Business Context and Reporting Period
This Form 8-K filing by Diamondback Energy, Inc. (FANG) reports events occurring on May 22, 2019, and closing on May 28, 2019. The filing details the initial public offering (IPO) of common units by Rattler Midstream LP, an indirect subsidiary of Diamondback, and related corporate restructuring actions.
Key Financial Metrics
- Offering Size: 38,000,000 common units representing limited partner interests in Rattler Midstream LP.
- Offering Price: $17.50 per common unit.
- Over-Allotment Option: Underwriters granted an option to purchase up to an additional 5,700,000 common units.
- Net Proceeds: Approximately $626.5 million (net of underwriting discounts and offering expenses).
- Ownership Structure Post-Closing: Diamondback and its subsidiaries retain an approximate 71% voting interest and 71% economic interest in the Partnership.
Material Changes and Transactions
The primary material change is the successful closing of the Rattler Midstream LP offering on May 28, 2019. Proceeds are intended to be distributed to Diamondback Energy, Inc., partially to reimburse capital expenditures. Diamondback may use these funds to repay amounts outstanding under its revolving credit facility. Additionally, an Exchange Agreement was executed allowing Energen Resources Corporation (a Diamondback subsidiary) to tender its Rattler LLC Units and Class B Units for redemption in exchange for either Common Units or cash.
Outlook, Risks, and Contingencies
Debt Restructuring: In connection with the offering, Rattler LLC was designated as an unrestricted subsidiary under Diamondback's Credit Agreement, releasing it from all obligations, guarantees, and liens under that agreement. Similarly, the Partnership and its General Partner were designated as unrestricted subsidiaries under Diamondback's 4.750% Senior Notes due 2024 and 5.375% Senior Notes due 2025 indentures.
Conflicts of Interest: Affiliates of the underwriters (Credit Suisse, BofA Securities, J.P. Morgan) are lenders under Diamondback's revolving credit facility and may receive proceeds indirectly through debt repayment. These underwriters also provide various banking and advisory services to the Partnership.
Tax Considerations: The Exchange Agreement includes restrictions to ensure the Partnership is not treated as a "publicly traded partnership" for U.S. federal income tax purposes.
Investor Verification Checklist
- Verify the final closing amount including any exercise of the 5,700,000 unit over-allotment option.
- Confirm the specific portion of the $626.5 million net proceeds applied to repay Diamondback's revolving credit facility versus other capital expenditures.
- Review the full text of the Underwriting Agreement (Exhibit 10.1) and Exchange Agreement (Exhibit 10.2) for detailed terms regarding the redemption of Energen's units.
- Monitor future filings for updates on the unrestricted subsidiary status and its impact on Diamondback's consolidated debt covenants.