CNP

Business Context and Reporting Period

Company: CenterPoint Energy, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: May 1, 2013
Event: Completion of the formation of a midstream partnership (the "Midstream Partnership") with OGE Energy Corp. and affiliates of ArcLight Capital Partners (the "Bronco Group"). The partnership was formed to own and operate the midstream businesses of CenterPoint and OGE, initially structured as a private limited partnership.

Key Financial Metrics and Capital Structure

Ownership Structure (as of closing):

• CenterPoint Energy Resources Corp. (CERC): ~58.3% limited partner interest.
• OGE Energy Corp.: ~28.5% limited partner interest.
• Bronco Group: ~13.2% limited partner interest.

Debt and Financing:

• Term Loan Facility: $1.05 billion, 3-year senior unsecured term loan. Proceeds used to repay $1.05 billion of intercompany indebtedness owed to CERC.
• Revolving Credit Facility: $1.4 billion, 5-year senior unsecured revolving credit facility. Initial advances of approximately $107.1 million and $2.0 million in letters of credit outstanding as of May 1, 2013.
• Interest Rates: LIBOR/alternate base rate plus 1.625% margin (based on credit ratings).
• Commitment Fee: 0.25% per annum on unused commitments.
• Existing Indebtedness Assumed: Approximately $363 million owed to a CERC subsidiary (maturing 2017) and approximately $700 million in Enogex term loans and senior notes (maturing 2014 and 2020).

Credit Ratings (as of May 1, 2013):

Covenants: Maximum consolidated funded debt to EBITDA ratio of 5.00 to 1.00 (5.50 to 1.00 permitted temporarily following certain acquisitions).

Material Changes and Transaction Details

Asset Contributions:

• CenterPoint: Contributed equity interests in CenterPoint Energy Gas Transmission Company, LLC, CenterPoint Energy-Mississippi River Transmission, LLC, other midstream subsidiaries, and a 24.95% interest in Southeast Supply Header, LLC (SESH).
• OGE and ArcLight: Contributed 100% of equity interests in Enogex LLC.

Management and Governance:

• The general partner is equally controlled by CERC and OGE (50% management rights each).
• Board of directors of the general partner consists of an equal number of representatives from CenterPoint and OGE.
• Bronco Group holds board observation rights and approval rights over material activities for a specified period.

Distribution Policy: 100% of Distributable Cash (pre-IPO) or Available Cash (post-IPO) will be distributed to limited partners quarterly.

Guidance, Outlook, and Risks

Initial Public Offering (IPO):

• CenterPoint and OGE agreed to initiate the process for an IPO of the Midstream Partnership.
• Registration statement to be filed no later than May 1, 2014.
• Consummation of the IPO is subject to market conditions and negotiation of terms; no assurance is given that it will occur.

Key Risks and Contingencies:

• IPO Uncertainty: Inability to consummate the IPO in a timely manner or at all.
• Operational Disruption: Risks that the transaction disrupts current plans and operations.
• Employee Retention: Potential difficulties in retaining employees.
• Rating Downgrades: A decline in credit ratings could increase borrowing costs and impact financing ability.
• Indemnification: Parties have agreed to indemnification obligations regarding environmental, title, permits, and tax matters, subject to deductibles and caps.

Investor Verification Checklist

• Verify the specific terms of the Master Formation Agreement and the Limited Partnership Agreement filed as Exhibits 2.1 and 10.1.
• Monitor the progress of the IPO registration statement filing deadline (May 1, 2014) and market conditions affecting the offering.
• Track the Midstream Partnership's ability to maintain the 5.00:1.00 debt-to-EBITDA covenant ratio.
• Review future filings for updates on the $363 million intercompany debt and the $700 million Enogex debt obligations.
• Assess the impact of the new credit ratings (Baa3/BBB-/BBB) on future borrowing costs compared to historical rates.