Business Context and Reporting Period
This Form 8-K, dated February 4, 2021, reports on NGL Energy Partners LP (the "Partnership") and its subsidiaries. The filing details the closing of a significant capital restructuring transaction involving the issuance of new senior secured notes and the establishment of a new asset-based lending (ABL) facility. The Partnership is incorporated in Delaware and operates in the energy sector.
Key Financial Metrics and Capital Structure
- Debt Issuance: The Partnership closed a private offering of $2.05 billion in aggregate principal amount of 7.500% senior secured notes due 2026.
- New Credit Facility: Entered into a new $500.0 million asset-based revolving credit facility (ABL Facility) with a $200.0 million sub-limit for letters of credit. The initial borrowing base is $500.0 million.
- Debt Repayment: Net proceeds from the notes and the ABL Facility were used to fully repay and terminate the existing credit agreement (dated February 14, 2017) and the $250.0 million term credit agreement (dated July 2, 2019).
- Interest Terms: Notes interest is payable semi-annually starting August 1, 2021. ABL Facility interest is LIBOR-based or alternate base rate plus a margin ranging from 1.50% to 3.00% depending on the fixed charge coverage ratio.
- Liquidity and Cash Flow: The filing does not provide specific current cash flow, revenue, or profit figures. Liquidity is managed through the new ABL Facility, which includes mandatory prepayment provisions if "excess cash" exceeds $25.0 million.
Material Changes Versus Prior Period
The primary material change is the complete refinancing of the Partnership's senior debt structure. The Partnership replaced its existing credit agreements and term loan with a new $2.05 billion note issuance and a $500 million revolving facility. Additionally, the Partnership amended its Partnership Agreement to modify consent rights for Class D Preferred Unit holders, requiring their approval for specific indebtedness, asset acquisitions over $50.0 million, and capital expenditures over $75.0 million.
Guidance, Outlook, Risks, and Unusual Items
- Distribution Suspension: The Partnership has temporarily suspended quarterly common unit distributions (beginning with the quarter ended December 31, 2020) and distributions on all preferred units. This suspension remains in effect until the Total Leverage Ratio is not greater than 4.75 to 1.00. Management does not expect this threshold to be satisfied in the near term.
- Covenants: The new Indenture restricts the ability to pay distributions, incur additional indebtedness, make investments, or sell assets. The ABL Facility includes a minimum fixed charge ratio covenant tested during a "Cash Dominion Event."
- Redemption and Change of Control: Notes may be redeemed after February 1, 2023. A change of control triggers a mandatory repurchase offer at 101% of the principal amount plus accrued interest.
- Risks: Risks include the inability to meet leverage ratios required to resume distributions, mandatory prepayments of the ABL Facility if excess cash thresholds are met, and the impact of interest rate fluctuations on the variable-rate ABL Facility.
Investor Verification Checklist
- Verify the exact date and terms of the suspension of common and preferred unit distributions.
- Confirm the current Total Leverage Ratio to assess the timeline for resuming distributions.
- Review the specific definitions of "Cash Dominion Event" and "excess cash" in the new Credit Agreement to understand mandatory prepayment triggers.
- Examine the amended consent rights for Class D Preferred Unit holders regarding future capital expenditures and asset acquisitions.
- Monitor the utilization of the $500 million ABL Facility and the borrowing base calculations.