Business Context and Reporting Period
This Form 8-K Current Report, dated June 23, 2016, details a material definitive agreement and unregistered equity sales by NGL Energy Partners LP. The filing reports the amendment of a purchase agreement and the completion of a private placement of Class A Convertible Preferred Units and Warrants on June 24, 2016.
Key Financial Metrics and Transaction Details
- Total Capital Raised: The aggregate principal amount of the private placement was increased to $240 million.
- Second Closing Proceeds: $140 million in aggregate principal amount of Preferred Units and Warrants were acquired at the second closing on June 24, 2016.
- Preferred Unit Terms: 10.75% annual cumulative distribution rate; purchase price of approximately $12.035 per unit.
- Units Issued: 11,632,932 Preferred Units issued at the second closing; total issuance across closings reached 19,942,169 Preferred Units.
- Warrants Issued: Warrants exercisable for 2,552,149 Common Units issued at the second closing.
- Investors: Funds managed by Oaktree Capital Management L.P. (Highstar NGL Prism/IV-A Interco LLC, Highstar NGL Main Interco LLC, and NGL CIV A, LLC).
Material Changes and Governance
The filing reports a material increase in the private placement size from the originally announced $200 million to $240 million following the addition of a new purchaser. Significant governance changes include:
- Board Representation: The purchasers gained the right to designate one member to the Board of Directors of the General Partner.
- Capital Structure: The Preferred Units rank senior to Common Units regarding distributions and liquidation preferences.
- Registration Rights: The Partnership must file a registration statement within 180 days to permit public resale of Common Units issuable upon conversion or warrant exercise.
Outlook, Risks, and Contingencies
- Liquidated Damages: If the registration statement is not effective within 360 days, the Partnership is liable for liquidated damages payable in cash or Common Units.
- Conversion and Redemption: Holders may convert units after the third anniversary; the Partnership may redeem units after the first anniversary or convert them after the eighth anniversary.
- Change of Control: Triggers immediate vesting of all warrants and provides holders with redemption or conversion options.
- Warrant Vesting: Warrants vest in tranches (one-third annually over three years) unless a Change of Control or redemption occurs.
Investor Verification Checklist
- Verify the total cash proceeds received from the $240 million private placement and the impact on the Partnership's liquidity.
- Review the Amended and Restated Partnership Agreement (Exhibit 3.1) for specific conversion rates and redemption multiples.
- Confirm the timeline for the filing and effectiveness of the required registration statement to avoid liquidated damages.
- Assess the dilution impact of the 2,552,149 warrants issued at the $0.01 exercise price.
- Monitor the appointment of the Oaktree-designated board member and potential shifts in strategic direction.