Business Context and Reporting Period
This Form 8-K Current Report, dated October 30, 2019, details material events for NGL Energy Partners LP (NGL) occurring on October 30 and October 31, 2019. The filing focuses on the completion of a significant acquisition, a private placement of equity securities, and amendments to existing credit facilities.
Key Financial Metrics and Transactions
- Acquisition: Completed the purchase of 100% of Hillstone Environmental Partners, LLC for approximately $600 million in cash.
- Capital Raise: Issued and sold $200 million (aggregate initial liquidation preference) of Class D Preferred Units and warrants to purchase 8,500,000 Common Units.
- Net Proceeds: The private placement generated approximately $195.5 million in net proceeds after deducting a $4.0 million closing fee and other expenses.
- Debt Facilities:
- Revolving Credit Facility: Total commitments of $1.790 billion, split into a $600 million facility for working capital and a $1.190 billion facility for acquisitions and capital expenditures.
- Covenant Adjustments: Eliminated the leverage ratio financial covenant effective for the quarter ending December 31, 2019, and adjusted senior secured leverage, total leverage, and interest coverage ratios.
Material Changes and Agreements
The filing reports several material definitive agreements and asset dispositions:
- Hillstone Acquisition: NGL acquired Hillstone Environmental Partners, LLC to expand its water solutions capabilities. The transaction was funded partially by the proceeds from the Class D Preferred Units issuance.
- Class D Preferred Units: New Class D Preferred Units were issued with rights senior to Common Units, including specific distribution and liquidation preferences. Terms include restrictions on increasing common unit distributions if the Adjusted Total Leverage Ratio exceeds 7.0 by March 31, 2020, or 6.5 by June 30, 2020.
- Registration Rights: An Amended and Restated Registration Rights Agreement was executed, requiring the filing of a registration statement within 180 days of the July 2, 2019, initial closing date to permit public resale of the Class D Preferred Units and warrant-issued Common Units.
- Warrants: Investors received warrants to purchase 8,500,000 Common Units, subject to vesting and exercise terms.
Outlook, Risks, and Contingencies
- Liquidity and Debt Covenants: The amendment to the Credit Agreement eliminates the leverage ratio covenant for the fourth quarter of 2019, providing flexibility following the acquisition. However, the Partnership faces potential liquidated damages if the Registration Statement is not effective by the 360-day deadline (relative to the July 2, 2019, closing).
- Financial Obligations: The $600 million acquisition was funded in cash, impacting liquidity, though partially offset by the $195.5 million net proceeds from the equity issuance.
- Future Filings: Pro forma financial information and required financial statements will be filed via an amendment to this report no later than 71 days after the filing date.
Investor Verification Checklist
- Verify the specific vesting and exercise terms of the 8,500,000 warrants issued to investors.
- Confirm the exact Adjusted Total Leverage Ratio thresholds and the impact on common unit distribution increases as of March 31, 2020, and June 30, 2020.
- Review the full text of the Amended and Restated Registration Rights Agreement to understand the liquidated damages formula if the registration statement deadline is missed.
- Monitor the upcoming filing of pro forma financial information to assess the impact of the Hillstone Acquisition on NGL's consolidated financial position.
- Check the status of the $1.790 billion credit facility commitments and any utilization levels post-acquisition.