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): January 4, 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) |
Registrant’s 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 January 4, 2016, Tallgrass Energy Partners, LP, a Delaware limited partnership (the “Partnership”), Tallgrass Development, LP, a Delaware limited partnership (“Tallgrass Development”), and Tallgrass Operations, LLC, a Delaware limited liability company and wholly-owned direct subsidiary of Tallgrass Development (“Tallgrass Operations”), entered into a definitive Contribution and Transfer Agreement (the “Contribution Agreement”), pursuant to which Tallgrass PXP Holdings, LLC, a Delaware limited liability company and indirect wholly-owned subsidiary of the Partnership (“PXP Holdings”), is acquiring 31.3% of the issued and outstanding membership interests (the “Subject Interest”) in Tallgrass Pony Express Pipeline, LLC, a Delaware limited liability company (“Pony Express”), effective as of January 1, 2016 (the “Transaction”). Pony Express currently owns an approximately 764-mile crude oil pipeline commencing in Guernsey, Wyoming, and terminating in Cushing, Oklahoma.
Effective as of January 1, 2016, and subject to the terms and conditions of the Contribution Agreement, PXP Holdings is acquiring the Subject Interest in exchange for cash consideration from the Partnership of $475 million and the issuance of 6,518,000 Common Units in the Partnership, which Common Units are subject to a call option granted by Tallgrass Operations in favor of the Partnership, as provided in the Contribution Agreement. The issuance of the Common Units was structured as a private transaction exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). The Contribution Agreement contains representations and warranties, indemnification obligations and covenants by the parties, and a copy of the Contribution Agreement will be filed by the Partnership in a subsequent report.
In connection with the closing of the transactions contemplated by the Contribution Agreement, on January 4, 2016, the Partnership exercised the $400 million Committed Increase Commitments under its existing Credit Agreement dated as of May 17, 2013 with Barclays Bank PLC, as administrative agent, and a syndicate of lenders (as amended, modified, supplemented or waived to the date hereof, the “Credit Agreement”), which increased the total revolving credit commitments under the Credit Agreement to $1.5 billion. On January 4, 2016, the Partnership is borrowing $484 million under the Credit Agreement to fund the cash consideration for the Subject Interest, to pay expenses associated with the Contribution Agreement and for general partnership purposes.
Tallgrass MLP GP, LLC, a Delaware limited liability company (“Tallgrass GP”), serves as the general partner of the Partnership. The Conflicts Committee of the Board of Directors of Tallgrass GP recommended approval of the Transaction to the Board of Directors, which then approved the Transaction. The Conflicts Committee, which is composed entirely of independent directors, retained independent legal and financial advisors to assist in evaluating and negotiating the Transaction.
The Contribution Agreement and the above descriptions have been included to provide investors and security holders with information regarding the terms of the Contribution Agreement. They are not intended to provide any other factual information about
the Partnership, Tallgrass Operations or Tallgrass Development or their respective subsidiaries, affiliates or equity holders. The representations, warranties and covenants contained in the Contribution Agreement were made only for purposes of that agreement and as of specific dates; were solely for the benefit of the parties to the Contribution Agreement; may be subject to limitations agreed upon by the parties, including being qualified by confidential disclosures made by each contracting party to the other as a way of allocating contractual risk between them that differ from those applicable to investors. Investors should be aware that these representations, warranties and covenants or any description thereof alone may not describe the actual state of affairs of the Partnership, Tallgrass Operations, Tallgrass Development or their respective subsidiaries, affiliates, businesses or equity holders as of the date they were made or at any other time.
The above descriptions do not purport to be complete descriptions of the Contribution Agreement and are qualified in their entirety by the contents of the Contribution Agreement, a copy of which will be filed by the Partnership in a subsequent report.
| Item 2.01. | Completion of Acquisition or Disposition of Assets. |
The information set forth in Item 1.01 is incorporated by reference herein.
| Item 2.03. | Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant. |
The information regarding the Credit Agreement provided above under Item 1.01 is incorporated into this Item 2.03 by reference.
| Item 3.02. | Unregistered Sales of Equity Securities. |
The information described in Item 1.01 regarding the private placement of our Common Units is incorporated by reference into this Item 3.02.
| Item 7.01. | Regulation FD Disclosure. |
In accordance with General Instruction B.2 to Form 8-K, the information attached to this Current Report on Form 8-K as Exhibits 99.1 and 99.2 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, or the Exchange Act except as expressly set forth by specific reference in such filing.
| Item 9.01. | Financial Statements and Exhibits. |
| (d) | Exhibits. |
| EXHIBIT |
DESCRIPTION | |
| 99.1 | Press Release of Tallgrass Energy Partners, LP, dated January 4, 2016 (Pony Express Dropdown). | |
| 99.2 | Joint Press Release of Tallgrass Energy Partners, LP and Tallgrass Energy GP, LP, dated January 4, 2016 (Fourth Quarter Distribution). | |
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: January 4, 2016
INDEX TO EXHIBITS
| EXHIBIT |
DESCRIPTION | |
| 99.1 | Press Release of Tallgrass Energy Partners, LP, dated January 4, 2016 (Pony Express Dropdown). | |
| 99.2 | Joint Press Release of Tallgrass Energy Partners, LP and Tallgrass Energy GP, LP, dated January 4, 2016 (Fourth Quarter Distribution). | |
Exhibit 99.1
Tallgrass Energy Partners Acquires Additional Interest in Pony Express Pipeline
LEAWOOD, Kan.—(BUSINESS WIRE)—Tallgrass Energy Partners, LP (NYSE: TEP) announced today that it is acquiring an additional 31.3 percent interest in Tallgrass Pony Express Pipeline, LLC (“Pony Express”) for cash consideration of $475 million and 6.518 million TEP common units issued to Tallgrass Development. Based on TEP’s December 31st closing price of $41.21, the total consideration of approximately $743.6 million represents a multiple of approximately 9.0x incremental cash flow to TEP as a result of the acquisition. The acquisition increases TEP’s membership interest in Pony Express to 98 percent.
“This acquisition demonstrates our continued commitment to execute on our strategic plan to grow TEP and increase the cash distributions to our unitholders, even in challenging capital market conditions,” said Tallgrass President and CEO, David G. Dehaemers, Jr. “The attractive acquisition multiple, the inclusion of equity consideration and other favorable terms of the purchase agreement showcase the supportive nature of TEP’s relationship with Tallgrass Development.”
“Consistent with our first two Pony Express acquisitions, we expect this transaction to be immediately accretive to unitholders and intend to recommend that our board of directors increase our quarterly distribution for the first quarter of 2016 by at least $0.06 per unit over our distribution of $0.64 per unit for the fourth quarter of 2015. We continue to affirm our previous distribution growth guidance of approximately 20 percent annually from 2015 through 2017.”
Additional Transaction Details
The cash consideration of $475 million is being funded through borrowings under TEP’s revolving credit facility, which is increased from $1.1 billion to $1.5 billion in connection with the transaction.
As part of the transaction, Tallgrass Development is granting TEP an 18 month call option to repurchase the newly issued 6.518 million common units at a price of $42.50. Thus, the acquisition could become more accretive to TEP if it issues equity for net cash proceeds in excess of $42.50 per common unit and exercises its option. Pro forma for this transaction, TEP’s debt to cash flow ratio is approximately 3.7x and its available liquidity under its revolving credit facility is approximately $272 million. TEP expects that Tallgrass Development will maintain its minority ownership interest in Pony Express for the foreseeable future.
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 natural gas transportation and storage services for customers in the Rocky Mountain and Midwest regions of the United States through its Tallgrass Interstate Gas Transmission and Trailblazer Pipeline systems. It provides crude oil transportation to customers in Wyoming, Colorado and the surrounding regions through its membership interest in Tallgrass Pony Express Pipeline. TEP also provides services for customers in Wyoming through
Tallgrass Midstream at its Casper and Douglas natural gas processing and its West Frenchie Draw natural gas treating facilities and provides water business services to customers in Colorado and Texas through BNN Water Solutions. TEP’s 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.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP supplemental financial measure that 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 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 provides useful information to investors in assessing our financial condition and results of operations. Adjusted EBITDA should not be considered an alternative to net income, operating income, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP, nor should Adjusted EBITDA be considered an alternative to available cash, operating surplus, distributions of available cash from operating surplus or other definitions in our partnership agreement. Adjusted EBITDA has important limitations as an analytical tool because it excludes some but not all items that affect net income and net cash provided by operating activities. Additionally, because Adjusted EBITDA may be defined differently by other companies in our industry, our definition of Adjusted EBITDA may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.
Non-GAAP Financial Measures
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 define cash flow as Adjusted EBITDA, including net deficiency payments received from Pony Express, less distributions to noncontrolling interests in excess of earnings.
Adjusted EBITDA and cash flow are not presentations made in accordance with GAAP. The following table presents a reconciliation of Adjusted EBITDA and cash flow to net income, the most directly comparable GAAP financial measure, for each of the periods indicated:
Tallgrass Energy Partners, LP Summary Financial Information
| (in thousands) | Three Months Ended September 30, 2015 |
Three Months Ended September 30, 2015 |
||||||
| Pro Forma (1) | As Reported | |||||||
| Net income attributable to partners |
$ | 48,676 | $ | 42,679 | ||||
| Add: |
||||||||
| Interest expense, net of noncontrolling interest |
3,872 | 3,872 | ||||||
| Depreciation and amortization expense, net of noncontrolling interest |
20,515 | 18,826 | ||||||
| Non-cash gain related to derivative instruments |
(259 | ) | (259 | ) | ||||
| Non-cash compensation expense |
734 | 734 | ||||||
|
|
|
|
|
|||||
| Adjusted EBITDA |
$ | 73,538 | $ | 65,852 | ||||
|
|
|
|
|
|||||
| Add: |
||||||||
| Pony Express deficiency payments received, net |
9,706 | 8,342 | ||||||
| Less: |
||||||||
| Distributions to noncontrolling interest in excess of earnings |
— | (11,520 | ) | |||||
|
|
|
|
|
|||||
| Cash Flow for the three months ended September 30, 2015 |
$ | 83,244 | $ | 62,674 | ||||
| Incremental Cash Flow (attributable to acquisition of 31.3 percent interest in Pony Express) |
$ | 20,570 | ||||||
| Incremental Cash Flow Annualized |
$ | 82,280 | ||||||
| Transaction Consideration |
$ | 743,607 | ||||||
| Transaction Multiple |
9.0x | |||||||
| (1) | The information in the pro forma column represents financial information for TEP as if it had owned 98% of Pony Express during the three months ended September 30, 2015. |
Tallgrass Energy Partners, LP Debt to Cash Flow Reconciliation
| (in thousands, except debt to cash flow ratio) | ||||
| Adjusted EBITDA for the three months ended September 30, 2015 |
$ | 73,538 | ||
| Add: |
||||
| Pony Express deficiency payments received, net |
9,706 | |||
|
|
|
|||
| Cash Flow for the three months ended September 30, 2015 |
$ | 83,244 | ||
|
|
|
|||
| Cash Flow Annualized |
$ | 332,976 | ||
| Debt outstanding as of December 31, 2015 |
753,000 | |||
| Add: |
||||
| Cash consideration paid for 31.3 percent interest in Pony Express |
475,000 | |||
|
|
|
|||
| Pro Forma Debt |
$ | 1,228,000 | ||
|
|
|
|||
| Debt to Cash Flow |
3.7x | |||
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 the accretion expected to be realized by the Partnership as a result of the Pony Express acquisition, the plan
to recommend an increase in the Partnership’s cash distributions, the Partnership’s distribution growth guidance, the ability of the Partnership to issue equity, the desire of the Partnership to exercise the call option granted by Tallgrass Development, and the expectations of plans, strategies, objectives and growth and anticipated financial and operational performance of the Partnership and its subsidiaries. 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, and other important factors that could cause actual results to differ materially from those projected, including those set forth in reports filed by TEP with the Securities and Exchange Commission. Any forward-looking statement applies only as of the date on which such statement is made and the Partnership does 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.
To learn more, please visit our website at www.tallgrassenergy.com.
Contact Information
Investor Relations
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
Tallgrass Energy Increases Quarterly Distributions and Announces Date for Fourth
Quarter 2015 Financial Results and 2016 Guidance
LEAWOOD, Kansas—(BUSINESS WIRE)—Tallgrass Energy Partners, LP (NYSE: TEP) and Tallgrass Energy GP, LP (NYSE: TEGP) (“Tallgrass”) today announced their quarterly distributions for the fourth quarter of 2015. The distributions will be paid on Friday, February 12, 2016, to unitholders and shareholders of record as of the close of business on Friday, January 29, 2016. Tallgrass also announced that it will release fourth quarter 2015 financial results and hold a conference call on Wednesday, February 17, 2016.
TEP
The board of directors of TEP’s general partner declared a quarterly cash distribution of $0.64 per common unit for the fourth quarter of 2015, or $2.56 on an annualized basis. This represents a 32 percent increase from the fourth quarter 2014 distribution of $0.485 per common unit and a 6.7 percent sequential increase from the third quarter 2015 distribution of $0.60 per common unit. It is TEP’s tenth consecutive increase since its IPO in May 2013.
TEGP
The board of directors of TEGP’s general partner declared a quarterly cash distribution of $0.173 per Class A share for the fourth quarter of 2015, or $0.692 on an annualized basis. This represents a 20.1 percent sequential increase from the third quarter 2015 distribution of $0.144 per Class A share and its second consecutive increase since its IPO in May 2015.
Fourth Quarter 2015 Financial Results, 2016 Guidance and Conference Call
Tallgrass plans to report fourth quarter 2015 financial results and release 2016 financial guidance on Wednesday, February 17, 2016 after the market close. Tallgrass will hold a conference call at 4:00 pm Central Time that same day to provide further details on these topics.
Tallgrass invites unitholders, shareholders and other interested parties to listen to the call through a link posted on the Investor Relations section of Tallgrass’s website at www.tallgrassenergy.com.
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 natural gas transportation and storage services for customers in the Rocky Mountain and Midwest regions of the United States through its Tallgrass Interstate Gas Transmission and Trailblazer Pipeline systems. It provides crude oil transportation to customers in Wyoming, Colorado and the surrounding regions through its membership interest in Tallgrass Pony Express Pipeline. TEP also provides services for customers in Wyoming through Tallgrass Midstream at its Casper and Douglas natural gas processing and its West Frenchie Draw natural gas treating facilities and provides water business services to customers in Colorado and Texas through BNN Water Solutions. TEP’s 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 TEP’s 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.
Contact Information
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