(a) Each of the Loan Parties party to the Guarantee and Collateral Agreement and the other Loan Documents, in each case as amended, supplemented or otherwise modified from time to time, hereby (i) acknowledges and agrees that all of its obligations under the Guarantee and Collateral Agreement and the other Loan Documents to which it is a party are reaffirmed and remain in full force and effect on a continuous basis, (ii) reaffirms (A) each Lien granted by it to the Collateral Agent for the benefit of the Secured Parties and (B) the guaranties made by it pursuant to the Guarantee and Collateral Agreement, (iii) acknowledges and agrees that the grants of security interests by and the guaranties of the Loan Parties contained in the Guarantee and Collateral Agreement and the Mortgages are, and shall remain, in full force and effect after giving effect to the Fourth Amendment, and (iv) agrees that the Obligations include, among other things and without limitation, the prompt and complete payment and performance by the Borrower when due and payable (whether at the stated maturity, by acceleration or otherwise) of principal and interest on the Loans under the Credit Agreement.
(b) Within 90 days of the REX Closing Date (or such longer period of time acceptable to the Administrative Agent), the Borrower shall satisfy the Mortgage Modification Requirements.
SECTION 7.4 Governing Law; Waiver of Jury Trial; Jurisdiction . THIS FOURTH AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS FOURTH AMENDMENT, THE CREDIT AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. The provisions of Section 9.15 of the Credit Agreement are incorporated herein by reference.
SECTION 7.5 Headings . Section headings in this Fourth Amendment are included herein for convenience of reference only, are not part of this Fourth Amendment and are not to affect the construction of, or to be taken into consideration in interpreting, this Fourth Amendment.
SECTION 7.6 Counterparts . This Fourth Amendment may be executed by one or more of the parties hereto on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Signatures delivered by facsimile or PDF or other electronic means shall have the same force and effect as manual signatures delivered in person.
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IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment to be duly executed and delivered by their respective proper and duly authorized officers as of the day and year first above written.
TALLGRASS ENERGY PARTNERS, LP, as Borrower | ||
By: TALLGRASS MLP GP, LLC, its general partner | ||
By: |
/s/ David G. Dehaemers, Jr. |
|
Name: | David G. Dehaemers, Jr. | |
Title: | President and Chief Executive Officer | |
TALLGRASS MLP OPERATIONS, LLC, as Grantor | ||
By: |
/s/ David G. Dehaemers, Jr. |
|
Name: | David G. Dehaemers, Jr. | |
Title: | President and Chief Executive Officer | |
TALLGRASS INTERSTATE GAS TRANSMISSION, LLC, as Grantor | ||
By: |
/s/ David G. Dehaemers, Jr. |
|
Name: | David G. Dehaemers, Jr. | |
Title: | Chief Executive Officer | |
TALLGRASS MIDSTREAM, LLC, as Grantor | ||
By: |
/s/ David G. Dehaemers, Jr. |
|
Name: | David G. Dehaemers, Jr. | |
Title: | Chief Executive Officer |
[Signature Page to Tallgrass Energy Partners, LP Credit Agreement Amendment No. 4]
TRAILBLAZER PIPELINE COMPANY LLC, as Grantor | ||
By: |
/s/ David G. Dehaemers, Jr. |
|
Name: | David G. Dehaemers, Jr. | |
Title: | Chief Executive Officer | |
TALLGRASS ENERGY INVESTMENTS, LLC, as Grantor | ||
By: |
/s/ David G. Dehaemers, Jr. |
|
Name: | David G. Dehaemers, Jr. | |
Title: | Chief Executive Officer | |
TALLGRASS PXP HOLDINGS, LLC, as Grantor | ||
By: |
/s/ David G. Dehaemers, Jr. |
|
Name: | David G. Dehaemers, Jr. | |
Title: | Chief Executive Officer | |
TALLGRASS ENERGY FINANCE CORP., as Grantor | ||
By: |
/s/ David G. Dehaemers, Jr. |
|
Name: | David G. Dehaemers, Jr. | |
Title: | President and Chief Executive Officer |
[Signature Page to Tallgrass Energy Partners, LP Credit Agreement Amendment No. 4]
BARCLAYS BANK PLC | ||
as Administrative Agent, Collateral Agent, a Lender, a Swing Line Lender and an Issuing Bank | ||
By: |
/s/ Vanessa A. Kurbatskiy |
|
Name: | Vanessa A. Kurbatskiy | |
Title: | Vice President |
[Signature Page to Tallgrass Energy Partners, LP Credit Agreement Amendment No. 4]
WELLS FARGO BANK, N.A. | ||
as a Lender, a Swing Line Lender and an Issuing Bank | ||
By: |
/s/ Alan W. Wray |
|
Name: | Alan W. Wray | |
Title: | Managing Director |
[Signature Page to Tallgrass Energy Partners, LP Credit Agreement Amendment No. 4]
BANK OF AMERICA, N.A. | ||
as a Lender | ||
By: |
/s/ Kimberly Miller |
|
Name: | Kimberly Miller | |
Title: | Assistant Vice President |
[Signature Page to Tallgrass Energy Partners, LP Credit Agreement Amendment No. 4]
CITIBANK, N.A. | ||
as a Lender | ||
By: |
/s/ Todd Mogil |
|
Name: | Todd Mogil | |
Title: | Vice President |
[Signature Page to Tallgrass Energy Partners, LP Credit Agreement Amendment No. 4]
DEUTSCHE BANK AG NEW YORK BRANCH | ||
as a Lender | ||
By: |
/s/ Dusan Lazarov |
|
Name: | Dusan Lazarov | |
Title: | Director | |
By: |
/s/ Michael Shannon |
|
Name: | Michael Shannon | |
Title: | Vice President |
[Signature Page to Tallgrass Energy Partners, LP Credit Agreement Amendment No. 4]
GOLDMAN SACHS BANK USA | ||
as a Lender | ||
By: |
/s/ Ryan Durkin |
|
Name: | Ryan Durkin | |
Title: | Authorized Signatory |
[Signature Page to Tallgrass Energy Partners, LP Credit Agreement Amendment No. 4]
ROYAL BANK OF CANADA | ||
as a Lender | ||
By: |
/s/ Jason S. York |
|
Name: | Jason S. York | |
Title: | Authorized Signatory |
[Signature Page to Tallgrass Energy Partners, LP Credit Agreement Amendment No. 4]
CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH | ||
as a Lender | ||
By: |
/s/ Nupur Kumar |
|
Name: | Nupur Kumar | |
Title: | Authorized Signatory | |
By: |
/s/ Lorenz Meier |
|
Name: | Lorenz Meier | |
Title: | Authorized Signatory |
[Signature Page to Tallgrass Energy Partners, LP Credit Agreement Amendment No. 4]
MORGAN STANLEY BANK, N.A. | ||
as a Lender | ||
By: |
/s/ Michael King |
|
Name: | Michael King | |
Title: | Authorized Signatory |
[Signature Page to Tallgrass Energy Partners, LP Credit Agreement Amendment No. 4]
COMPASS BANK | ||
as a Lender | ||
By: |
/s/ Mark H. Wolf |
|
Name: | Mark H. Wolf | |
Title: | Senior Vice President |
[Signature Page to Tallgrass Energy Partners, LP Credit Agreement Amendment No. 4]
TORONTO DOMINION (TEXAS) LLC | ||
as a Lender | ||
By: |
/s/ Lexanne Cooper |
|
Name: | Lexanne Cooper | |
Title: | Authorized Signatory |
[Signature Page to Tallgrass Energy Partners, LP Credit Agreement Amendment No. 4]
CAPITAL ONE, NATIONAL ASSOCIATION | ||
as a Lender | ||
By: |
/s/ Matthew L. Molero |
|
Name: | Matthew L. Molero | |
Title: | Sr. Vice President |
[Signature Page to Tallgrass Energy Partners, LP Credit Agreement Amendment No. 4]
REGIONS BANK | ||
as a Lender | ||
By: |
/s/ David Valentine |
|
Name: | David Valentine | |
Title: | Vice President |
[Signature Page to Tallgrass Energy Partners, LP Credit Agreement Amendment No. 4]
PNC BANK, NATIONAL ASSOCIATION | ||
as a Lender | ||
By: |
/s/ Jonathan Luchansky |
|
Name: | Jonathan Luchansky | |
Title: | Vice President |
[Signature Page to Tallgrass Energy Partners, LP Credit Agreement Amendment No. 4]
U.S. BANK NATIONAL ASSOCIATION | ||
as a Lender | ||
By: |
/s/ Todd S. Anderson |
|
Name: | Todd S. Anderson | |
Title: | Vice President |
[Signature Page to Tallgrass Energy Partners, LP Credit Agreement Amendment No. 4]
THE BANK OF TOKYO MITSUBISHI-UFJ, LTD. | ||
as a Lender | ||
By: |
/s/ Mark Oberreuter |
|
Name: | Mark Oberreuter | |
Title: | Vice President |
[Signature Page to Tallgrass Energy Partners, LP Credit Agreement Amendment No. 4]
BNP PARIBAS | ||
as a Lender | ||
By: |
/s/ Vincent Trapet |
|
Name: | Vincent TRAPET | |
Title: | Director | |
By: |
/s/ Sriram Chandrasekaran |
|
Name: | Sriram Chandrasekaran | |
Title: | Director |
[Signature Page to Tallgrass Energy Partners, LP Credit Agreement Amendment No. 4]
THE BANK OF NOVA SCOTIA | ||
as a Lender | ||
By: |
/s/ Mark Sparrow |
|
Name: | Mark Sparrow | |
Title: | Director |
[Signature Page to Tallgrass Energy Partners, LP Credit Agreement Amendment No. 4]
ING CAPITAL LLC | ||
as a Lender | ||
By: |
/s/ Cheryl LaBelle |
|
Name: | Cheryl LaBelle | |
Title: | Managing Director | |
By: |
/s/ Hans Beekmans |
|
Name: | Hans Beekmans | |
Title: | Director |
[Signature Page to Tallgrass Energy Partners, LP Credit Agreement Amendment No. 4]
CITIZENS BANK, N.A. | ||
as a Lender | ||
By: |
/s/ Scott Donaldson |
|
Name: | Scott Donaldson | |
Title: | Senior Vice President |
[Signature Page to Tallgrass Energy Partners, LP Credit Agreement Amendment No. 4]
SANTANDER BANK, N.A. | ||
as a Lender | ||
By: |
/s/ Aidan Lanigan |
|
Name: | Aidan Lanigan | |
Title: | Senior Vice President | |
By: |
/s/ Puiki Lok |
|
Name: | Puiki Lok | |
Title: | Vice President |
[Signature Page to Tallgrass Energy Partners, LP Credit Agreement Amendment No. 4]
CADENCE BANK, N.A. | ||
as a Lender | ||
By: |
/s/ David Anderson |
|
Name: | David Anderson | |
Title: | Senior Vice President |
[Signature Page to Tallgrass Energy Partners, LP Credit Agreement Amendment No. 4]
UMB BANK, N.A. | ||
as a Lender | ||
By: |
/s/ Jess M. Adams |
|
Name: | Jess M. Adams | |
Title: | Vice President |
[Signature Page to Tallgrass Energy Partners, LP Credit Agreement Amendment No. 4]
ZB, N.A. DBA AMEGY BANK | ||
as a Lender | ||
By: |
/s/ Jill McSorley |
|
Name: | Jill McSorley | |
Title: | Senior Vice President - Amegy Bank Division |
[Signature Page to Tallgrass Energy Partners, LP Credit Agreement Amendment No. 4]
SCHEDULE 2.01
REVOLVING CREDIT COMMITMENTS
AND
COMMITTED INCREASE COMMITMENTS*
Name of Lender |
Revolving Credit Commitments | |||
Wells Fargo Bank, N.A. |
$ | 96,000,000 | ||
Barclays Bank PLC |
$ | 96,000,000 | ||
Bank of America, N.A. |
$ | 86,000,000 | ||
Citibank, N.A. |
$ | 86,000,000 | ||
Deutsche Bank AG New York Branch |
$ | 86,000,000 | ||
Goldman Sachs Bank USA |
$ | 86,000,000 | ||
Royal Bank of Canada |
$ | 86,000,000 | ||
Credit Suisse AG, Cayman Islands Branch |
$ | 86,000,000 | ||
Morgan Stanley Bank, N.A. |
$ | 86,000,000 | ||
Compass Bank |
$ | 70,000,000 | ||
Toronto Dominion (Texas) LLC |
$ | 65,000,000 | ||
Capital One, National Association |
$ | 86,000,000 | ||
Regions Bank |
$ | 55,000,000 | ||
PNC Bank, National Association |
$ | 65,000,000 | ||
U.S. Bank National Association |
$ | 65,000,000 | ||
The Bank of Tokyo Mitsubishi-UFJ, Ltd. |
$ | 65,000,000 | ||
BNP Paribas |
$ | 65,000,000 | ||
The Bank of Nova Scotia |
$ | 65,000,000 | ||
ING Capital LLC |
$ | 65,000,000 | ||
Citizens Bank, N.A. |
$ | 50,000,000 | ||
ABN AMRO Capital USA LLC |
$ | 45,000,000 | ||
Santander Bank, N.A. |
$ | 45,000,000 | ||
Cadence Bank, N.A. |
$ | 35,000,000 | ||
UMB Bank, N.A. |
$ | 40,000,000 | ||
ZB, N.A. dba Amegy Bank |
$ | 40,000,000 | ||
Branch Banking and Trust Company |
$ | 35,000,000 | ||
|
|
|||
Total: |
$ | 1,750,000,000 | ||
|
|
* | All Committed Increase Commitments have been exercised and are now reflected in the Revolving Credit Commitments for each Lender. |
EXHIBIT I
[See attached.]
Exhibit I
to Credit
Agreement
FORM OF COMPLIANCE CERTIFICATE
[DATE]
Pursuant to Section 5.04(a)(iii) of that certain Credit Agreement, dated as of May 17, 2013 (as amended, restated, amended and restated, replaced, supplemented or otherwise modified from time to time, the Credit Agreement ; capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement), among TALLGRASS ENERGY PARTNERS, LP, a Master Limited Partnership formed under the laws of Delaware (the Borrower ), the Lenders party thereto from time to time and BARCLAYS BANK PLC, as administrative agent for the Lenders (in such capacity, including any successor thereto in such capacity, the Administrative Agent ), the undersigned hereby certifies that he or she is the [Chairman of the Board][Chief Financial Officer][Principal Accounting Officer][Treasurer][Controller] of the Borrower, and certifies in such capacity, and not in his or her individual capacity, as follows:
1. No Event of Default or Default has occurred and is continuing at the end of the accounting period covered by the attached financial statements, except as set forth in a separate attachment, if any, to this compliance certificate (this Certificate ), specifying the nature and extent thereof and the corrective action taken or proposed to be taken with respect thereto by the Borrower;
2. The financial statements currently available on the website of the Securities Exchange Commission at http://www.sec.gov in accordance with Sections 5.04(a)(i) or 5.04(a)(ii) , as applicable, of the Credit Agreement have been prepared in accordance with GAAP consistently applied (subject in the case of the interim statements to normal year-end adjustments and the absence of footnotes) and present fairly and accurately the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in all material respects as of the dates and for the periods to which they relate; and
3. Annexes A and B hereto demonstrate compliance with each of the financial covenants contained in Sections 6.10 and 6.11 of the Credit Agreement.
4. Annex C hereto demonstrates the Available Amount (including the calculations thereof) as of the end of the accounting period covered by the attached financial statements.
IN WITNESS WHEREOF, the Borrower has caused this Certificate to be executed by one of its Financial Officers as of the date and year first above written.
I-1
TALLGRASS ENERGY PARTNERS, LP | ||
By: | Tallgrass MLP GP, LLC, its general partner | |
By: |
|
|
Name: | ||
Title: | [ Chairman of the Board ][ Chief Financial Officer ][ Principal Accounting Officer ] [ Treasurer ][ Controller ] |
Annex
A to Compliance
Certificate
I-2
Covenant 6.10
Interest Coverage Ratio
FOR THE FISCAL QUARTER ENDING [ ], 20[ ]
Consolidated EBITDA (as calculated on Supplement A ) for the Applicable Period: |
$ | |||
|
|
|||
Consolidated Interest Expense (as calculated below) for the Applicable Period: |
$ | |||
|
|
|||
Interest Coverage Ratio (Consolidated EBITDA to Consolidated Interest Expense) for the Applicable Period: |
: 1.00 | |||
Minimum Interest Coverage Ratio for the Applicable Period: |
2.50 : 1.00 | |||
In Compliance: |
Yes/No |
I-3
Calculation of Consolidated Interest Expense
Without duplication, for the Applicable Period:
(a) the interest expense (including imputed interest expense in respect of Capital Lease Obligations and Synthetic Lease Obligations) of the Borrower and the Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; |
$ | |||
|
|
|||
(b) any interest accrued during such period in respect of Indebtedness of the Borrower or any Restricted Subsidiary that is required to be capitalized rather than included in consolidated interest expense for such period in accordance with GAAP. For purposes of the foregoing, interest expense shall be determined after giving effect to any net payments made or received by the Borrower or any Restricted Subsidiary with respect to interest rate Hedging Agreements: |
$ | |||
|
|
|||
Consolidated Interest Expense (the sum of clauses (a) and (b)): 1 |
$ | |||
|
|
1 | If REX is a Restricted Subsidiary, Consolidated Interest Expense attributable to REX shall only include the interest expense of REX multiplied by the percentage of the Equity Interests of REX directly or indirectly owned by the Borrower and its Wholly-Owned Restricted Subsidiaries. |
I-4
Annex B to Compliance Certificate |
Covenant 6.11
Maximum Total Leverage Ratio
FOR THE FISCAL QUARTER ENDING [ ], 20[ ]
Calculation of Total Debt
(a) total Indebtedness (excluding Indebtedness of the type described in clause (h), clause (i), clause (j) and clause (k) of the definition of Indebtedness in the Credit Agreement, except, in the case of clause (k), to the extent of any unreimbursed drawings thereunder) of the Borrower and the Restricted Subsidiaries at such time: |
$ | |||
|
|
|||
(b) Unrestricted Cash (the sum of the amount of cash and Permitted Investments of the Borrower and each Restricted Subsidiary that is a Domestic Subsidiary, as set forth on the balance sheet of the Borrower and its Restricted Subsidiaries (it being understood that such amount shall exclude in any event (i) any cash or Permitted Investments identified on such balance sheet as restricted (other than cash or Permitted Investments restricted in favor of the Secured Parties), (ii) any amount to the extent any use thereof for application to the payment of Indebtedness under the Loan Documents is restricted or prohibited by Law or contract and (iii) any cash or Permitted Investments that are not subject to a perfected security interest in favor of the Collateral Agent for the benefit of the Secured Parties (which cash will be deemed to be subject to such a security interest if it is deposited in a deposit account or securities account in which the Collateral Agent for the benefit of the Secured Parties has a perfected security interest): 2 |
$ | |||
|
|
|||
Total Debt (clause (a) minus clause (b): 3 |
$ | |||
|
|
2 | The deduction for Unrestricted Cash on any date shall not exceed $7,500,000. |
3 | If REX is a Restricted Subsidiary, Total Debt attributable to REX shall only include the Indebtedness of REX multiplied by the percentage of the Equity Interests of REX directly or indirectly owned by the Borrower and its Wholly-Owned Restricted Subsidiaries. |
I-5
Supplement
A to Compliance
Certificate
Consolidated EBITDA
FOR THE FISCAL QUARTER ENDING [ ], 20[ ]
Calculation of Consolidated Net Income
(a) Net income for the Applicable Period: |
$ | |||
|
|
|||
(b) extraordinary gains, losses, charges or expenses for such Applicable Period: |
$ | |||
|
|
|||
(c) the net income of any Restricted Subsidiary during such Applicable Period to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of such income is not permitted on such Date of Determination by operation of the terms of its Organizational Documents or any agreement, instrument or law applicable to such Restricted Subsidiary, except that the Borrowers equity in any net loss of any such Restricted Subsidiary for such Applicable Period shall be included in determining Consolidated Net Income: |
$ | |||
|
|
|||
(d) any income (or loss) for such Applicable Period of any Person if such Person is not a Restricted Subsidiary of the Borrower, except that the aggregate amount distributed by such Person during such Applicable Period to the Borrower or a Restricted Subsidiary of the Borrower as a cash dividend or other cash distribution (as long as, in the case of a cash dividend or other cash distribution to a Restricted Subsidiary of the Borrower, such Restricted Subsidiary is not precluded from further distributing such amount to the Borrower as described in clause (c) above) shall be included in Consolidated Net Income (but only to the extent such cash dividends or distributions do not exceed the Borrowers proportional share in the EBITDA (less Consolidated Interest Expense) of such Person (calculated based on Borrowers and any Restricted Subsidiarys aggregate percentage ownership of the total outstanding Equity Interests of such Person and with EBITDA and Consolidated Interest Expense of such Person being calculated using the same methodology for Consolidated EBITDA and Consolidated Interest Expense, as applicable, as if such Person were a Restricted Subsidiary under the Credit Agreement)): |
$ | |||
|
|
I-6
(e) non-cash gains and losses attributable to movement in the mark-to-market valuation of Hedging Agreements pursuant to ASC-815: |
$ | |||
|
|
|||
(f) the cumulative effect of a change in accounting principles: |
$ | |||
|
|
|||
(g) any charges or expenses relating to severance, relocation and one-time compensation charges: |
$ | |||
|
|
|||
(h) gain or loss realized upon the sale or other disposition of assets: |
$ | |||
|
|
|||
(i) deferred financing costs written off and premiums paid in connection with any early extinguishment of Indebtedness or any Hedging Agreement: |
$ | |||
|
|
|||
(j) non-cash charges, expenses or other impacts of purchase or recapitalization accounting, including, to the extent applicable, any accruals and reserves established under purchase or recapitalization accounting as a result of the Transactions in accordance with GAAP: |
$ | |||
|
|
|||
(k) non-cash impairment charges or asset write-offs, and any amortization of intangibles: |
$ | |||
|
|
|||
(l) cash charges or costs in connection with any investment, sale or other disposition of assets, issuance of Equity Interests or Indebtedness, or amendment relating to any Indebtedness (in each case, whether or not completed): |
$ | |||
|
|
|||
(m) to the extent covered by insurance and actually reimbursed, any expenses with respect to liability or casualty events or business interruption: |
$ | |||
|
|
|||
(n) in the case of any Restricted Subsidiary, the net income of such Restricted Subsidiary attributable to any minority or other membership interest in such Restricted Subsidiary held directly or indirectly by a Person other than the Borrower and its Wholly-Owned Restricted Subsidiaries: |
$ | |||
|
|
|||
Consolidated Net Income for the Applicable Period (clause (a) minus , without duplication, the sum of clauses (b) through (n)): 4 |
$ | |||
|
|
4 | CNI to be adjusted to account for any adjustments set forth in the second, third and fourth paragraphs of the definition of Consolidated Net Income in the Credit Agreement. |
I-7
Calculation of Consolidated EBITDA
(a) Consolidated Net Income for the Applicable Period: |
$ | |||
|
|
|||
(b) the provision for all Taxes (whether or not paid, estimated or accrued) based on income, profits or capital (including penalties and interest, if any), net of any applicable credits for such period: |
$ | |||
|
|
|||
(c) Consolidated Interest Expense for such period: |
$ | |||
|
|
|||
(d) depreciation, amortization and all other non-cash charges or non-cash losses for such period: |
$ | |||
|
|
|||
(e) any costs or expenses pursuant to any equity-related benefit plan, or any stock subscription or shareholder agreement, to the extent funded with cash proceeds contributed to the capital of the Borrower as common equity: |
$ | |||
|
|
|||
(f) for any Material Projects commenced or acquired by the Borrower or any Restricted Subsidiary with a Commencement Date occurring on or prior to the Date of Determination, Consolidated EBITDA Material Project Adjustments for such Material Project for such period: 5 |
$ | |||
|
|
|||
(g) without duplication of the netting provided in clause (b) above, Federal, state, local and foreign income tax credits of the Borrower and its Subsidiaries for such period: |
$ | |||
|
|
|||
(h) all cash payments made during such period on account of reserves, restructuring charges, and other non-cash charges added to Consolidated Net Income pursuant to clause (d) above: |
$ | |||
|
|
|||
(i) other income of the Borrower and the Restricted Subsidiaries increasing Consolidated Net Income for such period which does not represent a cash item in such period: |
$ | |||
|
|
|||
Consolidated EBITDA (clause (a) plus , without duplication, the sum of clauses (b) through (f) and minus , without duplication and to the extent included in calculated Consolidated Net Income, the sum of clauses (g) through (i)): 6 7 8 |
$ | |||
|
|
5 | The aggregate amount of adjustments included in clause (f) for any period (1) in respect of all Material Projects taken together (other than the Pony Express Material Project) shall not exceed 15% of pro forma Consolidated EBITDA (calculated without giving effect to clause (f)), and (2) in respect of the Pony Express Material Project shall not exceed the Pony Express Adjustment Limit. |
6 | If REX is a Restricted Subsidiary, the amount of any adjustment pursuant to clauses (b) through (i) attributable to REX shall be equal to the total amount of such item multiplied by the percentage of the Equity Interests of REX directly or indirectly owned by the Borrower and its Wholly-Owned Restricted Subsidiaries. |
7 | For purposes of calculating the Total Leverage Ratio and Interest Coverage Ratio for any period (A) the Consolidated EBITDA of any Person that becomes a Restricted Subsidiary acquired by the Borrower or any Restricted Subsidiary pursuant to either a Permitted Acquisition for Acquisition Consideration greater than $10,000,000 or an investment made pursuant to Section 6.04(k) , (l) (but only beginning at the end of the third full fiscal quarter after the Commercial Operation Date of the Pony Express Material Project; it being understood that prior to such date the Consolidated EBITDA Material Project Adjustment for Pony Express shall be included in the Borrowers Consolidated EBITDA), (n) , (o) or (p) of the Credit Agreement greater than $10,000,000 during such period shall be included on a pro forma basis for such period (assuming the consummation of such acquisition and the incurrence or assumption of any Indebtedness in connection therewith occurred as of the first day of such period) and (B) the Consolidated EBITDA of any Person or line of business sold or otherwise disposed of for consideration greater than $10,000,000 by the Borrower or any Restricted Subsidiary during such period shall be excluded for such period (assuming the consummation of such sale or other disposition and the repayment of any Indebtedness in connection therewith occurred as of the first day of such period). |
8 | If REX is a Restricted Subsidiary, the Consolidated EBITDA attributable to REX shall not exceed the Consolidated EBITDA of the Borrower and its Restricted Subsidiaries (other than Consolidated EBITDA attributable to REX). If REX is not a Restricted Subsidiary, cash dividends or distributions received from REX during any Applicable Period shall only be included in Consolidated EBITDA if, as of the applicable Date of Determination, (x) the Borrower and Affiliates of the Borrower own Equity Interests representing greater than 50.0% of the voting and economic rights of all issued and outstanding Equity Interests of REX, (y) the Borrower or an Affiliate of the Borrower is the operator of the REX assets and (z) the consent of the Borrower or its Affiliates (or their representatives) is required to determine the amount and frequency of distributions made from REX to its equity holders. |
I-8
Annex
C to Compliance
Certificate
Available Amount
AS OF THE END OF THE FISCAL QUARTER ENDING [ ], 20[ ]
(a) Net cash proceeds received after the Closing Date and on or prior to the date above from any sale of Equity Interests by, or capital contribution to, the Borrower (which, in the case of any such sale of Equity Interests, are not Disqualified Stock): |
$ | |||
|
|
|||
(b) Return of capital or repayment of principal received in cash by the Borrower in respect of investments made pursuant to Sections 6.04(b)(ii)(B), 6.04(d)(x)(iii) and 6.04(o) of the Credit Agreement: |
$ | |||
|
|
|||
(c) Available Amount used to make investments pursuant to Section 6.04(b)(ii)(B) of the Credit Agreement: |
$ | |||
|
|
|||
(d) Available Amount used to make investments pursuant to Section 6.04(d)(x)(iii) of the Credit Agreement: |
$ | |||
|
|
|||
(e) Available Amount used to make investments pursuant to Section 6.04(o) of the Credit Agreement: |
$ | |||
|
|
|||
Available Amount (the sum of clause (a) plus clause (b) minus the sum of clause (c) plus clause (d) plus clause (e)): |
$ | |||
|
|
I-9
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-196454), Form S-3 (No. 333-205781) and S-8 (No. 333-189417) of Tallgrass Energy Partners, LP of our report dated February 26, 2016 relating to the financial statements of Rockies Express Pipeline LLC, which appears in this Current Report on Form 8-K of Tallgrass Energy Partners, LP .
/s/ PricewaterhouseCoopers LLP
Denver, Colorado
April 28, 2016
Exhibit 99.1
Tallgrass Energy Announces Record First Quarter 2016 Results and the Potential Acquisition of a 25 Percent Interest in Rockies Express Pipeline by TEP
LEAWOOD, Kan.(BUSINESS WIRE)April 28, 2016Tallgrass Energy Partners, LP (NYSE: TEP) (TEP) and Tallgrass Energy GP, LP (NYSE: TEGP) (TEGP), collectively referred to as Tallgrass Energy, today reported financial and operating results for the first quarter of 2016 and announced the potential acquisition by TEP of a 25 percent interest in Rockies Express Pipeline LLC (REX).
Tallgrass Energy produced an outstanding first quarter, said Tallgrass Energy President and CEO David G. Dehaemers Jr. Pony Expresss exceptional performance, as well as the acquisition of an additional Pony Express membership interest by TEP contributed to significant distribution increases for our TEP and TEGP partners. We also believe the potential acquisition by TEP of a 25 percent interest in REX, a significant natural gas asset, will further strengthen, diversify and grow TEP.
First Quarter Distributions
Tallgrass Energy Partners, LP
As previously announced, the board of directors of TEPs general partner declared a quarterly cash distribution to partners of $0.705 per common unit for the first quarter of 2016. This quarterly distribution represents $2.82 on an annualized basis and an increase of 35.6 percent from the first quarter of 2015. The quarterly distribution will be paid on Friday, May 13, 2016, to unitholders of record as of the close of business on Thursday, April 21, 2016.
Tallgrass Energy GP, LP
As previously announced, the board of directors of TEGPs general partner declared a quarterly cash distribution to Class A shareholders of $0.21 per Class A share for the first quarter of 2016. This quarterly distribution represents $0.84 per Class A share on an annualized basis, a sequential increase of 21.4 percent from the fourth quarter 2015 distribution and an increase of 58 percent from the pro forma full-quarter, non-prorated second quarter 2015 distribution. The quarterly distribution will be paid on Friday, May 13, 2016, to Class A shareholders of record as of the close of business on Thursday, April 21, 2016.
Potential Acquisition of a 25 percent Interest in REX by TEP
Tallgrass Development, LP (TDev) previously announced a purchase agreement with a unit of Sempra U.S. Gas and Power (Sempra) to acquire a 25 percent interest in REX. Since the announcement, a subsidiary of Phillips 66 has elected not to exercise its right of first refusal in connection with such sale. In exchange, TDev and Sempra have agreed to make certain amendments to the REX limited liability company agreement.
TDev has offered to assign its rights and obligations under the purchase agreement to a subsidiary of TEP. A Conflicts Committee of the board of directors of TEPs general partner, consisting solely of independent directors, has been formed and is evaluating the offer with assistance from external advisors that have been engaged by the Conflicts Committee. No definitive transaction agreement has been executed yet and the proposed transaction remains subject to review, negotiations and approval by the Conflicts Committee and by the board of directors of TEPs general partner. If consummated, it is currently expected that TEP would assume the right to purchase the 25 percent interest in REX from Sempra on the terms set forth in TDevs purchase agreement for total consideration of approximately $440 million (subject to adjustment under the purchase agreement).
Management expects the potential acquisition would be immediately accretive to TEP unitholders and TEGP shareholders and also expects it would raise its distributions over the subsequent quarters of 2016 based on a conservative estimate of long-term sustainable distributable cash flow from its interest in REX. If TEP closes the transaction, management anticipates providing additional details on the acquisition shortly thereafter.
TEP Equity Issuances
On April 28, 2016, TEP issued 2,416,987 common units for an aggregate offering price of $90,008,596 in a private placement transaction to certain funds managed by Tortoise Capital Advisors. In addition, since January 1, 2016, TEP issued 1,261,119 units under its ATM program for net cash proceeds of approximately $47 million after commissions and professional service expenses.
TEP Revolving Credit Facility Increase
As a result of TEPs potential acquisition of an interest in REX, TEP has amended its revolving credit facility to, among other things, increase the lender commitments from $1.5 billion to $1.75 billion. The increased lender commitments are conditioned upon TEP or one of its wholly owned subsidiaries closing an acquisition of an interest in REX. As of April 25, 2016, TEP had approximately $1.14 billion drawn on its revolving credit facility.
Tallgrass Energy Partners, LP Summary Financial Information ( 1)
Three Months Ended March 31, | ||||||||
(in thousands, except coverage and per unit data) | 2016 | 2015 | ||||||
Net income attributable to partners |
$ | 44,070 | $ | 32,319 | ||||
Add: |
||||||||
Interest expense (2) |
7,499 | 3,440 | ||||||
Depreciation and amortization expense (2) |
21,967 | 20,533 | ||||||
Non-cash loss (gain) related to derivative instruments |
8,990 | (90 | ) | |||||
Non-cash compensation expense |
1,166 | 1,527 | ||||||
Non-cash loss from asset sales |
| 4,483 | ||||||
Less: |
||||||||
Non-cash loss allocated to noncontrolling interest |
| (9,377 | ) | |||||
|
|
|
|
|||||
Adjusted EBITDA |
$ | 83,692 | $ | 52,835 | ||||
|
|
|
|
|||||
Add: |
||||||||
Pony Express deficiency payments received, net |
7,157 | 292 | ||||||
Less: |
||||||||
Cash interest cost |
(6,821 | ) | (3,031 | ) | ||||
Maintenance capital expenditures |
(2,168 | ) | (1,511 | ) | ||||
Distributions to noncontrolling interest in excess of earnings |
| (2,103 | ) | |||||
|
|
|
|
|||||
Distributable cash flow (DCF) |
81,860 | 46,482 | ||||||
Less: |
||||||||
Distributions |
(68,884 | ) | (38,786 | ) | ||||
|
|
|
|
|||||
Amounts in excess of distributions |
$ | 12,976 | $ | 7,696 | ||||
|
|
|
|
|||||
Distribution coverage |
1.19x | 1.20x | ||||||
Common and subordinated units outstanding (2) |
68,423 | 60,234 | ||||||
Distribution per common unit |
$ | 0.7050 | $ | 0.5200 |
(1) | The financial results for all periods presented in the table include the applicable results of operations of our initial 33.3 percent membership interest in Tallgrass Pony Express Pipeline, LLC (Pony Express), which was acquired by TEP effective September 1, 2014. The acquisitions of an additional 33.3 percent and 31.3 percent membership interest in Pony Express effective March 1, 2015, and January 1, 2016, respectively, are presented prospectively from the dates of acquisitions, and as a result, financial information for periods prior to March 1, 2015, and January 1, 2016, have not been recast to reflect the additional 33.3 percent and 31.3 percent membership interests. |
(2) | Net of noncontrolling interest. |
(3) | Common units outstanding represent the number of units as of the date of record for the first quarter distributions in both 2016 and 2015. All subordinated units converted into common units on February 17, 2015. |
Tallgrass Energy Partners, LP Alternative Reconciliation of Adjusted EBITDA
The following shows what TEPs Adjusted EBITDA would have been for the periods presented if TEP included net deficiency payments from shippers firm, take-or-pay contracts in calculating Adjusted EBITDA. TEPs reported DCF and distribution coverage would remain unchanged.
Three Months Ended March 31, | ||||||||
(in thousands) | 2016 | 2015 | ||||||
Adjusted EBITDA |
$ | 83,692 | $ | 52,835 | ||||
Add: |
||||||||
Pony Express deficiency payments received, net |
7,157 | 292 | ||||||
|
|
|
|
|||||
Alternative Adjusted EBITDA |
$ | 90,849 | $ | 53,127 | ||||
|
|
|
|
Tallgrass Energy Partners, LP Segment Overview (1)
The first quarter 2016 comparative results by segment are summarized below:
Three Months Ended March 31, | ||||||||
2016 | 2015 | |||||||
(in thousands) | ||||||||
Crude Oil Transportation & Logistics |
||||||||
Operating income |
$ | 52,666 | $ | 14,273 | ||||
Add: |
||||||||
Depreciation and amortization expense (2) |
12,918 | 11,233 | ||||||
Adjusted EBITDA attributable to noncontrolling interests |
(1,043 | ) | 9,377 | |||||
Less: |
||||||||
Non-cash loss allocated to noncontrolling interest |
| (9,377 | ) | |||||
|
|
|
|
|||||
Segment Adjusted EBITDA |
$ | 64,541 | $ | 25,506 | ||||
|
|
|
|
|||||
Three Months Ended March 31, | ||||||||
2016 | 2015 | |||||||
(in thousands) | ||||||||
Natural Gas Transportation & Logistics |
||||||||
Operating income |
$ | 10,664 | $ | 12,553 | ||||
Add: |
||||||||
Depreciation and amortization expense |
5,878 | 6,071 | ||||||
Non-cash loss (gain) related to derivative instruments |
44 | (90 | ) | |||||
Other income, net |
566 | 712 | ||||||
|
|
|
|
|||||
Segment Adjusted EBITDA |
$ | 17,152 | $ | 19,246 | ||||
|
|
|
|
|||||
Three Months Ended March 31, | ||||||||
2016 | 2015 | |||||||
(in thousands) | ||||||||
Processing & Logistics |
||||||||
Operating income |
178 | 1,054 | ||||||
Add: |
||||||||
Depreciation and amortization expense (2) |
3,171 | 3,229 | ||||||
Non-cash loss from asset sales |
| 4,483 | ||||||
Adjusted EBITDA attributable to noncontrolling interests |
2 | (48 | ) | |||||
|
|
|
|
|||||
Segment Adjusted EBITDA |
$ | 3,351 | $ | 8,718 | ||||
|
|
|
|
(1) | Segment reporting does not include corporate general and administrative costs or intersegment eliminations. |
(2) | Net of noncontrolling interest |
The Crude Oil Transportation & Logistics segment Adjusted EBITDA was $64.5 million for the first quarter of 2016, representing an increase of $39.0 million as compared to the first quarter of 2015. The increase was primarily due to the operating results of the lateral in Northeast Colorado and the second of two joint upstream tariff pipelines, neither of which were in-service until the second quarter of 2015. TEP received distributable cash flow from Pony Express of $71.5 million for its 98.0 percent membership interest for the first quarter of 2016, representing an increase of $21.7 million as compared to the $49.8 million it received for the fourth quarter of 2015. The increase is primarily attributable to TEPs purchase of an additional 31.3 percent membership interest in Pony Express effective January 1, 2016. Average daily throughput for the first quarter of 2016 was approximately 291 Mbbls/d as compared to approximately 288 Mbbls/d for the fourth quarter of 2015. Pony Expresss firm contracted capacity for the first quarter of 2016 was approximately 291 Mbbls/d.
The Natural Gas Transportation & Logistics segment Adjusted EBITDA was $17.2 million for the first quarter of 2016, representing a decrease of $2.1 million as compared to the first quarter of 2015. The decrease was driven by lower transportation revenues as a result of decreased prices on fuel reimbursements and warmer weather conditions that created less demand for short-term transportation capacity during the first quarter of 2016. When comparing the Natural Gas Transportation & Logistics segments Adjusted EBITDA for the first quarter of 2016 to its $15.5 million of Adjusted EBITDA for the fourth quarter of 2015, the increase of $1.7 million is primarily attributable to lower operating and general and administrative costs in the first quarter of 2016. Firm contracted transportation capacity for the first quarter of 2016 was 1,464 MMcf/d as compared to the 1,609 MMcf/d for the first quarter of 2015 and 1,464, MMcf/d for the fourth quarter of 2015.
The Processing & Logistics segment Adjusted EBITDA was $3.4 million for the first quarter of 2016, representing a decrease of $5.4 million as compared to the first quarter of 2015. The decrease was due to lower average inlet volumes. When comparing the Processing and Logistics segments Adjusted EBITDA for the first quarter of 2016 to its $3.9 million of Adjusted EBITDA for the fourth quarter of 2015, the decrease of $0.5 million is primarily due to lower average inlet volumes. Approximate average inlet volumes at the processing facilities for the first quarter of 2016 were 98 MMcf/day as compared to 145 MMcf/d for the first quarter of 2015 and 104 MMcf/d for the fourth quarter of 2015.
Tallgrass Energy GP, LP Summary Financial Information
Information on distributions to Tallgrass Equity, TEGP and TEGPs Class A shareholders is shown below (in thousands, except coverage and per share data):
Three Months Ended
March 31, 2016 |
||||
TEP distributions to Tallgrass Equity (1) |
||||
General partner interest |
$ | 830 | ||
Incentive Distribution Rights |
19,816 | |||
TEP common units owned by Tallgrass Equity |
14,100 | |||
|
|
|||
Total TEP distributions to Tallgrass Equity |
34,746 | |||
Less: |
||||
Cash interest expense attributable to Tallgrass Equity |
(1,090 | ) | ||
Cash General and administrative expenses attributable to Tallgrass Equity |
(500 | ) | ||
|
|
|||
Cash available for distribution by Tallgrass Equity |
33,156 | |||
Distributions to Class A (TEGP) |
10,022 | |||
Distributions to Class B (Exchange Right Holders) |
22,996 | |||
|
|
|||
Total cash distributions by Tallgrass Equity |
$ | 33,018 | ||
|
|
|||
TEGP |
||||
Distributions from Tallgrass Equity |
$ | 10,022 | ||
Less: |
||||
Distributions to Class A shareholders |
(10,022 | ) | ||
|
|
|||
Amounts in excess of distributions |
$ | | ||
|
|
|||
Distribution coverage |
1.00x | |||
Class A shares outstanding |
47,725 | |||
Distribution per Class A share |
$ | 0.2100 |
(1) | Represents distributions expected to be received by Tallgrass Equity from TEP on or about May 13, 2016 in connection with TEPs distribution for the quarter ended March 31, 2016. |
Conference Call
Please join Tallgrass Energy for a conference call and webcast to discuss first quarter 2016 results at 3:30 p.m. Central Time on Thursday, April 28, 2016. Interested parties may listen via a link posted on the Investor Relations section of our website and the replay will be available on our website for at least seven days following the live call.
About Tallgrass Energy Partners, LP
Tallgrass Energy Partners, LP (NYSE: TEP) is a publicly traded, growth-oriented limited partnership formed to own, operate, acquire and develop midstream energy assets in North America. TEP currently provides crude oil transportation to customers in Wyoming, Colorado, and the surrounding regions through Pony Express, which owns the Pony Express System, a crude oil pipeline commencing in Guernsey, Wyoming and terminating in Cushing, Oklahoma that includes a lateral in northeast Colorado that commences in Weld County, Colorado, and interconnects with the pipeline just east of Sterling, Colorado. It provides natural gas transportation and storage services for customers in the Rocky Mountain and Midwest regions of the United States through the Tallgrass Interstate Gas Transmission system, a FERC-regulated natural gas transportation and storage system located in Colorado, Kansas, Missouri, Nebraska and Wyoming, and the Trailblazer Pipeline system, a FERC-regulated natural gas pipeline system extending from the Colorado and Wyoming border to Beatrice, Nebraska. TEP provides services for customers in Wyoming at the Casper and Douglas natural gas processing facilities and the West Frenchie Draw natural gas treating facility, and NGL transportation services in Northeast Colorado. TEP also performs water business services in Colorado and Texas through BNN Water Solutions, LLC. TEPs operations are strategically located in and provide services to certain key United States hydrocarbon basins, including the Denver-Julesburg, Powder River, Wind River, Permian and Hugoton-Anadarko Basins and the Niobrara, Mississippi Lime, Eagle Ford and Bakken shale formations.
About Tallgrass Energy GP, LP
Tallgrass Energy GP, LP (NYSE: TEGP) is a limited partnership that has elected to be treated as a corporation for U.S. federal income tax purposes. TEGP owns a controlling membership interest in Tallgrass Equity, LLC through its role as the sole managing member. Tallgrass Equity, LLC owns, both directly and through its ownership of the general partner of TEP, all of TEPs incentive distribution rights, 100 percent of the general partner interest in TEP and 20,000,000 TEP Common Units.
To learn more, please visit our website at www.tallgrassenergy.com.
TEPs Non-GAAP Measures
Adjusted EBITDA and distributable cash flow are non-GAAP supplemental financial measures that TEP management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess:
| our operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or, in the case of Adjusted EBITDA, financing methods; |
| the ability of our assets to generate sufficient cash flow to make distributions to our unitholders; |
| our ability to incur and service debt and fund capital expenditures; and |
| the viability of acquisitions and other capital expenditure projects and the returns on investment of various expansion and growth opportunities. |
We believe that the presentation of Adjusted EBITDA and distributable cash flow provides useful information to investors in assessing our financial condition and results of operations. Adjusted EBITDA and distributable cash flow should not be considered alternatives to net income, operating income, cash from operations or any other measure of financial performance or liquidity presented in accordance with GAAP, nor should Adjusted EBITDA and distributable cash flow be considered alternatives to available cash, operating surplus, distributions of available cash from operating surplus or other definitions in our partnership agreement. Adjusted 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. Additionally, because Adjusted EBITDA and distributable cash flow may be defined differently by other companies in our industry, our definition of Adjusted EBITDA and distributable cash flow may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.
We generally define Adjusted EBITDA as net income excluding the impact of interest, income taxes, depreciation and amortization, non-cash income or loss related to derivative instruments, non-cash long-term compensation expense, impairment losses, gains or losses on asset or business disposals or acquisitions, gains or losses on the repurchase, redemption or early retirement of debt, and earnings from unconsolidated investments, but including the impact of distributions from unconsolidated investments. We also use Distributable Cash Flow, which we generally define as Adjusted EBITDA, plus preferred distributions received from Pony Express in excess of its distributable cash flow attributable to our net interest and adjusted for deficiency payments received from or utilized by Pony Express shippers, less cash interest expense, maintenance capital expenditures, distributions to noncontrolling interests in excess of earnings allocated to noncontrolling interests, and certain cash reserves permitted by our partnership agreement. For a reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures, please see Summary Financial Information above.
Cautionary Note Concerning Forward-Looking Statements
Disclosures in this press release contain forward-looking statements. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that management expects, believes or anticipates will or may occur in the future are forward-looking statements. Without limiting the generality of the foregoing, forward-looking statements contained in this press release specifically include TEPs ability to consummate an acquisition of a membership interest in REX, as well as the timing, purchase price and other terms of that transaction, the earnings and cash distribution growth and accretion expected to be realized by TEP as a result of that potential acquisition of a membership interest in REX and the anticipated growth of Tallgrass Energy in 2016. Forward looking statements may also include the expectations of plans, strategies, objectives and growth and anticipated financial and operational performance of TEP, TEGP and their subsidiaries, including: the ability to pursue expansions and other opportunities for incremental volumes; natural gas and crude oil production growth in TEPs operating areas; expected future benefits of acquisitions or expansion projects; timing of anticipated spending on planned expenses and maintenance capital projects; and distribution rate and growth, including variability of quarterly distribution coverage. These statements are based on certain assumptions made by TEP and TEGP based on managements experience and perception of historical trends, current conditions, anticipated future developments and other factors believed to be appropriate. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of TEP and TEGP, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. These include risks relating to TEP and TEGPs financial performance and results, availability of sufficient cash flow to pay distributions and execute their business plans, the demand for natural gas storage, processing and transportation services and for crude oil transportation services, operating hazards, the effects of government regulation, tax position and other risks incidental to transporting, storing and processing natural gas or transporting crude oil and other important factors that could cause actual results to differ materially from those projected, including those set forth in reports filed by TEP and TEGP with the Securities and Exchange Commission. Any forward-looking statement applies only as of the date on which such statement is made and TEP and TEGP do not intend to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.
Tallgrass Energy Partners, LP Financial Statements
TALLGRASS ENERGY PARTNERS, LP
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2016 | December 31, 2015 | |||||||
(in thousands) | ||||||||
ASSETS | ||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 2,885 | $ | 1,611 | ||||
Accounts receivable, net |
53,330 | 57,757 | ||||||
Gas imbalances |
552 | 1,227 | ||||||
Inventories |
13,739 | 13,793 | ||||||
Prepayments and other current assets |
2,883 | 2,835 | ||||||
|
|
|
|
|||||
Total Current Assets |
73,389 | 77,223 | ||||||
Property, plant and equipment, net |
2,017,138 | 2,025,018 | ||||||
Goodwill |
343,288 | 343,288 | ||||||
Intangible asset, net |
95,795 | 96,546 | ||||||
Derivative asset at fair value |
37,014 | | ||||||
Deferred financing costs, net |
6,102 | 5,105 | ||||||
Deferred charges and other assets |
14,046 | 14,894 | ||||||
|
|
|
|
|||||
Total Assets |
$ | 2,586,772 | $ | 2,562,074 | ||||
|
|
|
|
|||||
LIABILITIES AND PARTNERS EQUITY | ||||||||
Current Liabilities: |
||||||||
Accounts payable |
$ | 17,794 | $ | 22,218 | ||||
Accounts payable to related parties |
4,435 | 7,852 | ||||||
Gas imbalances |
935 | 1,605 | ||||||
Derivative liabilities at fair value |
44 | | ||||||
Accrued taxes |
19,450 | 13,844 | ||||||
Accrued liabilities |
6,520 | 10,019 | ||||||
Deferred revenue |
33,823 | 26,511 | ||||||
Other current liabilities |
6,969 | 6,880 | ||||||
|
|
|
|
|||||
Total Current Liabilities |
89,970 | 88,929 | ||||||
Long-term debt |
1,200,000 | 753,000 | ||||||
Other long-term liabilities and deferred credits |
4,904 | 5,143 | ||||||
|
|
|
|
|||||
Total Long-term Liabilities |
1,204,904 | 758,143 | ||||||
Commitments and Contingencies |
||||||||
Equity: |
||||||||
Common unitholders (67,499,543 and 60,644,232 units issued and outstanding at March 31, 2016 and December 31, 2015, respectively) |
1,882,611 | 1,618,766 | ||||||
General partner (834,391 units issued and outstanding at March 31, 2016 and December 31, 2015) |
(624,511 | ) | (348,841 | ) | ||||
|
|
|
|
|||||
Total Partners Equity |
1,258,100 | 1,269,925 | ||||||
Noncontrolling interests |
$ | 33,798 | $ | 445,077 | ||||
|
|
|
|
|||||
Total Equity |
$ | 1,291,898 | $ | 1,715,002 | ||||
|
|
|
|
|||||
Total Liabilities and Equity |
$ | 2,586,772 | $ | 2,562,074 | ||||
|
|
|
|
TALLGRASS ENERGY PARTNERS, LP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, | ||||||||
2016 | 2015 | |||||||
(in thousands, except per unit amounts) | ||||||||
Revenues: |
||||||||
Crude oil transportation services |
$ | 94,572 | $ | 50,381 | ||||
Natural gas transportation services |
29,280 | 32,148 | ||||||
Sales of natural gas, NGLs, and crude oil |
13,926 | 21,869 | ||||||
Processing and other revenues |
7,627 | 10,277 | ||||||
|
|
|
|
|||||
Total Revenues |
145,405 | 114,675 | ||||||
|
|
|
|
|||||
Operating Costs and Expenses: |
||||||||
Cost of sales (exclusive of depreciation and amortization shown below) |
13,568 | 19,593 | ||||||
Cost of transportation services (exclusive of depreciation and amortization shown below) |
16,156 | 10,715 | ||||||
Operations and maintenance |
12,477 | 9,575 | ||||||
Depreciation and amortization |
21,692 | 20,605 | ||||||
General and administrative |
13,016 | 12,689 | ||||||
Taxes, other than income taxes |
7,506 | 11,297 | ||||||
Loss on sale of assets |
| 4,483 | ||||||
|
|
|
|
|||||
Total Operating Costs and Expenses |
84,415 | 88,957 | ||||||
|
|
|
|
|||||
Operating Income |
60,990 | 25,718 | ||||||
|
|
|
|
|||||
Other (Expense) Income: |
||||||||
Interest expense, net |
(7,499 | ) | (3,440 | ) | ||||
Unrealized loss on derivative instrument |
(8,946 | ) | | |||||
Other income, net |
566 | 712 | ||||||
|
|
|
|
|||||
Total Other Expense |
(15,879 | ) | (2,728 | ) | ||||
|
|
|
|
|||||
Net income |
45,111 | 22,990 | ||||||
Net (income) loss attributable to noncontrolling interests |
(1,041 | ) | 9,329 | |||||
|
|
|
|
|||||
Net income attributable to partners |
$ | 44,070 | $ | 32,319 | ||||
|
|
|
|
|||||
Allocation of income to the limited partners: |
||||||||
Net income attributable to partners |
$ | 44,070 | $ | 32,319 | ||||
General partner interest in net income |
(20,353 | ) | (7,438 | ) | ||||
|
|
|
|
|||||
Common and subordinated unitholders interest in net income |
23,717 | 24,881 | ||||||
|
|
|
|
|||||
Basic net income per common and subordinated unit |
$ | 0.35 | $ | 0.47 | ||||
|
|
|
|
|||||
Diluted net income per common and subordinated unit |
$ | 0.35 | $ | 0.46 | ||||
|
|
|
|
|||||
Basic average number of common and subordinated units outstanding |
66,967 | 52,727 | ||||||
Diluted average number of common and subordinated units outstanding |
67,807 | 53,994 |
TALLGRASS ENERGY PARTNERS, LP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, | ||||||||
2016 | 2015 | |||||||
(in thousands) | ||||||||
Cash Flows from Operating Activities: |
||||||||
Net income |
$ | 45,111 | $ | 22,990 | ||||
Adjustments to reconcile net income to net cash flows provided by operating activities: |
||||||||
Depreciation and amortization |
22,870 | 21,557 | ||||||
Noncash compensation expense |
1,166 | 1,527 | ||||||
Noncash change in fair value of derivative financial instruments |
8,990 | (90 | ) | |||||
Loss on sale of assets |
| 4,483 | ||||||
Changes in components of working capital: |
||||||||
Accounts receivable and other |
5,800 | (5,678 | ) | |||||
Gas imbalances |
566 | 143 | ||||||
Inventories |
(508 | ) | (2,754 | ) | ||||
Accounts payable and accrued liabilities |
(2,196 | ) | 6,546 | |||||
Deferred revenue |
7,204 | 106 | ||||||
Other operating, net |
(246 | ) | (191 | ) | ||||
|
|
|
|
|||||
Net Cash Provided by Operating Activities |
88,757 | 48,639 | ||||||
|
|
|
|
|||||
Cash Flows from Investing Activities: |
||||||||
Capital expenditures |
(17,545 | ) | (13,300 | ) | ||||
Acquisition of Pony Express membership interest |
(49,118 | ) | (700,000 | ) | ||||
Other investing, net |
25 | (311 | ) | |||||
|
|
|
|
|||||
Net Cash Used in Investing Activities |
(66,638 | ) | (713,611 | ) | ||||
|
|
|
|
|||||
Cash Flows from Financing Activities: |
||||||||
Distributions to unitholders |
(59,040 | ) | (28,294 | ) | ||||
Acquisition of Pony Express membership interest |
(425,882 | ) | | |||||
Contributions from noncontrolling interests |
7,152 | 2,379 | ||||||
Distributions to noncontrolling interests |
(1,793 | ) | (1,416 | ) | ||||
Borrowings under revolving credit facility, net |
447,000 | 139,000 | ||||||
Proceeds from public offering, net of offering costs |
12,636 | 551,949 | ||||||
Other financing, net |
(918 | ) | 1,363 | |||||
|
|
|
|
|||||
Net Cash (Used in) Provided by Financing Activities |
(20,845 | ) | 664,981 | |||||
|
|
|
|
|||||
Net Change in Cash and Cash Equivalents |
1,274 | 9 | ||||||
Cash and Cash Equivalents, beginning of period |
1,611 | 867 | ||||||
|
|
|
|
|||||
Cash and Cash Equivalents, end of period |
$ | 2,885 | $ | 876 | ||||
|
|
|
|
Tallgrass Energy GP, LP Financial Statements
TALLGRASS ENERGY GP, LP
CONDENSED CONSOLIDATING BALANCE SHEETS
March 31, 2016 | December 31, 2015 | |||||||||||||||||||||||
TEP |
Consolidating
Adjustments (1) |
TEGP | TEP |
Consolidating
Adjustments (1) |
TEGP | |||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Current Assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 2,885 | $ | 914 | $ | 3,799 | $ | 1,611 | $ | 623 | $ | 2,234 | ||||||||||||
Accounts receivable, net |
53,330 | | 53,330 | 57,757 | | 57,757 | ||||||||||||||||||
Gas imbalances |
552 | | 552 | 1,227 | | 1,227 | ||||||||||||||||||
Inventories |
13,739 | | 13,739 | 13,793 | | 13,793 | ||||||||||||||||||
Prepayments and other current assets |
2,883 | | 2,883 | 2,835 | | 2,835 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Current Assets |
73,389 | 914 | 74,303 | 77,223 | 623 | 77,846 | ||||||||||||||||||
Property, plant and equipment, net |
2,017,138 | | 2,017,138 | 2,025,018 | | 2,025,018 | ||||||||||||||||||
Goodwill |
343,288 | | 343,288 | 343,288 | | 343,288 | ||||||||||||||||||
Intangible asset, net |
95,795 | | 95,795 | 96,546 | | 96,546 | ||||||||||||||||||
Derivative asset at fair value |
37,014 | | 37,014 | | | | ||||||||||||||||||
Deferred financing costs, net |
6,102 | 1,444 | 7,546 | 5,105 | 1,533 | 6,638 | ||||||||||||||||||
Deferred tax asset |
| 449,640 | 449,640 | | 452,430 | 452,430 | ||||||||||||||||||
Deferred charges and other assets |
14,046 | | 14,046 | 14,894 | | 14,894 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Assets |
$ | 2,586,772 | $ | 451,998 | $ | 3,038,770 | $ | 2,562,074 | $ | 454,586 | $ | 3,016,660 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
LIABILITIES AND PARTNERS EQUITY | ||||||||||||||||||||||||
Current Liabilities: |
||||||||||||||||||||||||
Accounts payable |
$ | 17,794 | $ | | $ | 17,794 | $ | 22,218 | $ | | $ | 22,218 | ||||||||||||
Accounts payable to related parties |
4,435 | (94 | ) | 4,341 | 7,852 | (97 | ) | 7,755 | ||||||||||||||||
Gas imbalances |
935 | | 935 | 1,605 | | 1,605 | ||||||||||||||||||
Derivative liabilities at fair value |
44 | | 44 | | | | ||||||||||||||||||
Accrued taxes |
19,450 | | 19,450 | 13,844 | | 13,844 | ||||||||||||||||||
Accrued liabilities |
6,520 | 133 | 6,653 | 10,019 | 187 | 10,206 | ||||||||||||||||||
Deferred revenue |
33,823 | | 33,823 | 26,511 | | 26,511 | ||||||||||||||||||
Other current liabilities |
6,969 | | 6,969 | 6,880 | | 6,880 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Current Liabilities |
89,970 | 39 | 90,009 | 88,929 | 90 | 89,019 | ||||||||||||||||||
Long-term debt |
1,200,000 | 148,000 | 1,348,000 | 753,000 | 148,000 | 901,000 | ||||||||||||||||||
Other long-term liabilities and deferred credits |
4,904 | | 4,904 | 5,143 | | 5,143 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Long-term Liabilities |
1,204,904 | 148,000 | 1,352,904 | 758,143 | 148,000 | 906,143 | ||||||||||||||||||
Equity: |
||||||||||||||||||||||||
Total Partners Equity |
1,258,100 | (1,090,633 | ) | 167,467 | 1,269,925 | (847,615 | ) | 422,310 | ||||||||||||||||
Noncontrolling interests |
33,798 | 1,394,592 | 1,428,390 | 445,077 | 1,154,111 | 1,599,188 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Equity |
$ | 1,291,898 | $ | 303,959 | $ | 1,595,857 | $ | 1,715,002 | $ | 306,496 | $ | 2,021,498 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Liabilities and Equity |
$ | 2,586,772 | $ | 451,998 | $ | 3,038,770 | $ | 2,562,074 | $ | 454,586 | $ | 3,016,660 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Represents the aggregate consolidating adjustments necessary to produce consolidated financial statements for TEGP. |
TALLGRASS ENERGY GP, LP
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Three Months Ended March 31, 2016 | Three Months Ended March 31, 2015 | |||||||||||||||||||||||
TEP |
Consolidating
Adjustments (1) |
TEGP | TEP |
Consolidating
Adjustments (1) |
TEGP | |||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||
Revenues: |
||||||||||||||||||||||||
Crude oil transportation services |
$ | 94,572 | $ | | $ | 94,572 | $ | 50,381 | $ | | $ | 50,381 | ||||||||||||
Natural gas transportation services |
29,280 | | 29,280 | 32,148 | | 32,148 | ||||||||||||||||||
Sales of natural gas, NGLs, and crude oil |
13,926 | | 13,926 | 21,869 | | 21,869 | ||||||||||||||||||
Processing and other revenues |
7,627 | | 7,627 | 10,277 | | 10,277 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Revenues |
145,405 | | 145,405 | 114,675 | | 114,675 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating Costs and Expenses: |
||||||||||||||||||||||||
Cost of sales (exclusive of depreciation and amortization shown below) |
13,568 | | 13,568 | 19,593 | | 19,593 | ||||||||||||||||||
Cost of transportation services (exclusive of depreciation and amortization shown below) |
16,156 | | 16,156 | 10,715 | | 10,715 | ||||||||||||||||||
Operations and maintenance |
12,477 | | 12,477 | 9,575 | | 9,575 | ||||||||||||||||||
Depreciation and amortization |
21,692 | | 21,692 | 20,605 | | 20,605 | ||||||||||||||||||
General and administrative |
13,016 | 521 | 13,537 | 12,689 | | 12,689 | ||||||||||||||||||
Taxes, other than income taxes |
7,506 | | 7,506 | 11,297 | | 11,297 | ||||||||||||||||||
Loss on sale of assets |
| | | 4,483 | | 4,483 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Operating Costs and Expenses |
84,415 | 521 | 84,936 | 88,957 | | 88,957 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating Income |
60,990 | (521 | ) | 60,469 | 25,718 | | 25,718 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other (Expense) Income: |
||||||||||||||||||||||||
Interest expense, net |
(7,499 | ) | (1,178 | ) | (8,677 | ) | (3,440 | ) | | (3,440 | ) | |||||||||||||
Unrealized loss on derivative instrument |
(8,946 | ) | | (8,946 | ) | | | | ||||||||||||||||
Other income, net |
566 | | 566 | 712 | | 712 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Other Expense |
(15,879 | ) | (1,178 | ) | (17,057 | ) | (2,728 | ) | | (2,728 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income before tax |
45,111 | (1,699 | ) | 43,412 | 22,990 | | 22,990 | |||||||||||||||||
Deferred income tax expense |
| (2,791 | ) | (2,791 | ) | | | | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
45,111 | (4,490 | ) | 40,621 | 22,990 | | 22,990 | |||||||||||||||||
Net (income) loss attributable to noncontrolling interests |
(1,041 | ) | (31,991 | ) | (33,032 | ) | 9,329 | (27,197 | ) | (17,868 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable TEGP |
$ | 44,070 | $ | (36,481 | ) | $ | 7,589 | $ | 32,319 | $ | (27,197 | ) | $ | 5,122 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Basic net income per Class A share |
$ | 0.16 | ||||||||||||||||||||||
|
|
|||||||||||||||||||||||
Diluted net income per Class A share |
$ | 0.16 | ||||||||||||||||||||||
|
|
|||||||||||||||||||||||
Basic and diluted average number of Class A shares outstanding |
47,725 | |||||||||||||||||||||||
Diluted average number of Class A shares outstanding |
47,725 |
(1) | Represents the aggregate consolidating adjustments necessary to produce consolidated financial statements for TEGP. |
CONTACT:
Investor and Financial Inquiries
Nate Lien
(913) 928-6012
investor.relations@tallgrassenergylp.com
Media and Trade Inquiries
Phyllis Hammond
(913) 928-6014
media.relations@tallgrassenergylp.com
Exhibit 99.2
FINANCIAL STATEMENTS
ROCKIES EXPRESS
PIPELINE LLC
For the years ended December 31, 2015, 2014 and 2013
Independent Auditors Report
To the Board of Directors of Rockies Express Pipeline LLC:
We have audited the accompanying financial statements of Rockies Express Pipeline LLC, which comprise the balance sheets as of December 31, 2015 and December 31, 2014, and the related statements of income, members equity, and cash flows for each of the three years in the period ended December 31, 2015.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Companys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Rockies Express Pipeline LLC as of December 31, 2015 and December 31, 2014, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2015 in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
As described in Note 6 to the financial statements, the Company has significant transactions with related parties. Our opinion is not modified with respect to this matter.
/s/ PricewaterhouseCoopers LLP
February 26, 2016
ROCKIES EXPRESS PIPELINE LLC
STATEMENTS OF INCOME
Years Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
(in millions) | ||||||||||||
Revenues: |
||||||||||||
Natural gas sales |
$ | 2.1 | $ | 36.7 | $ | 40.0 | ||||||
Transportation services |
779.0 | 703.6 | 692.6 | |||||||||
|
|
|
|
|
|
|||||||
Total Revenues |
781.1 | 740.3 | 732.6 | |||||||||
|
|
|
|
|
|
|||||||
Operating Costs and Expenses: |
||||||||||||
Cost of natural gas sales (exclusive of depreciation and amortization shown below) |
2.3 | 32.3 | 53.0 | |||||||||
Cost of transportation services (exclusive of depreciation and amortization shown below) |
30.2 | 29.8 | 31.0 | |||||||||
Operations and maintenance |
21.2 | 19.4 | 24.8 | |||||||||
Depreciation and amortization |
199.4 | 195.1 | 193.3 | |||||||||
General and administrative |
26.7 | 21.5 | 18.4 | |||||||||
Taxes, other than income taxes |
73.9 | 70.8 | 76.2 | |||||||||
|
|
|
|
|
|
|||||||
Total Operating Costs and Expenses |
353.7 | 368.9 | 396.7 | |||||||||
|
|
|
|
|
|
|||||||
Operating Income |
427.4 | 371.4 | 335.9 | |||||||||
|
|
|
|
|
|
|||||||
Other (Expense) Income: |
||||||||||||
Interest expense, net |
(170.1 | ) | (185.3 | ) | (188.3 | ) | ||||||
Loss on extinguishment of debt |
| | (12.0 | ) | ||||||||
Other income, net |
6.6 | 3.3 | 0.8 | |||||||||
|
|
|
|
|
|
|||||||
Total Other Expense, net |
(163.5 | ) | (182.0 | ) | (199.5 | ) | ||||||
|
|
|
|
|
|
|||||||
Net Income to Members |
$ | 263.9 | $ | 189.4 | $ | 136.4 | ||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
3
ROCKIES EXPRESS PIPELINE LLC
BALANCE SHEETS
The accompanying notes are an integral part of these financial statements.
4
ROCKIES EXPRESS PIPELINE LLC
STATEMENTS OF MEMBERS EQUITY
Year Ended December 31, 2015 | ||||||||||||||||
Total |
Rockies Express
Holdings, LLC |
Sempra REX
Holdings, LLC |
P66REX LLC | |||||||||||||
(in millions) | ||||||||||||||||
Members Equity: |
||||||||||||||||
Beginning Balance |
$ | 2,820.2 | $ | 1,410.0 | $ | 705.1 | $ | 705.1 | ||||||||
Net Income to Members |
263.9 | 131.9 | 66.0 | 66.0 | ||||||||||||
Contributions from Members |
733.1 | 366.5 | 183.3 | 183.3 | ||||||||||||
Distributions to Members |
(499.0 | ) | (249.4 | ) | (124.8 | ) | (124.8 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending Balance |
$ | 3,318.2 | $ | 1,659.0 | $ | 829.6 | $ | 829.6 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Year Ended December 31, 2014 | ||||||||||||||||
Total |
Rockies Express
Holdings, LLC |
Sempra REX
Holdings, LLC |
P66REX LLC | |||||||||||||
(in millions) | ||||||||||||||||
Members Equity: |
||||||||||||||||
Beginning Balance |
$ | 2,826.8 | $ | 1,413.2 | $ | 706.8 | $ | 706.8 | ||||||||
Net Income to Members |
189.4 | 94.6 | 47.4 | 47.4 | ||||||||||||
Contributions from Members |
165.7 | 83.1 | 41.3 | 41.3 | ||||||||||||
Distributions to Members |
(361.7 | ) | (180.9 | ) | (90.4 | ) | (90.4 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending Balance |
$ | 2,820.2 | $ | 1,410.0 | $ | 705.1 | $ | 705.1 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Year Ended December 31, 2013 | ||||||||||||||||
Total |
Rockies Express
Holdings, LLC |
Sempra REX
Holdings, LLC |
P66REX LLC | |||||||||||||
(in millions) | ||||||||||||||||
Members Equity: |
||||||||||||||||
Beginning Balance |
$ | 3,002.9 | $ | 1,501.3 | $ | 750.8 | $ | 750.8 | ||||||||
Net Income to Members |
136.4 | 68.2 | 34.1 | 34.1 | ||||||||||||
Contributions from Members |
31.7 | 15.9 | 7.9 | 7.9 | ||||||||||||
Distributions to Members |
(344.2 | ) | (172.2 | ) | (86.0 | ) | (86.0 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending Balance |
$ | 2,826.8 | $ | 1,413.2 | $ | 706.8 | $ | 706.8 | ||||||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
5
ROCKIES EXPRESS PIPELINE LLC
STATEMENTS OF CASH FLOWS
Years Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
(in millions) | ||||||||||||
Cash Flows from Operating Activities: |
||||||||||||
Net Income to Members |
$ | 263.9 | $ | 189.4 | $ | 136.4 | ||||||
Adjustments to reconcile net income to net cash flows from operating activities: |
||||||||||||
Depreciation and amortization |
204.8 | 201.1 | 199.4 | |||||||||
Loss on extinguishment of debt |
| | 12.0 | |||||||||
Changes in components of working capital: |
||||||||||||
Accounts receivable |
(23.8 | ) | 6.3 | 3.1 | ||||||||
Current regulatory assets and liabilities, net |
(10.2 | ) | (15.2 | ) | 37.8 | |||||||
Other current assets and liabilities |
(0.9 | ) | 0.6 | 0.1 | ||||||||
Accounts payable |
7.4 | 0.8 | (7.3 | ) | ||||||||
Accrued Taxes |
| (3.1 | ) | (1.6 | ) | |||||||
Customer deposits |
32.2 | | | |||||||||
Other, net |
(3.0 | ) | (6.9 | ) | 0.9 | |||||||
|
|
|
|
|
|
|||||||
Net Cash Provided by Operating Activities |
470.4 | 373.0 | 380.8 | |||||||||
|
|
|
|
|
|
|||||||
Cash Flows from Investing Activities: |
||||||||||||
Capital expenditures |
(281.9 | ) | (158.6 | ) | (41.6 | ) | ||||||
Other investing, net |
(1.9 | ) | (2.0 | ) | (2.1 | ) | ||||||
|
|
|
|
|
|
|||||||
Net Cash Used in Investing Activities |
(283.8 | ) | (160.6 | ) | (43.7 | ) | ||||||
|
|
|
|
|
|
|||||||
Cash Flows from Financing Activities: |
||||||||||||
Distributions to Members |
(499.0 | ) | (361.7 | ) | (344.2 | ) | ||||||
Contributions from Members |
733.1 | 165.7 | 31.7 | |||||||||
Proceeds from issuance of debt |
| | 525.0 | |||||||||
Repayment of debt |
(450.0 | ) | | (511.7 | ) | |||||||
Payments for deferred financing costs |
(0.7 | ) | | (10.4 | ) | |||||||
|
|
|
|
|
|
|||||||
Net Cash Used in Financing Activities |
(216.6 | ) | (196.0 | ) | (309.6 | ) | ||||||
|
|
|
|
|
|
|||||||
Net Change in Cash and Cash Equivalents |
(30.0 | ) | 16.4 | 27.5 | ||||||||
Cash and Cash Equivalents, beginning of period |
78.0 | 61.6 | 34.1 | |||||||||
|
|
|
|
|
|
|||||||
Cash and Cash Equivalents, end of period |
$ | 48.0 | $ | 78.0 | $ | 61.6 | ||||||
|
|
|
|
|
|
|||||||
Supplemental Disclosure of Cash Flow Information: |
||||||||||||
Cash paid during the period for interest (net of capitalized interest) |
$ | 170.7 | $ | 181.3 | $ | 183.9 | ||||||
Schedule of Noncash Investing and Financing Activities: |
||||||||||||
Increase in accrual for payment of property, plant and equipment |
$ | 8.4 | $ | | $ | 12.1 |
The accompanying notes are an integral part of these financial statements.
6
ROCKIES EXPRESS PIPELINE LLC
NOTES TO FINANCIAL STATEMENTS
1. | Description of Business |
Rockies Express Pipeline LLC (Rockies Express) is a Federal Energy Regulatory Commission (FERC) regulated natural gas transportation system with approximately 1,712 miles of natural gas pipeline consisting of three segments: (i) a 328-mile pipeline from the Meeker Hub in northwest Colorado, across southern Wyoming to the Cheyenne Hub in Weld County, Colorado, (ii) a 714-mile pipeline from the Cheyenne Hub to an interconnect in Audrain County, Missouri, and (iii) a 643-mile pipeline from Audrain County, Missouri to Clarington, Ohio. There are approximately 27 miles of laterals along the course of the entire Rockies Express system. The Rockies Express system is capable of transporting 2.0 billion cubic feet per day of natural gas from Meeker, Colorado to the Cheyenne Hub and 1.8 billion cubic feet per day from the Cheyenne Hub to Clarington, Ohio. The Seneca Lateral service made available in June 2014 can receive up to 250,000 dekatherms (Dth) per day. The Seneca Compression Expansion Project facilities placed into service in January 2015 increased the capacity from 250,000 Dth per day to 600,000 Dth per day. The Zone 3 East-to-West Project was placed into commercial service on August 1, 2015 and creates an additional 1.2 million Dth per day of firm takeaway capacity from the Utica and Marcellus Shale Plays and the Appalachian Basin, as further discussed in Note 7 - Regulatory Matters.
The member interests and voting rights in Rockies Express are as follows:
| 50% - Rockies Express Holdings, LLC, an indirect wholly owned subsidiary of Tallgrass Development, LP (TD); |
| 25% - Sempra REX Holdings, LLC, a wholly owned subsidiary of Sempra Energy and the successor-in-interest to P&S Project I, LLC; and |
| 25% - P66REX LLC, formerly known as COPREX LLC, a wholly owned subsidiary of Phillips 66. |
2. | Summary of Significant Accounting Policies |
Basis of Presentation
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from these estimates. Certain prior year amounts have been reclassified to conform to the current presentation. As discussed below in New Accounting Pronouncements, debt issuance costs have been reclassified from deferred charges and other assets to long-term debt in the accompanying balance sheets for all periods presented.
Cash and Cash Equivalents
Rockies Express considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are carried at their estimated collectible amounts. Rockies Express makes periodic reviews and evaluations of the appropriateness of the allowance for doubtful accounts based on a statistical analysis of historical defaults, and adjustments are recorded as necessary for changes in circumstances and customer-specific information. When specific receivables are determined to be uncollectible, the reserve and receivable are relieved. Our allowance for doubtful accounts totaled $1.0 million and $0.5 million at December 31, 2015 and 2014, respectively.
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Fuel Recovery Mechanism
Rockies Express obtains natural gas quantities from its shippers as reimbursement for fuel consumed at compressor stations and other locations on its system as well as for natural gas quantities lost and otherwise unaccounted for, in accordance with its tariff and applicable contract terms. Rockies Express tracks the volume and value of associated over- or under-collections of fuel and lost and unaccounted for quantities through a tracking mechanism referred to as fuel tracker. Those amounts are recorded as an addition or reduction to a regulatory asset or liability balance representing the amounts to be recovered from or refunded to customers through the fuel tracker mechanisms. Fuel tracker volumes are valued using a weighted-average monthly index price.
Accounting for Regulatory Activities
Rockies Express regulated activities are accounted for in accordance with the Regulated Operations Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (Codification). This Topic prescribes the circumstances in which the application of GAAP is affected by the economic effects of regulation. Regulatory assets and liabilities represent probable future revenues or expenses to Rockies Express associated with certain charges and credits that will be recovered from or refunded to customers through the ratemaking process. Rockies Express had recorded regulatory liabilities of $0.5 million and $10.4 million, primarily attributable to fuel tracker costs, in the balance sheets at December 31, 2015 and 2014, respectively. For additional details see Note 9 - Regulatory Matters .
Gas Imbalances
Gas imbalances receivable and payable reflect gas volumes owed between Rockies Express and its customers. Gas imbalances represent the difference between customer nominated versus actual gas receipts from and gas deliveries to interconnecting pipelines under various operational balancing agreements. Gas imbalances are settled in cash or made up in-kind subject to the terms of the various agreements and are valued at the average monthly index price.
Property, Plant and Equipment
Property, plant and equipment is stated at historical cost, which for constructed assets includes indirect costs such as payroll taxes, other employee benefits, allowance for funds used during construction and other costs directly related to the projects. Expenditures that increase capacities, improve efficiencies or extend useful lives are capitalized and depreciated over the remaining useful life of the asset or major asset component. We also capitalize certain costs directly related to the construction of assets, including internal labor costs, interest and engineering costs.
Routine maintenance, repairs and renewal costs are expensed as incurred. The cost of normal retirements of depreciable utility property, plant and equipment, plus the cost of removal less salvage value and any gain or loss recognized, is recorded in accumulated depreciation with no effect on current period earnings. Gains or losses are recognized upon retirement of property, plant and equipment constituting an operating unit or system, and land, when sold or abandoned and costs of removal or salvage are expensed when incurred.
Rockies Express maintains natural gas in its pipeline, known as line pack, which serves to maintain the necessary pressure to allow efficient transmission of natural gas. Line pack is capitalized within Property, plant and equipment, net on the balance sheets and depreciated over the estimated useful life of the pipeline.
Impairment of Long-Lived Assets
Rockies Express reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss results when the estimated undiscounted future net cash flows expected to result from the assets use and its eventual disposition are less than its carrying amount. Rockies Express assesses its long-lived assets for impairment in accordance with the relevant Codification guidance. A long-lived asset is tested for impairment whenever events or changes in circumstances indicate its carrying amount may exceed its fair value.
Examples of long-lived asset impairment indicators include:
| a significant decrease in the market value of a long-lived asset or group; |
| a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition; |
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| a significant adverse change in legal factors or in the business climate could affect the value of a long-lived asset or asset group, including an adverse action or assessment by a regulator which would exclude allowable costs from the rate-making process; |
| an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the long-lived asset or asset group; |
| a current period operating cash flow loss combined with a history of operating cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group; and |
| a current expectation that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. |
When an impairment indicator is present, Rockies Express first assesses the recoverability of the long-lived assets by comparing the sum of the undiscounted future cash flows expected to result from the use and eventual disposition of the asset to the carrying amount of the asset. If the carrying amount is higher than the undiscounted future cash flows, the fair value of the assets is assessed using a discounted cash flow analysis to determine the amount of impairment, if any, to be recognized.
Depreciation and Amortization
Depreciation is computed based on the straight-line method over the estimated useful lives of property, plant and equipment. The annual composite rate of depreciation for the years ended December 31, 2015, 2014 and 2013 was 2.86%.
Allowance for Funds Used During Construction
Included in the cost of Property, plant and equipment, net on the Balance Sheets is an allowance for funds used during construction (AFUDC). AFUDC represents the estimated cost of debt, from borrowed funds, or the estimated cost of capital, from equity funds, during the construction period.
Revenue Recognition
Rockies Express recognizes revenue from natural gas sales when the natural gas is sold at a fixed or determinable price, delivery has occurred and title has transferred, and collectability of the revenue is reasonably assured. Rockies Express provides various types of natural gas transportation services to its customers in which the natural gas remains the property of these customers at all times. In many cases (generally described as firm service), the customer pays a two-part rate that includes (i) a fixed-fee reserving the right to transport natural gas in Rockies Express facilities and (ii) a per-unit rate for volumes actually transported. The fixed-fee component of the overall rate is recognized as revenue in the period the service is provided. The per-unit charge is recognized as revenue when the volumes are delivered to the customers agreed upon delivery point. In other cases (generally described as interruptible service), there is no fixed-fee associated with the services because the customer accepts the possibility that service may be interrupted at the discretion of Rockies Express in order to serve customers who have purchased firm service. In the case of interruptible service, revenue is recognized in the same manner utilized for the per-unit rate for volumes transported under firm service agreements.
In addition to its firm and interruptible transportation services, Rockies Express also provides a natural gas park and loan service to assist customers in managing a short-term gas surplus or deficit and a pooling and wheeling service to assist customers in the aggregation of gas supply from physical point(s) within a specified hub to a central pooling point and the re-delivery of gas supply to physical points within the same hub. Revenues are recognized as services are provided, in accordance with the terms negotiated under these contracts.
Debt Issuance Costs
Debt issuance costs are amortized to interest expense over the life of the debt using the straight-line-method, which approximates the effective interest rate method.
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Deferred Charges and Deferred Credits
Rockies Express has $6.5 million remaining of an initial $20.0 million deferred charge and deferred credit relating to a customer contract. The deferred charge is being amortized using a straight-line-method over the life of the related contract. Amortization of the deferred charge for each of the years ended December 31, 2015, 2014 and 2013 was $2.0 million and is included within transportation services revenues in the accompanying statements of income. The deferred credit is payable over a period of 10 years.
Environmental Matters
Rockies Express expenses or capitalizes, as appropriate, environmental expenditures that relate to current operations. Rockies Express expenses amounts that relate to an existing condition caused by past operations that do not contribute to current or future revenue generation. Rockies Express does not discount environmental liabilities to a net present value, and records environmental liabilities when environmental assessments and/or remedial efforts are probable and costs can be reasonably estimated. Generally, recording of these accruals coincides with the completion of a feasibility study or a commitment to a formal plan of action.
Fair Value
Fair value, as defined in the fair value measurement accounting guidance, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, or exit price. The fair value measurement accounting guidance requires that Rockies Express make assumptions that market participants would use in pricing an asset or liability based on the best information available. These factors include nonperformance risk (the risk that an obligation will not be fulfilled) and credit risk of the reporting entity (for liabilities) and of the counterparty (for assets). The fair value measurement guidance prohibits the inclusion of transaction costs and any adjustments for blockage factors in determining the instruments fair value. The principal or most advantageous market should be considered from the perspective of the reporting entity. The fair value of current financial assets and liabilities approximate their reported carrying amounts as of December 31, 2015 and 2014.
Income Taxes
Rockies Express is a limited liability company that has elected to be treated as a partnership for income tax purposes. Accordingly, no provision for federal or state income taxes has been recorded in the financial statements of Rockies Express and the tax effects of Rockies Express activities accrue to its Members.
New Accounting Pronouncements
Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606)
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 provides a comprehensive and converged set of principles-based revenue recognition guidelines which supersede the existing industry and transaction-specific standards. The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, entities must apply a five step process to (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 also mandates disclosure of sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The disclosure requirements include qualitative and quantitative information about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract.
The amendments in ASU No. 2014-09 are effective for nonpublic entities for annual reporting periods beginning after December 15, 2018, and for interim periods within annual periods beginning after December 15, 2019. Early application is permitted beginning after December 15, 2016. Rockies Express is currently evaluating the impact of ASU No. 2014-09.
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ASU No. 2015-03, InterestImputation of Interest (Subtopic 835-30)
In April 2015, the FASB issued ASU No. 2015-03, InterestImputation of Interest (Subtopic 835-30). ASU 2015-03 provides guidance regarding the presentation of debt issuance costs requiring debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update.
The amendments in ASU No. 2015-03 are effective for nonpublic entities for annual reporting periods beginning after December 15, 2015, and for interim periods within annual periods beginning after December 15, 2016. Early adoption of the amendments in this Update is permitted for financial statements that have not been previously issued. Rockies Express has elected to early adopt ASU No. 2015-03 for the year ended December 31, 2015. As a result, debt issuance costs of $15.1 million and $17.6 million as of December 31, 2015 and 2014, respectively, have been reclassified from deferred charges and other assets to long-term debt in the accompanying balance sheets.
ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory
In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330), Simplifying the Measurement of Inventory. ASU No. 2015-11 establishes a lower of cost and net realizable value model for the measurement of most inventory balances. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
The amendments in ASU No. 2015-11 are effective for nonpublic entities for annual periods beginning after December 15, 2016 and interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the impact of ASU 2015-11.
3. | Property, Plant and Equipment |
Rockies Express property, plant and equipment, net consisted of the following:
December 31, | ||||||||
2015 | 2014 | |||||||
(in millions) | ||||||||
Natural gas pipelines |
$ | 6,972.8 | $ | 6,827.5 | ||||
General and other |
99.0 | 98.5 | ||||||
Construction work in progress |
202.0 | 50.3 | ||||||
Accumulated depreciation and amortization |
(1,332.8 | ) | (1,136.1 | ) | ||||
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Total property, plant and equipment, net |
$ | 5,941.0 | $ | 5,840.2 | ||||
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Depreciation expense was approximately $199.4 million, $195.1 million and $193.3 million for the years ended December 31, 2015, 2014, and 2013, respectively. Capitalized interest was $2.8 million, $1.0 million, and $1.0 million for the years ended December 31, 2015, 2014, and 2013, respectively.
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4. | Financing |
Debt
Total outstanding debt as of December 31, 2015 and 2014 consisted of the following:
December 31, | ||||||||
2015 | 2014 | |||||||
(in millions) | ||||||||
3.90% senior notes due April 15, 2015 |
$ | | $ | 450.0 | ||||
6.85% senior notes due July 15, 2018 |
550.0 | 550.0 | ||||||
6.00% senior notes due January 15, 2019 |
525.0 | 525.0 | ||||||
5.625% senior notes due April 15, 2020 |
750.0 | 750.0 | ||||||
7.50% senior notes due July 15, 2038 |
250.0 | 250.0 | ||||||
6.875% senior notes due April 15, 2040 |
500.0 | 500.0 | ||||||
Less: Unamortized debt discount and debt issuance costs |
(17.1 | ) | (19.9 | ) | ||||
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Total debt |
2,557.9 | 3,005.1 | ||||||
Less: Current Portion |
| (450.0 | ) | |||||
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Total long-term debt |
$ | 2,557.9 | $ | 2,555.1 | ||||
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The senior notes issued by Rockies Express are redeemable in whole or in part, at Rockies Express option at any time, at redemption prices defined in the associated indenture agreements.
All payments of principal and interest with respect to the fixed rate senior notes are the sole obligation of Rockies Express. Note holders have no recourse against Rockies Express Members or their respective officers, directors, employees, shareholders, members, managers, unit holders or affiliates for any failure by Rockies Express to perform or comply with its obligations pursuant to the notes or the indenture. As of December 31, 2015, we were in compliance with the covenants required under the senior notes.
Maturities of Debt
The scheduled maturities of Rockies Express outstanding debt balances as of December 31, 2015 are summarized as follows (in millions):
Year |
Scheduled Maturities | |||
2016 |
$ | | ||
2017 |
| |||
2018 |
550.0 | |||
2019 |
525.0 | |||
2020 |
750.0 | |||
Thereafter |
750.0 | |||
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Total scheduled maturities |
2,575.0 | |||
Unamortized debt discount and debt issuance costs |
(17.1 | ) | ||
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Total debt |
$ | 2,557.9 | ||
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Rockies Express Revolving Credit Facility
On October 1, 2015, Rockies Express entered into a new $150 million senior unsecured revolving credit facility (the revolving credit facility) with Wells Fargo Bank, N.A., as administrative agent, and a syndicate of lenders, which will mature on January 31, 2020. The revolving credit facility includes a $75 million sublimit for letters of credit and a $20 million sublimit for swing line loans and may be used for working capital and general company purposes. The revolving credit facility also contains an accordion feature whereby Rockies Express can increase the size of the credit facility to an aggregate of $200 million, subject to receiving increased or new commitments from lenders and the satisfaction of certain other conditions precedent. As of December 31, 2015, there were no outstanding borrowings or letters of credit issued under the revolving credit facility.
Borrowings under the credit facility bear interest, at Rockies Express option, at either (a) a base rate, which will be a rate equal to the greatest of (i) the prime rate, (ii) the U.S. federal funds rate plus 0.5% and (iii) a one-month reserve adjusted Eurodollar rate plus 1.00% or (b) a reserve adjusted Eurodollar rate, plus, in each case, an applicable margin. For borrowings bearing interest based on the base rate, the applicable margin is initially 1.00%, and for loans bearing interest based on the reserve adjusted Eurodollar rate, the applicable margin is initially 2.00%. After the first full fiscal quarter, the applicable margin will range from 0.50% to 1.25% for base rate borrowings and 1.50% to 2.25% for reserve adjusted Eurodollar rate borrowings, based upon Rockies Express total leverage ratio. The unused portion of the credit facility is subject to a commitment fee, which ranges from 0.20% to 0.45% based upon Rockies Express total leverage ratio.
Rockies Express has the option to have the applicable margin determined based on Rockies Express credit ratings should Rockies Express receive an investment grade credit rating from one or more of the ratings agencies in the future. If Rockies Express were to make an election to exercise this option, the applicable margin would range from 0.125% to 1.00% for base rate borrowings and 1.125% to 2.00% for reserve adjusted Eurodollar borrowings, based on Rockies Express credit ratings. Under such an election, the commitment fee would range from 0.125% to 0.40%, also based on Rockies Express credit ratings.
As of December 31, 2015, we were in compliance with the covenants required under the revolving credit facility.
Repayment of 3.90% Senior Notes
The board of directors of Rockies Express approved repayment of the $450 million 3.90% senior notes due April 15, 2015 (2015 Notes) which was financed through capital contributions by the Members of Rockies Express in proportion to their respective ownership interests. The capital contribution was made by each Member of Rockies Express in accordance with Section 4.3.1 of Rockies Express Second Amended and Restated Limited Liability Company Agreement, as amended, and was used to repay the 2015 Notes on April 15, 2015.
Fair Value
The following table sets forth the carrying amount and fair value of our long-term debt, which is not measured at fair value in the consolidated balance sheets as of December 31, 2015 and 2014, but for which fair value is disclosed:
Fair Value | ||||||||||||||||||||
Quoted prices
in active markets for identical assets (Level 1) |
Significant
other observable inputs (Level 2) |
Significant
unobservable inputs (Level 3) |
Total |
Carrying
Amount |
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(in millions) | ||||||||||||||||||||
December 31, 2015 |
$ | | $ | 2,412.6 | $ | | $ | 2,412.6 | $ | 2,557.9 | ||||||||||
December 31, 2014 |
$ | | $ | 3,096.3 | $ | | $ | 3,096.3 | $ | 3,005.1 |
Long-term debt is carried at amortized cost. The estimated fair value of Rockies Express outstanding private placement debt is based upon quoted market prices adjusted for illiquid markets. We are not aware of any factors that would significantly affect the estimated fair value subsequent to December 31, 2015.
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5. | Members Equity |
During the years ended December 31, 2015, 2014, and 2013, Rockies Express made distributions to Members of $499.0 million, $361.7 million, and $344.2 million, respectively. Additional distributions were made subsequent to December 31, 2015. For details see Note 11 - Subsequent Events .
During the years ended December 31, 2015, 2014, and 2013, Rockies Express received contributions from Members of $733.1 million, $165.7 million, and $31.7 million, respectively. Contributions from Members during the year ended December 31, 2015 were used to repay the 2015 Notes, as discussed in Note 4 - Financing, fund the construction and other costs of the Zone 3 East-to-West Project facilities and the Zone 3 Capacity Enhancement project, as discussed in Note 9 - Regulatory Matters , and remaining costs associated with the Seneca Lateral Project facilities, and to increase cash on hand for working capital needs. Contributions from Members during the years ended December 31, 2014 and 2013 were used to fund the construction and other costs of the Seneca Lateral Project facilities, as discussed in Note 9 - Regulatory Matters , as well as to increase cash on hand for working capital needs.
6. | Related Party Transactions |
Rockies Express has an operating agreement with Tallgrass NatGas Operator, LLC, a subsidiary of TD, under which Tallgrass NatGas Operator, LLC provides and bills Rockies Express for various services at cost including employee labor costs, information technology services, employee health and retirement benefits, and insurance for property and casualty risks. In addition, Tallgrass NatGas Operator, LLC receives a management oversight fee in the amount of 1% of Rockies Express earnings before interest, taxes, depreciation, and amortization. Rockies Express practice is to settle receivable and payable balances that exist with affiliates within five business days before the end of each month and true up any balances in the following month.
Totals of significant transactions with affiliated companies are as follows:
Years Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
(in millions) | ||||||||||||
Revenues: Transportation services (1) |
$ | 10.8 | $ | 13.5 | $ | 7.2 | ||||||
Charges from TD: |
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Compensation, benefits and other charges |
$ | 18.5 | $ | 17.1 | $ | 11.6 | ||||||
General and administrative charges from affiliate |
$ | 8.6 | $ | 5.9 | $ | 6.3 | ||||||
Oversight Fees: |
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Tallgrass NatGas Operator, LLC |
$ | 6.3 | $ | 5.7 | $ | 5.3 |
(1) | Transportation services revenue for the years ended December 31, 2015, 2014, and 2013 is primarily from Sempra Energy. |
Balances with affiliated companies included in the accompanying Balance Sheets are as follows:
December 31, | ||||||||
2015 | 2014 | |||||||
(in millions) | ||||||||
Receivables from affiliated companies: |
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Sempra Energy |
$ | 1.2 | $ | 0.8 | ||||
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Total receivables from affiliated companies |
$ | 1.2 | $ | 0.8 | ||||
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Payables to affiliated companies: |
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TD |
$ | 2.8 | 3.1 | |||||
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Total payables to affiliated companies |
$ | 2.8 | $ | 3.1 | ||||
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Gas imbalances with affiliated shippers are as follows:
December 31, | ||||||||
2015 | 2014 | |||||||
(in millions) | ||||||||
Affiliate gas balance receivables |
$ | 0.2 | $ | 0.5 | ||||
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Affiliate gas balance payables |
$ | 0.1 | $ | 0.3 | ||||
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7. | Commitments and Contingent Liabilities |
Leases
Total rental expense under operating leases was $29.2 million, $29.3 million, and $29.2 million for the years ended December 31, 2015, 2014, and 2013, respectively. Future minimum commitments related to these leases as of December 31, 2015 are as follows (in millions):
Year |
Future Minimum
Lease Payments |
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2016 |
$ | 29.2 | ||
2017 |
29.2 | |||
2018 |
29.2 | |||
2019 |
29.2 | |||
2020 |
29.2 | |||
Thereafter |
203.9 | |||
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Total |
$ | 349.9 | ||
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The amounts of future minimum rental commitments are primarily attributable to a 20-year capacity lease agreement with Overthrust Pipeline Company (Overthrust) which commenced on January 1, 2008. The capacity lease provides the right to transport on a firm basis 625,000 Dth of natural gas per day through Overthrusts system from either the Williams Field Services Opal Processing Plant or the TEPPCO Pioneer Processing Plant to the Wamsutter interconnect.
Capital Expenditures Budget
Approximately $267.2 million of Rockies Express capital expenditure budget for 2016 had been committed for purchases of property, plant and equipment at December 31, 2015.
8. | Major Customers |
During 2015, three non-affiliated shippers accounted for $187.6 million (24%), $163.0 million (21%), and $104.6 million (13%), respectively of Rockies Express total revenues. During 2014, four non-affiliated shippers accounted for $186.5 million (25%), $165.2 million (22%), $110.2 million (15%), and $101.4 million (14%), respectively of Rockies Express total revenues. During 2013, four non-affiliated shippers accounted for $184.1 million (25%), $161.2 million (22%), $121.0 million (17%), and $103.3 million (14%), respectively of Rockies Express total revenues. We attempt to mitigate credit risk by seeking collateral or financial guarantees and letters of credit from customers.
9. | Regulatory Matters |
There are currently no proceedings challenging the rates Rockies Express charges. Regulators, as well as shippers on Rockies Express, do have rights, under circumstances prescribed by the applicable regulations, to challenge the rates Rockies Express charges. Rockies Express can provide no assurance that it will not face challenges to the rates it charges in the future. Any successful challenge could adversely affect in a material manner Rockies Express future earnings and cash flows.
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Annual Federal Energy Regulatory Commission (FERC) Fuel Tracking Filings Docket Nos. RP15-584-000 and RP14-1003
On February 27, 2015, Rockies Express made its annual fuel tracker filing with a proposed effective date of April 1, 2015 in Docket No. RP15-584-000. This filing incorporated the revised fuel and lost and unaccounted-for and power cost tracker mechanisms filed in Docket No. RP14-1003. The FERC issued an order accepting the filing on March 26, 2015 and on April 9, 2015, accepted an errata to the February 27, 2015 filing reflecting a corrected rate for the Cheyenne Booster rate (PCT Reimbursement Charge).
Petition for Declaratory Order
In June 2013, in Docket No. RP13-969-000, Rockies Express filed with FERC a Petition for Declaratory Order which sought a ruling that the most favored nations or MFN provisions contained in Rockies Express negotiated rate agreements (NRAs) with its Foundation and Anchor Shippers would not be triggered by certain potential transactions, that is, agreements that Rockies Express may enter into to provide firm transportation service at rates lower than Foundation and Anchor Shippers rates that (1) have an east to west primary path; (2) are for a term of one year or longer; and (3) are limited to service in one rate zone and therefore do not utilize all of the same facilities or rate zones as the service provided pursuant to the Foundation and Anchor Shipper NRAs. In November 2013, the FERC issued a declaratory order finding that the potential transactions would not trigger the MFN rights of Rockies Express Foundation and Anchor Shippers. Various parties have filed requests for rehearing of the FERCs declaratory order. The FERC has issued an order for the limited purpose of allowing the agency additional time (beyond the statutorily mandated 30-days) to consider the rehearing requests.
In September 2014, FERC accepted amended contracts with three shippers holding MFN rights on Rockies Express, which reflect the terms of settlements between these shippers and Rockies Express. The settlements provide additional clarity with respect to the applicability of the settling shippers MFN rights, sharing by Rockies Express of certain transportation revenues, and the withdrawal of the settling shippers from the Petition for Declaratory Order proceeding. Prior to December 2015, only one shipper with current MFN rights was still a party to the proceeding.
In December 2015, FERC accepted an amended contract with the one remaining shipper holding MFN rights on Rockies Express, which reflects the terms of settlements between this shipper and Rockies Express. The settlement provides additional clarity with respect to the applicability of the settling shippers MFN rights, sharing by Rockies Express of certain transportation revenues, and the withdrawal of the settling shippers from the Petition for Declaratory Order proceeding.
Seneca Lateral Facilities Conversion
On March 2, 2015 in Docket No. CP15-102-000, Rockies Express filed with FERC an application for (1) authorization to convert certain existing and operating pipeline and compression facilities located in Noble and Monroe Counties, Ohio (Seneca Lateral Facilities described in Docket Nos. CP13-539-000 and CP14-194-000) from Natural Gas Policy Act of 1978 Section 311 authority to Natural Gas Act Section 7 jurisdiction, and (2) issuance of a certificate of public convenience and necessity authorizing Rockies Express to operate and maintain the Seneca Lateral Facilities. The application is currently pending FERC approval.
Zone 3 East-to-West Project
In June 2014, in Docket No. CP14-498-000, Rockies Express filed with FERC an application for a certificate of public convenience and necessity for authorization to modify, construct and operate certain facilities that will enable the bi-directional flow of natural gas on the Rockies Express mainline from Monroe County, Ohio to the existing Natural Gas Pipeline Company of America delivery interconnect located in Moultrie County, Illinois. The Zone 3 East-to-West Project facilities will create an additional 1.2 million Dth/day of firm takeaway capacity from the Utica and Marcellus Shale Plays and the Appalachian Basin without the addition of incremental compression horsepower or pipeline looping. The Zone 3 East-to-West Project facilities also include expanded delivery point capacity at certain existing delivery points on the Rockies Express mainline. By order issued February 27, 2015, Rockies Express was granted authorization to construct and operate the Zone 3 East-to-West Project facilities. Construction of the project facilities commenced on March 17, 2015. The Commission issued a Letter Order on July 30, 2015 authorizing Rockies Express to place in service all of the materially completed new facilities as of August 1, 2015. Rockies Express commenced commercial service on the Zone 3 East-to-West Project effective August 1, 2015. Rockies Express placed all remaining Zone 3 East-to-West Project facilities in service on September 1, 2015.
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Rockies Express Zone 3 Capacity Enhancement Project
On March 31, 2015 in Docket No. CP15-137-000, Rockies Express filed with FERC an application for authorization to construct and operate (1) three new mainline compressor stations located in Pickaway and Fayette Counties, Ohio and Decatur County, Indiana; (2) additional compression at one existing compressor station in Muskingum County, Ohio; and (3) certain ancillary facilities. The proposed facilities will increase the Rockies Express Zone 3 east-to-west mainline capacity by 800,000 Dth/d from receipts at Clarington, Ohio to corresponding deliveries of 520,000 Dth/d and 280,000 Dth/d to Lebanon, Ohio and Moultrie County, Illinois, respectively. Pursuant to the FERCs obligations under the National Environmental Policy Act, FERC staff issued an Environmental Assessment for the project on August 31, 2015. The application is currently pending FERC approval.
10. | Legal and Environmental Matters |
Legal
Rockies Express is a defendant in various lawsuits arising from the day-to-day operations of its business. Although no assurance can be given, Rockies Express believes, based on its experiences to date, that the ultimate resolution of such items will not have a material adverse impact on its business, financial position, results of operations or cash flows.
Rockies Express has evaluated claims in accordance with the accounting guidance for contingencies that it deems both probable and reasonably estimable and, accordingly, has recorded no reserve for claims as of December 31, 2015 and 2014.
Mineral Management Service Lawsuit
On June 30, 2009, Rockies Express filed claims against Mineral Management Service, a former unit of the U.S. Department of Interior (collectively Interior) for breach of its contractual obligation to sign transportation service agreements and to pay approximately $194 million for pipeline capacity that it had agreed to take on Rockies Express. The Civilian Board of Contract Appeals (CBCA) conducted a trial and ruled that Interior was liable for breach of contract, but limited the damages Interior was required to pay. On September 13, 2013, the United States Court of Appeals for the Federal Circuit issued a decision affirming that Interior was liable for its breach of contract, but reversing the CBCAs decision to limit damages. The case has been remanded to the CBCA for the purpose of calculating damages at a hearing. The dates for a hearing on damages have not been scheduled.
Michels Corporation Complaint
On June 17, 2014, Michels Corporation (Michels) filed a complaint and request for relief against Rockies Express as a result of work performed by Michels to construct the Seneca Lateral Pipeline in Ohio. Michels seeks unspecified damages from Rockies Express and asserts claims of breach of contract, negligent misrepresentation, unjust enrichment and quantum meruit. Michels has also filed notices of Mechanics Liens in Monroe and Noble Counties, asserting $24.2 million as the amount due. The case is currently scheduled to go to trial in April 2017. Rockies Express also previously filed Petition for Declaratory Judgment, Injunctive Relief and Damages against Michels in Johnson County, Kansas. That claim was dismissed without prejudice in September 2015. Rockies Express believes Michels claims are without merit and plans to continue to vigorously contest all of the claims in this matter.
Environmental
Rockies Express is subject to a variety of federal, state and local laws that regulate permitted activities relating to air and water quality, waste disposal, and other environmental matters. Rockies Express believes that compliance with these laws will not have a material adverse impact on its business, cash flows, financial position or results of operations. However, there can be no assurances that future events, such as changes in existing laws, the promulgation of new laws, or the development of new facts or conditions will not cause Rockies Express to incur significant costs.
11. | Subsequent Events |
Subsequent events, which are events or transactions that occurred after December 31, 2015 through the issuance of the accompanying financial statements, have been evaluated through February 26, 2016.
Members Equity
Rockies Express paid distributions of $50.6 million and $34.1 million to its Members and received contributions from Members of $20.6 million and $27.2 million in January 2016 and February 2016, respectively.
17
Exhibit 99.3
UNAUDITED TALLGRASS ENERGY PARTNERS, LP
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
References to we, us or our, refer to Tallgrass Energy Partners, LP and its consolidated subsidiaries (the Partnership).
Effective January 1, 2016, we acquired an additional 31.3% membership interest in Tallgrass Pony Express Pipeline, LLC (Pony Express) in exchange for cash consideration of $475 million and 6,518,000 common units (valued at approximately $268.6 million based on the December 31, 2015 closing price of our common units) issued to Tallgrass Development, LP (TD) for total consideration of approximately $743.6 million, which we refer to as the January 2016 Pony Express Acquisition. We financed the cash portion of the consideration with borrowings under our revolving credit facility. The transaction increases our aggregate membership interest in Pony Express to 98.0%. As part of the transaction, TD granted us an 18 month call option to repurchase the newly issued 6,518,000 common units at a price of $42.50, which we refer to as the TEP Call Right.
Since January 1, 2016, we have issued 1,261,119 common units under our Equity Distribution Agreement for total net cash proceeds of approximately $47.1 million, which were used to reduce borrowings under our revolving credit facility.
On March 29, 2016, TDs wholly owned subsidiary Rockies Express Holdings, LLC (REX Holdings) signed a purchase agreement (the Purchase Agreement) with a unit of Sempra U.S. Gas and Power (Sempra) to acquire Sempras 25% membership interest in Rockies Express Pipeline LLC (Rockies Express) for cash consideration of $440 million, subject to adjustment under the Purchase Agreement. The transaction is subject to closing conditions. In addition, a subsidiary of Phillips 66, which owns a 25% membership interest in Rockies Express, has waived its right to purchase its proportionate share of Sempras 25% membership interest being sold to REX Holdings, in exchange for Sempra and REX Holdings agreeing to certain modifications to the Rockies Express Limited Liability Company Agreement.
On April 28, 2016, the Partnership announced that TD offered the Partnership the right to assume the rights and obligations of REX Holdings under the Purchase Agreement (the Assumption). Terms of the offer have not been finalized, but it is currently expected that, if consummated, the Partnership would assume the right to purchase the membership interest in Rockies Express from Sempra on the terms set forth in the Purchase Agreement.
A conflicts committee of the board of directors of the Partnerships general partner, consisting solely of independent directors, has been formed and will be evaluating the offer with assistance from external advisors to be engaged by the conflicts committee. The Partnership desires to consummate the Assumption on terms that the conflicts committee and the board of directors of the Partnerships general partner determine to be fair and reasonable to, and in the best interests of, the Partnership and its unitholders. However, the Assumption has not been finalized at this time and is subject to review, negotiations and approval by the conflicts committee and by the board of directors of the Partnerships general partner.
The unaudited pro forma condensed consolidated financial statements present the impact on our financial position and results of operations of the January 2016 Pony Express Acquisition, net cash proceeds from the issuance of common units under our Equity Distribution Agreement, and the proposed acquisition of a 25% membership interest in Rockies Express and related financing activities. The unaudited pro forma condensed consolidated financial statements as of and for the year ended December 31, 2015 have been prepared based on certain pro forma adjustments to our audited financial statements set forth in our Annual Report on Form 10-K filed on February 17, 2016 with the Securities and Exchange Commission. The unaudited pro forma condensed consolidated financial statements are qualified in their entirety by reference to such historical consolidated financial statements and related notes contained therein. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the accompanying notes and with the historical consolidated financial statements and related notes thereto.
The unaudited pro forma condensed consolidated balance sheet as of December 31, 2015 has been prepared as if the transactions had occurred on that date. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2015 has been prepared as if the transactions had occurred on January 1, 2015. The pro forma adjustments
are based upon currently available information and certain estimates and assumptions; therefore, actual results may differ from the pro forma adjustments. Management believes, however, that the assumptions provide a reasonable basis for presenting the significant effects of the transactions and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed consolidated financial statements.
The unaudited pro forma condensed consolidated financial statements may not be indicative of the results that would have actually occurred if we had owned an aggregate 98% membership interest in Pony Express or a 25% membership interest in Rockies Express during the periods presented.
TALLGRASS ENERGY PARTNERS, LP
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2015
Pro Forma Adjustments | ||||||||||||||||
TEP |
Pony
Express Acquisition and Financing |
Rockies
Express Acquisition and Financing |
TEP Pro
Forma |
|||||||||||||
(in thousands) | ||||||||||||||||
ASSETS | ||||||||||||||||
Current Assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 1,611 | $ | 475,000 | (a) | 90,009 | (d) | $ | 1,611 | |||||||
(475,000 | )(b) | 350,655 | (e) | |||||||||||||
(1,538 | )(e) | |||||||||||||||
(439,126 | )(f) | |||||||||||||||
Accounts receivable, net |
57,757 | | | 57,757 | ||||||||||||
Other current assets |
17,855 | | | 17,855 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Current Assets |
77,223 | | | 77,223 | ||||||||||||
Property, plant and equipment, net |
2,025,018 | | | 2,025,018 | ||||||||||||
Goodwill |
343,288 | | | 343,288 | ||||||||||||
Intangible asset, net |
96,546 | | | 96,546 | ||||||||||||
Investment in unconsolidated affiliate |
| | 439,126 | (f) | 439,126 | |||||||||||
Deferred charges and other assets |
19,999 | 45,960 | (b) | 1,538 | (e) | 67,497 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Assets |
$ | 2,562,074 | $ | 45,960 | $ | 440,664 | $ | 3,048,698 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
LIABILITIES AND PARTNERS EQUITY | ||||||||||||||||
Current Liabilities: |
||||||||||||||||
Accounts payable |
$ | 30,070 | $ | | $ | | $ | 30,070 | ||||||||
Accrued and other current liabilities |
58,859 | | | 58,859 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Current Liabilities |
88,929 | | | 88,929 | ||||||||||||
Long-term debt |
753,000 | 475,000 | (a) | 350,655 | (e) | 1,531,532 | ||||||||||
(47,123 | )(c) | |||||||||||||||
Other long-term liabilities and deferred credits |
5,143 | | | 5,143 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Long-term Liabilities |
758,143 | 427,877 | 350,655 | 1,536,675 | ||||||||||||
Commitments and Contingencies |
||||||||||||||||
Equity: |
||||||||||||||||
Common unitholders |
1,618,766 | 268,607 | (b) | 90,009 | (d) | 2,024,505 | ||||||||||
47,123 | (c) | |||||||||||||||
General partner |
(348,841 | ) | (279,967 | )(b) | | (628,808 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Partners Equity |
1,269,925 | 35,763 | 90,009 | 1,395,697 | ||||||||||||
Noncontrolling interests |
445,077 | (417,680 | )(b) | | 27,397 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Equity |
1,715,002 | (381,917 | ) | 90,009 | 1,423,094 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Liabilities and Equity |
$ | 2,562,074 | $ | 45,960 | $ | 440,664 | $ | 3,048,698 | ||||||||
|
|
|
|
|
|
|
|
TALLGRASS ENERGY PARTNERS, LP
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2015
Pro Forma Adjustments | ||||||||||||||||
TEP |
Pony
Express Acquisition and Financing |
Rockies
Express Acquisition and Financing |
TEP Pro
Forma |
|||||||||||||
(in thousands, except per unit amounts) | ||||||||||||||||
Revenues: |
||||||||||||||||
Crude oil transportation services |
$ | 300,436 | $ | | $ | | $ | 300,436 | ||||||||
Natural gas transportation services |
119,895 | | | 119,895 | ||||||||||||
Sales of natural gas, NGLs, and crude oil |
82,133 | | | 82,133 | ||||||||||||
Processing and other revenues |
33,733 | | | 33,733 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Revenues |
536,197 | | | 536,197 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating Costs and Expenses: |
||||||||||||||||
Cost of sales |
75,285 | | | 75,285 | ||||||||||||
Cost of transportation services |
53,597 | | | 53,597 | ||||||||||||
Operations and maintenance |
53,933 | | | 53,933 | ||||||||||||
Depreciation and amortization |
83,476 | | | 83,476 | ||||||||||||
General and administrative |
50,195 | | | 50,195 | ||||||||||||
Taxes, other than income taxes |
21,796 | | | 21,796 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Operating Costs and Expenses |
338,282 | | | 338,282 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating Income |
197,915 | | | 197,915 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other (Expense) Income: |
||||||||||||||||
Interest expense, net |
(15,514 | ) | (10,846 | )(a) | (695 | )(e) | (33,530 | ) | ||||||||
889 | (c) | (7,364 | )(e) | |||||||||||||
Equity in earnings of unconsolidated affiliate |
| | 72,214 | (f) | 72,214 | |||||||||||
Other income, net |
2,413 | | | 2,413 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Other (Expense) Income, net |
(13,101 | ) | (9,957 | ) | 64,155 | 41,097 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
184,814 | (9,957 | ) | 64,155 | 239,012 | |||||||||||
Net income attributable to noncontrolling interests |
(24,268 | ) | 21,050 | (b) | | (3,218 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income attributable to partners |
$ | 160,546 | $ | 11,093 | $ | 64,155 | $ | 235,794 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Allocation of income to the limited partners: |
||||||||||||||||
Net income attributable to partners |
$ | 160,546 | $ | 235,794 | ||||||||||||
General partner interest in net income |
(46,478 | ) | (54,059 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Common and subordinated unitholders interest in net income |
$ | 114,068 | $ | 181,735 | ||||||||||||
|
|
|
|
|||||||||||||
Basic net income per common and subordinated unit |
$ | 1.95 | $ | 2.64 | ||||||||||||
|
|
|
|
|||||||||||||
Diluted net income per common and subordinated unit |
$ | 1.91 | $ | 2.60 | ||||||||||||
|
|
|
|
|||||||||||||
Basic average number of common and subordinated units outstanding |
58,597 | 68,793 | ||||||||||||||
Diluted average number of common and subordinated units outstanding |
59,575 | 69,771 |
TALLGRASS ENERGY PARTNERS, LP
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The unaudited pro forma condensed consolidated financial statements present the impact on our financial position and results of operations of our acquisitions of an additional 31.3% membership interest in Pony Express, issuance of common units under the Equity Distribution Agreement, and the potential acquisition of a 25% membership interest in Rockies Express and related financing activities. Our acquisition of an additional 31.3% membership interest in Pony Express in exchange for cash consideration of $475 million and 6,518,000 common units (valued at approximately $268.6 million based on the December 31, 2015 closing price of our common units) issued to TD for total consideration of approximately $743.6 million was effective on January 1, 2016 and the cash consideration was funded primarily through borrowings under our revolving credit facility. The acquisition of a 25% membership interest in Rockies Express for total cash consideration of approximately $439.1 million is expected to be funded through a combination of net cash proceeds from the private issuance of common units and borrowings under our revolving credit facility.
The unaudited pro forma condensed consolidated financial statements as of and for the year ended December 31, 2015 have been prepared based on certain pro forma adjustments to our audited consolidated financial statements set forth in our Annual Report on Form 10-K for the year ended December 31, 2015. The unaudited pro forma condensed consolidated financial statements are qualified in their entirety by reference to such historical consolidated financial statements and related notes contained in those reports. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the accompanying notes and with the historical consolidated financial statements and related notes thereto.
The unaudited pro forma condensed consolidated balance sheet as of December 31, 2015 has been prepared as if the transactions and associated financing occurred on that date. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2015 has been prepared as if the transactions and associated financing had occurred on January 1, 2015. The pro forma adjustments are based upon currently available information and certain estimates and assumptions; therefore, actual results may differ from the pro forma adjustments. Management believes, however, that the assumptions provide a reasonable basis for presenting the significant effects of the transactions and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed consolidated financial statements.
The unaudited pro forma condensed consolidated financial statements may not be indicative of the results that would have actually occurred if we had owned a 98% interest in Pony Express and a 25% interest in Rockies Express during the period presented.
The pro forma condensed consolidated financial statements reflect the following transactions associated with the acquisitions and related financing activities undertaken or assumed to be undertaken in connection with the transactions:
| the effect of financing transactions related to our acquisition of an additional 31.3% membership interest in Pony Express, including (i) additional borrowings under our revolving credit facility to fund the $475 million cash consideration paid, and (ii) the issuance of 6,518,000 limited partner common units issued directly to TD; |
| the effect of our acquisition of an additional 31.3% membership interest in Pony Express effective January 1, 2016, assuming an aggregate membership interest of 98% and no Minimum Quarterly Preference Payment for the year ended December 31, 2015, including the recognition of an 18 month call option granted by TD to repurchase the newly issued units at a price of $42.50; |
| the effect of the issuance of 1,261,119 common units under our Equity Distribution Agreement during the period between January 1, 2016 to April 12, 2016, the proceeds of which were used to reduce borrowings under our revolving credit facility; |
| the effect of financing transactions related to our proposed acquisition of a 25% membership interest in Rockies Express, including (i) the issuance of 2,416,987 common units in a private placement, and (ii) additional borrowings under our revolving credit facility to fund the remaining portion of the $439.1 million cash consideration paid; and |
| the acquisition of a 25% membership interest in Rockies Express, which will be accounted for as an unconsolidated affiliate. |
Note 2. Pro Forma Adjustments and Assumptions
(a) | Reflects borrowings of $475 million under our revolving credit facility to fund the acquisition of an additional 31.3% membership interest in Pony Express and an increase in interest expense associated with the borrowings based on our current incremental borrowing rate using a floating 30-day LIBOR rate and a borrowing spread over LIBOR of 1.75%, as well as a net increase in commitment fees paid on the unused capacity under the revolving credit facility. The net increase in commitment fees assumes the $250 million increase in the capacity under our revolving credit facility completed in November 2015 and the $400 million increase in capacity upon exercise of the committed accordion feature on January 4, 2016 were effective January 1, 2015. This increase in commitment fees is partially offset by a reduction associated with the $475 million of incremental borrowings discussed above. We used our current borrowing rate of 2.186%. |
The effect of a 0.125% variance in interest rates on pro forma interest expense would have been approximately $0.6 million annually.
(b) | Reflects the acquisition of an additional 31.3% membership interest in Pony Express for cash consideration of $475 million and the issuance of 6,518,000 limited partner common units (valued at approximately $268.6 million based on the December 31, 2015 closing price of our common units) to TD, as well as recognition of a derivative asset valued at $46.0 million representing the 18 month call option granted by TD to repurchase the newly issued units at a price of $42.50. The transaction resulted in a deemed distribution of approximately $280.0 million, which represents the excess purchase price over the net book value of the 31.3% membership interest in Pony Express transferred from TD to TEP. |
The pro forma condensed consolidated statement of operations for the year ended December 31, 2015 assumes no net change in the valuation of the call option granted by TD as part of the transaction and assumes net income from Pony Express is allocated pro rata based on our aggregate 98% membership interest with no Minimum Quarterly Preference Payment. Net income as reported for the year ended December 31, 2015 reflects our initial 33.3% membership interest in Pony Express for the full year and our acquisition of an additional 33.3% membership interest for the period from March 1, 2015 to December 31, 2015.
(c) | Reflects net cash proceeds from the issuance of 1,261,119 limited partner common units under our Equity Distribution Agreement at an average price of $37.74 during the period between January 1, 2016 and April 12, 2016, for aggregate net cash proceeds of $47.1 million, which was used to reduce borrowings under the revolving credit facility. |
The effect of a 0.125% variance in interest rates on pro forma interest expense would have been approximately $0.1 million annually.
(d) | Reflects proceeds from the private issuance of 2,416,987 common units, for net cash proceeds of $90.0 million, to fund a portion of the acquisition of a 25% membership interest in Rockies Express. |
(e) | Reflects borrowings of $350.7 million under our revolving credit facility to fund the acquisition of a 25% membership interest in Rockies Express, as well as the fees associated with the required amendment to increase the total capacity available under the revolving credit facility and an increase in interest expense associated with the borrowings based on our current incremental borrowing rate using a floating 30-day LIBOR rate and a borrowing spread over LIBOR of 1.75%, as well as an increase in commitment fees paid on the unused capacity under the revolving credit facility due to the $250 million increase in the size of the revolving credit facility. We used our current borrowing rate of 2.186%. |
The effect of a 0.125% variance in interest rates on pro forma interest expense would have been approximately $0.4 million annually.
(f) | Reflects our acquisition of a 25% membership interest in Rockies Express for total cash consideration of $439.1 million, as adjusted under the Purchase Agreement, at its fair value on the date of acquisition, accounted for under the equity method of accounting, including the associated equity in earnings of Rockies Express. The $440 million consideration was adjusted as follows (in thousands): |
Base consideration for 25% membership interest in Rockies Express |
$ | 440,000 | ||
Plus: Additional consideration if entire 25% membership interest is |
2,500 | |||
|
|
|||
Total consideration for 25% membership interest in Rockies Express |
442,500 | |||
Plus: Cash contributions received from Sempra |
6,788 | |||
Less: Cash distributions paid to Sempra |
(10,162 | ) | ||
|
|
|||
Total purchase price as adjusted under the Purchase Agreement |
$ | 439,126 | ||
|
|
Assumed equity in earnings for the year ended December 31, 2015 includes amortization of a basis difference driven by the difference between the fair value of the investment and the book value of the underlying assets and liabilities on the date of acquisition.
Note 3. Pro Forma Net Income Per Limited Partner Unit
The Partnerships net income is allocated to the general partner and the limited partners, including the holders of the subordinated units, in accordance with their respective ownership percentages, after giving effect to incentive distributions paid to the general partner. Basic and diluted net income per limited partner unit is calculated by dividing limited partners interest in net income, less general partner incentive distributions, by the weighted average number of outstanding limited partner units during the period.
We compute earnings per unit using the two-class method for Master Limited Partnerships as prescribed in the FASB guidance. The two-class method requires that securities that meet the definition of a participating security be considered for inclusion in the computation of basic earnings per unit. Under the two-class method, earnings per unit is calculated as if all of the earnings for the period were distributed under the terms of the partnership agreement, regardless of whether the general partner has discretion over the amount of distributions to be made in any particular period, whether those earnings would actually be distributed during a particular period from an economic or practical perspective, or whether the general partner has other legal or contractual limitations on its ability to pay distributions that would prevent it from distributing all of the earnings for a particular period.
We calculate net income available to limited partners based on the distributions pertaining to the current periods net income. After adjusting for the appropriate periods distributions, the remaining undistributed earnings or excess distributions over earnings, if any, are allocated to the general partner and limited partners in accordance with the contractual terms of the partnership agreement and as further prescribed in the FASB guidance under the two-class method.
The two-class method does not impact our overall net income or other financial results; however, in periods in which aggregate net income exceeds its aggregate distributions for such period, it will have the impact of reducing net income per limited partner unit. This result occurs as a larger portion of our aggregate earnings, as if distributed, is allocated to the incentive distribution rights of the general partner, even though we make distributions on the basis of available cash and not earnings. In periods in which our aggregate net income does not exceed its aggregate distributions for such period, the two-class method does not have any impact on our calculation of earnings per limited partner unit.
Basic earnings per unit is computed by dividing net earnings attributable to unitholders by the weighted average number of units outstanding during each period, assuming the 10,196,106 limited partner units issued in connection with the financing transactions discussed above were issued on January 1, 2015. Diluted earnings per unit reflects the potential dilution of common equivalent units that could occur if equity participation units are converted into common units.