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Preferred Units
12 Months Ended
Dec. 31, 2017
Equity [Abstract]  
Redeemable Preferred Units
PREFERRED UNITS
Series A Redeemable Preferred Units
The Partnership had 26,363 and 52,691 Series A redeemable preferred units outstanding with a carrying value of $27.0 million and $54.0 million as of December 31, 2017 and 2016, respectively. The aforementioned amounts include accrued distributions of $0.7 million and $1.3 million as of December 31, 2017 and 2016, respectively. The Series A redeemable preferred units are classified as mezzanine equity on the consolidated balance sheets since redemption is outside the control of the Partnership. The Series A redeemable preferred units are entitled to an annual distribution of 10%, payable on a quarterly basis in arrears.
Prior to liquidation of the Partnership, and while any of the Series A redeemable preferred units remain outstanding, cash or other property of the Partnership will be distributed 100% to the Series A redeemable preferred unitholders until the aggregate Unpaid Preferred Yield (as defined below) of each Series A redeemable preferred unit accrued through the last day of the immediately preceding calendar quarter has been reduced to zero. Distributions in excess of the aggregate Unpaid Preferred Yield will be distributed 100% to common and subordinated unitholders, until there has been distributed an aggregate amount in respect of such calendar year equal to 10% of the aggregate Interest Fair Market Value of the outstanding common and subordinated units as of the first day of such calendar year. Any additional distributions shall be distributed to the common and subordinated unitholders, on the one hand, and the Series A redeemable preferred unitholders, on the other hand, pro rata on an as-is-converted basis.
The terms “Interest Fair Market Value,” “Preferred Yield,” and “Unpaid Preferred Yield” have the following meanings:
“Interest Fair Market Value” means, as of any date, the amount which would be received by the holder of a common unit or subordinated unit, as applicable, if (a) all of the Series A redeemable preferred units were converted into or exchanged or exercised for common units and, during the subordination period, subordinated units, (b) the fair market value of the assets of the Partnership in excess of its liabilities as of the date of determination of Interest Fair Market Value equaled the Value (as defined in the partnership agreement) as of such date, adjusted to reflect any increases in equity value resulting from the deemed conversion, exchange or exercise of convertible securities, and (c) an amount equal to such Value (as defined in the partnership agreement), as so adjusted, were distributed to the unitholders in accordance with the liquidation distribution provisions of the partnership agreement.
“Preferred Yield” means a yield on the outstanding Series A redeemable preferred units equivalent to a 10% per annum interest rate (subject to adjustment following certain events of default by the Partnership) on an initial investment of $1,000, calculated based on a 365-day year and compounded quarterly.
“Unpaid Preferred Yield” means, with respect to each Series A redeemable preferred unit and as of any date of determination, an amount equal to the excess, if any, of (a) the cumulative Preferred Yield from the closing of the IPO through the date established, over (b) the cumulative amount of distributions made as of the date established in respect of the Series A redeemable preferred unit.
The Series A redeemable preferred units are convertible into common and subordinated units at the option of the Series A redeemable preferred unitholders. The Series A redeemable preferred units have an adjusted conversion price of $14.2683 and an adjusted conversion rate of 30.3431 common units and 39.7427 subordinated units per redeemable preferred unit, which reflects the reverse split described in Note 1 – Business and Basis of Presentation and the capital restructuring related to the IPO.  The Series A redeemable preferred unitholders can elect to have the Partnership redeem, at face value, up to 26,363 redeemable preferred units as of December 31, 2017.
The Partnership shall have the right, at its sole option, to redeem an amount of Series A redeemable preferred units equal to the units being redeemed by an owner of Series A redeemable preferred units on each December 31. Any amount of a given year’s Series A redeemable preferred units eligible for redemption not redeemed on December 31 shall automatically convert to common and subordinated units on January 1 in the following year. All Series A redeemable preferred units not redeemed by March 31, 2018 automatically convert to common and subordinated units effective as of January 1, 2018 or as soon as practicable thereafter.
For the year ended December 31, 2017, 19,704 Series A redeemable preferred units were redeemed for $20.2 million, including accrued unpaid yield. For the year ended December 31, 2017, 6,624 Series A redeemable preferred units totaling $6.6 million were converted into 200,996 common units and 263,247 subordinated units as a result of the mandatory conversion subsequent to December 31, 2016. For the year ended December 31, 2016, 18,461 Series A redeemable preferred units were redeemed for $19.0 million, including accrued unpaid yield. For the year ended December 31, 2016, 6,064 Series A redeemable preferred units totaling $6.1 million were converted into the equivalent of 184,006 common units and 240,986 subordinated units on an adjusted basis. For the year ended December 31, 2015, 39,240 Series A redeemable preferred units totaling $39.2 million were converted into the equivalent of 1,190,664 common units and 1,559,502 subordinated units on an adjusted basis.
On November 6, 2015, the Partnership commenced a tender offer to purchase up to 100% of the then outstanding Series A redeemable preferred units at par value plus unpaid accrued yield. The tender offer expired on December 10, 2015. The Partnership purchased and canceled 40,747 Series A redeemable preferred units for $1,019.45 per unit for a total cost of $41.5 million, excluding fees and expenses related to the tender offer.
Series B Cumulative Convertible Preferred Units
On November 28, 2017, the Partnership issued and sold in a private placement 14,711,219 Series B cumulative convertible preferred units representing limited partner interests in the Partnership to the "Purchaser" for a cash purchase price of $20.3926 per Series B cumulative convertible preferred unit, resulting in total proceeds of approximately $300 million.
The Series B cumulative convertible preferred units are entitled to an annual distribution of 7%, payable on a quarterly basis in arrears. For the eight quarters consisting of the quarter in respect of which the initial distribution is paid and the seven full quarters thereafter, the quarterly distribution may be paid, at the sole option of the Partnership, (i) in-kind in the form of additional Series B cumulative convertible preferred units (the "Series B PIK Units"), (ii) in cash, or (iii) in a combination of Series B PIK Units and cash. Beginning with the ninth quarter, all Series B cumulative convertible preferred unit distributions shall be paid in cash. The number of Series B PIK Units to be issued, if any, shall equal the quotient of the Series B cumulative convertible preferred unit distribution amount (or portion thereof) divided by the Series B cumulative convertible preferred unit purchase price of $20.3926.
The Series B cumulative convertible preferred units are convertible into common units of the Partnership on November 29, 2019 and once per quarter thereafter. At such time, the Series B cumulative convertible preferred units may be converted by each holder at its option, in whole or in part, into common units on a one-for-one basis at the purchase price of $20.3926, adjusted to give effect to any accrued but unpaid accumulated distributions on the applicable Series B cumulative convertible preferred units through the most recent declaration date. However, the Partnership shall not be obligated to honor any request for such conversion if such request does not involve an underlying value of common units of at least $10 million based on the closing trading price of common units on the trading day immediately preceding the conversion notice date, or such lesser amount to the extent such exercise covers all of a holder's Series B cumulative convertible preferred units.
The Series B cumulative convertible preferred units had a carrying value of $295.4 million, including accrued distributions of $1.9 million, as of December 31, 2017. The Series B cumulative convertible preferred units are classified as mezzanine equity on the consolidated balance sheet since redemption is outside the control of the Partnership.