Business Context and Reporting Period
Company: Targa Resources Corp.
Filing Type: Form 8-K (Current Report)
Date of Report: June 29, 2018
Event: Entry into Material Definitive Agreements regarding credit facilities for the Company and its subsidiary, Targa Resources Partners LP.
Key Financial Metrics and Debt Structure
This filing details amendments to credit agreements rather than reporting operational financial results (revenue, profit, or cash flow). Key debt metrics include:
- Company Revolving Credit Facility: Maturity extended to June 29, 2023. Term loans were prepaid in full.
- Partnership Revolving Credit Facility: Initial aggregate principal amount up to $2.2 billion, with an accordion option to increase by up to $500 million. Includes a $100 million swing line sub-facility. Matures June 29, 2023.
- Company Interest Margins (until Q2 2018 statements): 1.75% for LIBOR loans or 0.75% for base rate loans.
- Company Commitment Fee (until Q2 2018 statements): 0.375%.
- Partnership Interest Margins: Variable based on leverage ratios or credit ratings, ranging from 0.125% to 2.25% depending on the facility type and collateral status.
- Partnership Commitment Fees: Ranging from 0.125% to 0.375% on unused portions.
Material Changes Versus Prior Period
- Lender Composition: Removal of certain lenders and inclusion of new lenders in the Company's Credit Agreement.
- Maturity Extension: The Company's revolving credit facility maturity was extended from February 26, 2020, to June 29, 2023.
- Debt Restructuring: The Company prepaid all Term Loans in full, memorialized in the First Amendment.
- Facility Restatement: The Partnership entered into a Fourth Amended and Restated Credit Agreement, replacing its existing facility with a larger $2.2 billion capacity.
- Covenant Adjustments: The Partnership agreement removes the requirement to maintain a maximum senior leverage ratio of 4.00 to 1.00 generally, though specific restrictions remain for second lien debt, acquisitions, and preferred unit redemptions.
Guidance, Outlook, Risks, and Covenants
Covenants and Financial Maintenance:
- Total Leverage Ratio: Partnership must maintain a ratio of consolidated indebtedness to consolidated adjusted EBITDA of no more than 5.50 to 1.00 (pre-collateral release) or 5.25 to 1.00 (post-collateral release).
- Interest Coverage Ratio: Partnership must maintain a ratio of no less than 2.25 to 1.00.
- Investment Grade Event: Upon occurrence, the Partnership may request the release of all security interests in collateral.
- Distribution Restrictions: Distributions to unitholders are restricted if a default or event of default exists or would result from the distribution.
- Other Limitations: Covenants limit the ability to incur indebtedness, grant liens, make investments, merge, sell assets, or engage in affiliate transactions.
Risks and Contingencies:
- Lenders or their affiliates have performed and may continue to perform investment banking and commercial banking services for the Company and Partnership.
- Certain lenders hold positions in the Company's common stock.
- The Partnership has entered into derivative financial transactions with affiliates of Bank of America, N.A., and other lenders.
Investor Verification Checklist
- Verify the full text of the First Amendment to Credit Agreement (Exhibit 10.1) and the Third Amendment and Restatement Agreement (Exhibit 10.2) for specific covenant definitions.
- Confirm the current status of the "Investment Grade Event" and whether collateral release conditions have been met.
- Review the Company's and Partnership's most recent financial statements to assess compliance with the 5.50/5.25 leverage ratio and 2.25 interest coverage ratio covenants.
- Monitor the utilization of the $2.2 billion Partnership revolving facility and the status of the $500 million accordion option.
- Check for any subsequent filings regarding the delivery of financial statements for the quarter ending June 30, 2018, which may trigger changes in interest margins and commitment fees.