Business Context and Reporting Period
This Form 8-K, dated May 8, 2019, reports on material definitive agreements entered into by Altus Midstream Company (the "Corporation") and Altus Midstream LP (the "Partnership"). The filing details a private offering of preferred equity and amendments to the company's credit facility. The transaction closing is expected by June 28, 2019.
Key Financial Metrics and Transaction Terms
- Preferred Equity Offering: The Partnership agreed to sell Series A Cumulative Redeemable Preferred Units for an aggregate issue price of $625 million.
- Distribution Rate: Quarterly distributions at 7% per annum, increasing after the fifth anniversary. Distributions may be paid in-kind for the first six quarters.
- Redemption Terms: Redeemable at the Partnership's option at the greater of an 11.5% internal rate of return or 1.3x invested capital. Holder redemption rights apply upon change of control or liquidation.
- Exchange Rights: Units are exchangeable for Class A Common Stock after the seventh anniversary or upon specified events, subject to a 6% discount to the volume-weighted average trading price.
- Credit Facility: The existing credit agreement provides aggregate commitments of up to $800 million, including a $100 million letter of credit subfacility and a $100 million swingline loan subfacility.
- Financial Covenants: During the "Initial Period," the Partnership must maintain a debt-to-capital ratio not greater than 30%. Post-Initial Period, a leverage ratio not exceeding 5.00:1.00 (or 5.50:1.00 for one year following a qualified acquisition) applies.
Material Changes Versus Prior Period
The filing does not provide comparative financial performance data (revenue, profit, or cash flow) for the current period versus the prior period. The material changes reported are structural and contractual:
- Capital Structure: Introduction of $625 million in preferred equity, which could represent up to 20% of the Corporation's outstanding voting power upon exchange.
- Debt Capacity: The credit agreement was amended to adjust commitment availability based on the receipt of preferred equity. If at least $500 million of preferred equity is raised, aggregate commitments increase to $650 million during the "New Initial Period" before reaching the full $800 million.
- Covenant Timing: The applicability of the leverage ratio financial covenant has been delayed until the earlier of March 31, 2020, or the end of the Initial Period.
- Interest Margins: Margins on borrowings during the Initial Period vary from 0.10% to 0.475% for base rate and 1.10% to 1.475% for LIBOR borrowings, based on the leverage ratio.
Guidance, Outlook, and Risks
- Stockholder Approval: Because the preferred units could be exchanged for 20% or more of voting power, the Corporation must obtain stockholder approval at its 2020 annual meeting. Apache Corporation has agreed to vote its shares in favor of this approval.
- Forward-Looking Statements: The filing includes standard disclaimers regarding future financial performance, noting that actual results may differ materially due to risks and uncertainties.
- Restrictive Covenants: During the Initial Period, distributions in respect of equity are limited to non-cash paid-in-kind and customary tax distributions. Indebtedness secured by liens is limited to $10 million during this period.
- Contingencies: Closing of the preferred unit purchase is subject to customary closing conditions.
Investor Verification Checklist
- Verify the final closing date of the $625 million preferred unit offering and confirm receipt of funds.
- Monitor the stockholder vote scheduled for the 2020 annual meeting regarding the potential issuance of common stock upon exchange of preferred units.
- Track the Partnership's EBITDA performance to determine when the "Initial Period" ends and the leverage ratio covenant becomes applicable.
- Review the full text of the Preferred Unit Purchase Agreement (Exhibit 10.1) and the First Amendment to the Credit Agreement (Exhibit 10.2) for detailed terms on redemption triggers and exchange mechanics.
- Confirm whether distributions for the first six quarters are paid in cash or in-kind.