Business Context and Reporting Period
This Form 8-K, filed on March 3, 2015, reports events occurring on February 27, 2015, for Targa Resources Corp. (TRC). The filing details the completion of two major mergers (the "Atlas Mergers") and the entry into a new credit facility to finance these transactions.
Key Financial Metrics and Capital Structure
Debt and Liquidity
- New Credit Facility: Entered into a Credit Agreement with Bank of America, N.A. as administrative agent.
- Revolving Credit Facility: $670 million aggregate principal amount (5-year term). Includes up to $50 million for letters of credit and $30 million for swing line loans.
- Term Loan Facility: $430 million aggregate principal amount (7-year term). The entire principal was borrowed on the closing date.
- Expansion Capacity: The Company may increase the Revolving Facility by up to $200 million and the Term Loan Facility by up to $200 million plus voluntary prepayments, subject to a pro forma Consolidated Leverage Ratio of no greater than 4.00 to 1.00.
- Interest Rates: Revolving loans bear interest at Base Rate + 0.75% to 1.75% or LIBOR + 1.75% to 2.75%. Term loans bear interest at Base Rate + 3.75% or LIBOR + 4.75%.
- Collateral: Obligations are secured by a first priority lien on substantially all present and future assets of the Company and subsidiary guarantors.
Transaction Consideration
- ATLS Merger: TRC issued approximately 10.1 million shares of TRC Common Stock and paid approximately $515 million in cash to Atlas Energy, L.P. (ATLS) unitholders.
- APL Merger: Targa Resources Partners LP (TRP) issued approximately 58.6 million TRP common units and paid approximately $128 million in cash to Atlas Pipeline Partners, L.P. (APL) unitholders.
Material Changes
The filing reports the completion of the following material transactions on February 27, 2015:
- ATLS Merger: GP Merger Sub merged with and into ATLS, making ATLS a subsidiary of TRC.
- APL Merger: MLP Merger Sub merged with and into APL, making APL a subsidiary of TRP.
- Spin-Off: Prior to the mergers, ATLS transferred assets and liabilities unrelated to its "Atlas Pipeline Partners" segment to Atlas Energy Group, LLC (AEG) and distributed AEG common units to ATLS unitholders.
- Debt Refinancing: Proceeds from the new Term Loan and Revolving Facility were used to finance the ATLS Merger, refinance existing indebtedness, and pay transaction fees.
Guidance, Covenants, and Risks
Covenants and Leverage Ratios
The Credit Agreement requires the maintenance of a Consolidated Leverage Ratio as follows:
- Through the fiscal quarter ending December 31, 2015: Not more than 4.75 to 1.00.
- Fiscal quarters ending March 31, 2016 through December 31, 2016: Not more than 4.50 to 1.00.
- Thereafter: Not more than 4.00 to 1.00.
The agreement includes customary covenants restricting the ability to incur additional indebtedness, make investments, declare dividends, or engage in mergers without compliance. It also mandates mandatory prepayments from net cash proceeds of asset dispositions or equity issuances.
Amortization and Prepayment
Beginning June 30, 2015, the Term Loan Facility is subject to quarterly amortization of $1,075,000. Prepayment is permitted without premium or penalty, except for a 1.00% call premium on Term Loan prepayments made within the first six months using proceeds from lower-yielding debt.
Financial Statements
Financial statements of the acquired business and pro forma financial information are not included in this filing. They are scheduled to be filed within 71 calendar days of this report.
Investor Verification Checklist
- Verify the pro forma Consolidated Leverage Ratio to ensure compliance with the 4.75 to 1.00 covenant threshold for the quarter ending June 30, 2015.
- Review the upcoming 71-day filing for pro forma financial information to assess the combined entity's liquidity and debt service coverage.
- Confirm the exact amount of existing indebtedness refinanced versus new capital raised to understand the net leverage impact.
- Monitor the integration of ATLS and APL assets and the separation of AEG to evaluate operational synergies and potential divestiture risks.
- Check for any subsequent amendments to the Credit Agreement regarding the expansion capacity or interest rate margins.