Kinetik Holdings Inc. quarterly report, Q3 FY2018

Business context and reporting period

Entity mismatch: The supplied filing is Kayne Anderson Acquisition Corp.’s Form 10-Q, not a filing by Kinetik Holdings Inc. It covers the quarter ended September 30, 2018; the summary below describes the filing as provided.

Kayne Anderson Acquisition was a blank-check company seeking an energy-sector business combination. It had no operating revenue or operations; results primarily reflected investment income earned on its trust-account funds and expenses incurred while pursuing a transaction.

Financial performance and condition

Operating margins are not meaningful because the company had no revenue. Operating cash flow was negative $1.04 million for the nine months, compared with negative $0.79 million in the 2017 period. Cash outside the trust account was $40,565 at September 30, down from $479,055 at December 31, 2017; trust investments totaled $382.38 million. Total liabilities were $16.93 million, including a $600,000 sponsor note and $13.21 million of deferred underwriting compensation. Stockholders’ equity was $5.00 million. No conventional operating-company liquidity or cash-flow outlook was provided.

Changes versus prior comparable periods

• Third-quarter net loss replaced the prior-year quarter’s $221,000 net income. General and administrative expense rose to $2.27 million from $277,000, while trust investment income increased to $1.71 million from $810,000.
• Nine-month net income was $344,000, versus a $513,000 net loss in 2017, as trust investment income rose to $4.36 million from $1.35 million. General and administrative expense also increased, to $2.98 million from $1.34 million.
• At September 30, 2018, the trust balance was $382.38 million versus $379.18 million at year-end 2017. The company had drawn $600,000 under its sponsor working-capital note; there was no balance at year-end 2017.

Transaction, outlook, risks and unusual items

• In August 2018, the company agreed to combine with Apache-related Alpine High midstream entities through subsidiary Altus Midstream, also acquiring options for potential interests in several pipelines. Consideration included 250 million Altus common units, shares and warrants, reimbursement of specified capital expenditures, and potential earn-out shares.
• The agreement required at least $475 million of Available Funds at closing, among other conditions. The company also entered subscription agreements for approximately $572.3 million of private-placement shares. On November 6, 2018, stockholders approved the transaction; 29,469,858 public shares were submitted for redemption. Approval did not itself establish that the transaction had closed.
• An October 1 commitment letter contemplated a senior unsecured revolving credit facility of up to $800 million, initially expected to provide up to $450 million of availability, subject to definitive documentation, transaction closing, and other conditions.
• The company stated that it had to complete a business combination within 24 months of its April 4, 2017 offering or redeem public shares and liquidate. Management said this requirement raised substantial doubt about the company’s ability to continue as a going concern. The filing warned that liquidation proceeds per share could be below the original offering price.
• Other risks include transaction completion and redemption levels, potential dilution from equity issuance, and debt-related covenants and repayment risks. Investment funds were held in short-term U.S. Treasury money-market investments; management reported no material interest-rate risk. Management deemed disclosure controls effective, reported no material control changes, and disclosed no legal proceedings.
• No operating-business guidance was provided. The filing described the expected facility and transaction terms as forward-looking and subject to conditions.

Key facts for investors to verify

• Confirm the filing issuer and reporting period: this document is for Kayne Anderson Acquisition Corp., not Kinetik Holdings Inc.
• Verify whether and when the Altus transaction closed, the final redemption count, and whether the $475 million minimum-funds condition was satisfied.
• Check final financing terms and availability of the proposed revolving facility, alongside any debt or covenant obligations assumed at closing.
• Review the transaction’s final consideration, dilution, warrant terms, and any changes to the Alpine High assets or pipeline options.
• Assess the company’s limited cash outside the trust account, sponsor-note repayment terms, and the disclosed liquidation/going-concern risk.