Business Context and Reporting Period
Company: CenterPoint Energy, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: February 18, 2016
Event: Closing of a private placement transaction with Enable Midstream Partners, LP (the "Partnership").
Key Financial Metrics and Transaction Details
- Investment Amount: CenterPoint purchased 14,520,000 Series A Preferred Units at $25.00 per unit, totaling $363,000,000.
- Debt Reduction: The Partnership redeemed approximately $363,000,000 of notes scheduled to mature in 2017 payable to a wholly-owned subsidiary of CenterPoint.
- Capital Structure: The Series A Preferred Units are non-cumulative, perpetual, and redeemable. They rank senior to common units regarding distributions and liquidation.
- Ownership Stake: Post-transaction, CenterPoint directly owns the Series A Preferred Units and indirectly owns 94,151,707 common units, 139,704,916 subordinated units, 50% of management rights in Enable GP, LLC, and a 40% interest in incentive distribution rights.
Material Changes and Terms
The filing details the execution of a Purchase Agreement originally announced on February 1, 2016, and closed on February 18, 2016. Key terms include:
- Distribution Rate: 10% annual rate on the stated liquidation preference for the first five years. Thereafter, the rate adjusts to LIBOR plus 850 basis points.
- Redemption: The Partnership may redeem units after five years at $25.50 per unit plus accumulated unpaid distributions. Redemption is also triggered by certain rating agency methodology changes, changes of control, or if the units are not eligible for NYSE trading.
- Conversion: Upon a change of control, holders may convert units to common units. If transferred to a non-affiliate, units automatically convert to "Series B Preferred Units" (cumulative distributions) after the second anniversary.
- Financing Mechanism: Proceeds from the redemption of the $363 million notes were used to fund the purchase of the Series A Preferred Units.
Guidance, Risks, and Unusual Items
Management Commentary: The transaction was executed to restructure the capital relationship between CenterPoint and Enable Midstream Partners, LP, converting debt owed to a subsidiary into preferred equity interests.
Risks and Contingencies:
- Voting Rights: Holders have no general voting rights, limited only to specific amendments, issuances, or fundamental transactions affecting the units.
- Liquidity: The Partnership agreed to file up to five registration statements for the resale of these securities upon request, with efforts to keep them effective for at least six months.
- Market Eligibility: Mandatory redemption is required if the units are not eligible for trading on the New York Stock Exchange.
Investor Verification Checklist
- Verify the exact terms of the "Third Amended and Restated Agreement of Limited Partnership" (Exhibit 10.1) regarding conversion ratios and fundamental transaction definitions.
- Confirm the impact of the $363 million debt redemption on CenterPoint's consolidated balance sheet and cash flow statements.
- Review the Registration Rights Agreement (Exhibit 10.2) for specific timelines and conditions regarding the resale of the preferred units.
- Assess the credit rating implications of the Partnership's ability to service the 10% distribution rate and the floating rate thereafter.