Business Context and Reporting Period
This Form 8-K Current Report, dated March 3, 2014, details a significant asset acquisition by Western Gas Partners, LP ("WES"), a consolidated subsidiary of Western Gas Equity Partners, LP. The filing reports the completion of the acquisition of midstream assets from Anadarko Petroleum Corporation ("Anadarko") and its affiliates.
Key Financial Metrics and Transaction Details
- Total Consideration: $356.3 million in cash plus 308,490 common units of WES.
- Assets Acquired: Anadarko's 20% interest in Texas Express Pipeline LLC and Texas Express Gathering LLC, and a 33.33% interest in Front Range Pipeline LLC.
- Financing Structure: The cash portion was funded via $350 million in borrowings under WES's revolving credit facility and $6.3 million of cash on hand.
- Ownership Impact: Following the issuance of common units, Anadarko's aggregate limited partner interest in WES increased to 41.6% (50,053,824 common units).
Material Changes and Indemnification
The transaction resulted in a direct financial obligation through the new borrowings under the revolving credit facility. To mitigate risk, WES entered into several indemnification agreements:
- TEFR Indemnification Agreement: An Anadarko subsidiary agreed to indemnify WES's general partner (WES GP) for any recourse liability related to the acquisition debt.
- WGRI and USH2 Agreements: Existing indemnification agreements with Western Gas Resources, Inc. and USH2 LLC were amended to align with the new TEFR agreement and reduce the indemnification amounts payable by WGRI.
Management Commentary and Unusual Items
The acquisition was unanimously approved by the Board of Directors of WES GP and a special committee of independent directors. The special committee relied on an opinion from an independent financial advisor stating that the consideration was fair from a financial point of view. Additionally, WES amended its Limited Partnership Agreement to permit a special, one-time cash distribution to Anadarko's affiliate (AMH) equal to the cash consideration paid, without a corresponding distribution to other partners.
Investor Verification Checklist
- Verify the exact terms of the revolving credit facility utilized for the $350 million borrowing.
- Review the full text of the TEFR, WGRI, and USH2 Indemnification Agreements (Exhibits 10.1, 10.3, and 10.4) to understand recourse liability limits.
- Confirm the impact of the 308,490 new common units on the total outstanding unit count and per-unit economics.
- Assess the implications of the special cash distribution to AMH on WES's liquidity and capital structure.