Business Context and Reporting Period
This Form 8-K Current Report, dated April 2, 2018, details significant corporate transactions for USA Compression Partners, LP. The primary event is the completion of the acquisition of CDM Resource Management LLC and CDM Environmental & Technical Services LLC from Energy Transfer Partners, L.P. (ETP). Additionally, the report covers the acquisition of the Partnership's General Partner by ETP affiliates, resulting in the Partnership becoming a consolidated subsidiary of ETE.
Key Financial Metrics and Transaction Details
- Acquisition Consideration: The CDM Acquisition involved aggregate consideration of approximately $1.7 billion.
- Payment Structure:
- 19,191,351 Common Units of the Partnership.
- 6,397,965 Class B Units of the Partnership.
- $1.232 billion in cash (including customary closing adjustments).
- General Partner Purchase: ETP affiliates acquired all outstanding interests in the General Partner and 12,466,912 Common Units for $250 million in cash.
- Debt and Guarantees: The Partnership entered into a First Supplemental Indenture adding CDM and CDM E&T as guarantors for the 6.875% senior notes due 2026.
- Related Party Revenue: For the year ended December 31, 2017, subsidiaries of ETP generated approximately $19.3 million in revenues to the Partnership, CDM, and CDM E&T.
Note: This filing does not provide standard operating metrics such as revenue, profit, cash flow, or margins for the reporting period.
Material Changes Versus Prior Period
- Ownership Structure: The Partnership transitioned from an independent entity to a consolidated subsidiary of Energy Transfer Equity, L.P. (ETE) following the GP Purchase.
- Board Composition: Seven directors were removed effective April 2, 2018, and seven new directors were appointed, primarily affiliated with ETE/ETP. Matthew Hartman was also appointed pursuant to a Board Representation Agreement.
- Accounting Firm: KPMG LLP was dismissed as the independent registered public accounting firm, and Grant Thornton LLP was appointed to serve for the fiscal year ending December 31, 2018.
- Reporting Predecessor: Management preliminarily concluded the Partnership is the reporting predecessor, though a "reverse acquisition" accounting treatment (making CDM the predecessor) remains a possibility.
Guidance, Outlook, Risks, and Contingencies
- Accounting Treatment Risk: The financial reporting for prior periods depends on whether the CDM Acquisition is accounted for as a standard acquisition or a "reverse acquisition." If treated as a reverse acquisition, CDM's historical financial statements will become the Partnership's historical statements.
- Auditor Transition: The change in auditors is part of the integration process to align with ETE's accounting firm. No disagreements or reportable events were noted with the outgoing auditor, KPMG.
- Related Party Transactions: The filing notes existing revenue relationships with ETP subsidiaries but does not provide forward-looking guidance on future related party volumes or pricing.
Key Facts for Investor Verification
- Verify the final accounting treatment (standard vs. reverse acquisition) in subsequent filings to determine the correct historical financial baseline.
- Confirm the impact of the $1.232 billion cash outlay on the Partnership's liquidity and leverage ratios in the next quarterly report.
- Review the composition of the new Board of Directors and their affiliations with Energy Transfer to understand governance alignment.
- Monitor the Supplemental Indenture details to ensure CDM and CDM E&T are properly listed as guarantors for the 6.875% senior notes due 2026.