Business Context and Reporting Period
This Form 8-K, dated March 14, 2013, reports that CenterPoint Energy, Inc. ("CenterPoint") and its subsidiary CenterPoint Energy Resources Corp. ("CERC") entered into a Master Formation Agreement with OGE Energy Corp. ("OGE") and affiliates of ArcLight Capital Partners, LLC (the "Bronco Group"). The agreement establishes a joint venture, the "Midstream JV," to own and operate the midstream businesses of CenterPoint and OGE. The transaction is expected to close in the second or third quarter of 2013, subject to regulatory approvals and other conditions.
Key Financial Metrics and Capital Structure
The filing details the capitalization and debt obligations associated with the formation of the Midstream JV rather than historical operating results for CenterPoint.
- Ownership Structure: At formation, CERC will hold 59% of limited partner interests, OGE will hold 28%, and the Bronco Group will hold 13%. Control will be shared equally (50/50) between CERC and OGE.
- Debt Financing: The JV is required to enter into a $1.05 billion 3-year senior unsecured term loan facility to repay intercompany indebtedness owed to CERC. Additionally, the parties agreed to pursue a $1.4 billion senior unsecured revolving credit facility.
- Existing Indebtedness: Entities contributed by CERC carry approximately $363 million in indebtedness maturing in 2017. Enogex (contributed by OGE) held approximately $700 million in aggregate indebtedness as of February 28, 2013.
- Operational Capacity: As of December 31, 2012, CenterPoint's contributed assets gathered an average of 2.5 billion cubic feet (Bcf) per day. Enogex gathered an average of 1.41 trillion British thermal units (TBtu/d) in 2012.
Material Changes and Transaction Details
The primary material change is the consolidation of midstream assets into a new private limited partnership. Key components include:
- Asset Contributions: CERC will contribute interests in CenterPoint Energy Gas Transmission Company, LLC, Mississippi River Transmission, LLC, and potentially Southeast Supply Header, LLC. OGE and the Bronco Group will contribute 100% of Enogex LLC.
- Regulatory Contingency: If CERC cannot obtain approval to contribute a 49.9% interest in Southeast Supply Header, LLC, its contribution will be reduced, adjusting ownership percentages slightly (CERC down 0.664%, OGE up 0.454%, Bronco up 0.211%).
- Future IPO: The parties agreed to initiate an initial public offering (IPO) of the Midstream JV within 12 months of closing, with consummation targeted within 180 days of filing the registration statement. No assurances are given that the IPO will occur.
Guidance, Risks, and Contingencies
Management commentary focuses on the conditions precedent to closing and the strategic intent to create a larger midstream platform.
- Closing Conditions: The transaction is subject to antitrust and regulatory approvals, bank consents, and the successful execution of the $1.05 billion term loan and $1.4 billion revolving credit facility.
- Termination Rights: Any party may terminate the agreement if conditions are not satisfied by December 31, 2013.
- Operational Restrictions: Upon closing, CenterPoint and OGE must conduct all U.S. midstream operations within the JV. Exceptions exist for assets valued under $50 million or if the acquiring party intends to cease using them within 12 months.
- Risks: Risks include failure to obtain financing, inability to consummate the IPO, disruption of current operations, and employee retention issues.
Investor Verification Checklist
- Verify the status of antitrust and regulatory approvals required for the transaction to close.
- Confirm the finalization of the $1.05 billion term loan and the syndication of the $1.4 billion revolving credit facility.
- Monitor the outcome of the approval process for the Southeast Supply Header, LLC contribution, which affects final ownership percentages.
- Assess the timeline and market conditions for the proposed IPO of the Midstream JV.
- Review the specific terms of the Omnibus Agreement regarding the restriction on future midstream acquisitions by CenterPoint and OGE.