Business Context and Reporting Period
Company: CrossAmerica Partners LP (CAPL)
Filing Type: Form 8-K (Current Report)
Date of Report: January 15, 2020
Principal Executive Offices: Allentown, PA
This filing reports the entry into two material definitive agreements on January 15, 2020: an Equity Restructuring Agreement and an Asset Purchase Agreement. These transactions involve related parties controlled by Joseph V. Topper, Jr., the Chairman of the Board.
Key Financial Metrics and Transaction Values
Equity Restructuring Agreement:
- Transaction Value: $45 million (based on 20-day VWAP).
- Consideration: Cancellation of all outstanding Incentive Distribution Rights (IDRs) held by Dunne Manning CAP Holdings II LLC.
- Issuance: 2,528,673 newly-issued Common Units to DM CAP Holdings.
Retail and Wholesale Acquisition:
- Total Consideration: $36 million ($21 million cash + $15 million equity).
- Equity Component: 842,891 newly-issued Common Units valued at $15 million.
- Cash Component: $21 million, expected to be financed via the company's credit facility.
- Assets Acquired: Retail operations at 172 sites, wholesale fuel distribution to 114 sites (including 55 third-party contracts), and leasehold interests in at least 53 sites.
- Future Obligations: Ten-year master leases with aggregate annual rent of $6.5 million.
- Indemnification Cap: $7.2 million aggregate limit for each party.
Material Changes and Ownership Impact
Ownership Structure Changes:
- Pre-Transaction: The "Topper Group" beneficially owned 15,138,187 Common Units (43.9%).
- Post-Restructuring: Ownership increases to 17,666,860 units (approx. 47.7%).
- Post-Acquisition: Ownership increases to 18,509,751 units (approx. 48.9%).
Corporate Governance Changes:
- The Second Amended and Restated Partnership Agreement will eliminate legacy provisions related to IDRs and subordinated units.
- Transactions were approved by the Conflicts Committee, which retained independent legal and financial advisors.
Outlook, Risks, and Contingencies
Strategic Outlook: The Retail Acquisition represents a strategic reorientation to add retail capability to the Partnership's existing wholesale operations.
Closing Conditions and Timing:
- Equity Restructuring Closing: Expected shortly after the record date for the Q4 2019 distribution.
- Retail Acquisition Closing: Expected prior to the end of the second quarter of 2020.
- Conditions: Both transactions are subject to customary closing conditions and purchase price adjustments.
Risks and Contingencies:
- Environmental Liability: Sellers retain liability for known contamination; the Partnership assumes liability for unknown contamination at certain sites. Phase I environmental assessments are required.
- Financing: The $21 million cash portion of the acquisition relies on borrowings under the existing credit facility.
- Related Party Transactions: Significant portion of the transaction involves entities controlled by the Chairman, requiring careful monitoring of conflict of interest resolutions.
Investor Verification Checklist
- Verify the exact 20-day VWAP used to calculate the $45 million and $15 million equity valuations.
- Confirm the availability of sufficient borrowing capacity under the credit facility to fund the $21 million cash consideration.
- Review the results of Phase I environmental site assessments for the 172 retail and 114 wholesale sites.
- Monitor the closing dates to ensure they occur within the projected Q2 2020 timeframe.
- Assess the impact of the new $6.5 million annual rent obligation on future cash flows.