Business Context and Reporting Period
This Form 8-K filing by Kimbell Royalty Partners, LP, dated July 27, 2018, reports on events occurring between July 23 and July 27, 2018. The primary focus is a material restructuring of the Partnership's capital structure and tax status.
Key Financial Metrics and Capital Structure
- Quarterly Distribution: Declared a cash distribution of $0.43 per Common Unit for the quarter ended June 30, 2018, payable on August 13, 2018.
- Outstanding Units (as of July 12, 2018): 26,839,462 Common Units and 110,000 Series A Cumulative Convertible Preferred Units (representing 5,945,946 Common Units on an as-converted basis).
- Ownership Concentration: Consenting Unitholders (including Haymaker Holders, Apollo affiliates, and the Kimbell Art Foundation) held approximately 58.92% of the outstanding units on an as-converted basis.
- Executive Compensation: Matthew S. Daly, Chief Operating Officer, received a salary increase of $70,000, resulting in an annual base salary of $229,359, effective June 1, 2018.
Note: This filing does not provide specific revenue, profit, cash flow, margin, debt, or liquidity figures for the period.
Material Changes and Restructuring
On July 24, 2018, the Partnership entered into a Recapitalization Agreement to implement an "Up-C" structure. Key changes include:
- Tax Status Change: The Partnership will amend its Limited Partnership Agreement to change its U.S. federal income tax status from a partnership to an entity taxable as a corporation via a "check-the-box" election.
- Equity Exchange: Existing Common Units held by Haymaker Holders and the Kimbell Art Foundation will be exchanged for Class B common units of the Partnership and newly issued common units of the Operating Company (OpCo).
- New Issuances: The Operating Company will issue 13,886,204 OpCo Common Units and 110,000 OpCo Preferred Units.
- Exchangeability: The new Class B Units and OpCo Common Units will be exchangeable together into an equal number of Common Units.
Outlook, Risks, and Management Commentary
- Closing Conditions: The restructuring is contingent on the satisfaction of closing conditions, including the accuracy of representations, compliance with covenants, and the passage of time following the mailing of an Information Statement.
- Shareholder Approval: A Written Consent was executed by holders of approximately 58.92% of the units to approve the tax status change and an amendment to the Long-Term Incentive Plan. An Information Statement will be sent to non-consenting unitholders, with the consent becoming effective 20 calendar days after mailing.
- Risks: The filing notes customary indemnification obligations and covenants restricting dilutive actions prior to closing. The full text of the Recapitalization Agreement (Exhibit 10.1) contains detailed representations and warranties.
Investor Verification Checklist
- Verify the final closing date of the Recapitalization Agreement and the successful completion of the "check-the-box" election to corporate tax status.
- Review the full text of the Recapitalization Agreement (Exhibit 10.1) for specific covenants and indemnification terms.
- Confirm the impact of the Up-C structure on the tax treatment of future distributions for common unitholders.
- Monitor the effectiveness of the Written Consent and the subsequent mailing of the Schedule 14C Information Statement.
- Check for any subsequent filings regarding the amendment to the 2017 Long-Term Incentive Plan.