Business Context and Reporting Period
Company: Energy Transfer Equity, L.P.
Filing Type: Form 8-K (Current Report)
Date of Report: March 8, 2016
Event: Completion of a private offering of Series A Convertible Preferred Units and adoption of an amendment to the Limited Partnership Agreement.
Key Financial Metrics and Capital Structure
This filing details a capital restructuring event rather than reporting standard operating financial results (revenue, profit, or cash flow) for a specific period. Key metrics related to the transaction include:
- Securities Issued: 329,299,267 Series A Convertible Preferred Units.
- Participation Rate: Approximately 31.5% of total outstanding common units participated in the plan.
- Major Shareholder Participation: Chairman Kelcy Warren participated with approximately 18% of total outstanding common units, receiving 187,313,942 Convertible Units.
- Conversion Price: $6.56 per unit (95% of the five-day volume-weighted average closing price prior to the offering).
- Preferred Distribution Amount: $0.11 per unit (approximately 40% of the distribution paid for the quarter ended December 31, 2015).
- Accumulation Rate: Conversion Value increases by $0.285 per quarter (the difference between the full distribution and the preferred distribution).
Material Changes and Strategic Actions
The Partnership executed a plan to forgo a portion of future cash distributions on participating common units for up to nine fiscal quarters, reinvesting those amounts into Convertible Units. This action was taken to:
- Enhance liquidity and maintain credit ratings.
- Provide financial support for the proposed acquisition of The Williams Companies, Inc. (WMB).
- Address potential cash needs for the merger consideration.
Change in Offering Structure: The Partnership initially intended a public offering but was blocked by WMB's refusal to provide auditor consent required for a registration statement. Consequently, the Partnership pivoted to a private offering to accredited investors under Section 4(a)(2) and Regulation D exemptions.
Guidance, Outlook, and Risks
Management Commentary: The Partnership views this plan as a proactive step to place the company in the strongest possible financial position for 2016 and 2017. Credit rating agencies have reacted favorably to the plan.
Outlook: Proceeds from the reinvestment are expected to be used for general partnership purposes, including debt repayment related to the WMB acquisition or equity acquisitions of Energy Transfer Partners, L.P. (ETP).
Risks and Contingencies:
- Merger Uncertainty: The transaction is contingent on regulatory approvals (including Hart-Scott-Rodino), WMB stockholder approval, and the ability to integrate operations.
- Forward-Looking Statements: Actual results may differ materially due to economic conditions, market price fluctuations, and the ultimate outcome of the WMB business combination.
- Liquidity Restrictions: Convertible Units and Participating Common Units are non-transferable during the plan period without consent, and holders are restricted from hedging transactions.
Investor Verification Checklist
- Verify the terms of the LPA Amendment No. 5 (Exhibit 3.1) regarding the rights and conversion mechanics of the Convertible Units.
- Review the Unaudited Pro Forma Condensed Combined Financial Statements (Exhibit 99.1) to understand the projected financial impact of the WMB acquisition.
- Monitor the status of the merger agreement with WMB, specifically regarding regulatory approvals and stockholder votes.
- Confirm the conversion timeline, which ends on the earliest of May 18, 2018, the date Convertible Units convert into 136,612,021 common units, a change of control, or dissolution.
- Assess the impact of the reduced cash distributions ($0.11 per unit vs. the prior $0.285) on income expectations for participating unitholders.