Business Context and Reporting Period
This Form 8-K, filed on February 27, 2013, by Energy Transfer Equity, L.P. (ETE), reports the entry into a Material Definitive Agreement. The filing details a transaction between Southern Union Company (an affiliate of ETE and Energy Transfer Partners, L.P.) and Regency Energy Partners LP (Regency), an entity controlled by ETE.
Key Financial Metrics and Transaction Value
The filing does not report standard periodic financial metrics such as revenue, profit, or cash flow for a specific reporting period. Instead, it outlines the financial structure of a specific asset contribution:
- Total Consideration Value: $1.5 billion.
- Asset Contributed: 100% of the issued and outstanding membership interest in Southern Union Gathering Company, LLC and its subsidiaries.
- Consideration Breakdown:
- 31,372,419 Regency common units issued to Southern Union.
- 6,274,483 Regency Class F units issued to Southern Union (convertible to common units after eight quarters).
- $570 million cash distribution to Southern Union.
- $30 million cash payment to ETC Texas Pipeline, Ltd.
- Financing: Regency plans to incur new debt ("Contribution Debt") to fund the cash portion of the consideration.
Material Changes and Transaction Structure
The primary material change is the strategic consolidation of assets between affiliates. Key structural elements include:
- Distribution Restrictions: ETE will forego distributions on its Incentive Distribution Rights (IDRs) regarding the new common units for the first eight consecutive quarters post-closing. Southern Union will not receive distributions on the Class F units for the same period.
- Shared Services: The parties will review existing shared services agreements. If agreements are continued, Regency will receive a waiver of the $10 million annual service fee for 24 months following closing.
- Related Party Approval: Due to the related-party nature of the transaction (ETE controls Regency and holds a majority interest in Southern Union's parent), the ETE Conflicts Committee reviewed and recommended the transaction as fair to ETE.
Outlook, Risks, and Contingencies
Expected Closing: The transaction is expected to close in the second quarter of 2013.
Conditions to Closing: The agreement is subject to customary conditions, including the expiration of the Hart-Scott-Rodino Antitrust waiting period and receipt of required third-party consents.
Risks: The filing includes standard forward-looking statement disclaimers, noting risks that the transaction may not be consummated or that anticipated benefits may not be realized. Specific risks include regulatory approval delays and the ability to secure financing for the cash portion.
Investor Verification Checklist
- Verify the final closing date, as the filing only estimates the second quarter of 2013.
- Confirm the terms of the new debt facility Regency intends to incur to fund the $570 million cash portion.
- Review the final outcome of the shared services agreement negotiations to confirm the $10 million fee waiver.
- Monitor regulatory filings for the expiration of the Hart-Scott-Rodino waiting period.
- Check subsequent filings for the actual issuance of Regency common and Class F units.