Business Context and Reporting Period
This Form 8-K Current Report was filed by NGL Energy Partners LP on April 2, 2019. The filing documents the execution of the Fifth Amended and Restated Agreement of Limited Partnership and the closing of a registered public offering of preferred units.
Key Financial Metrics and Capital Structure
The filing details the issuance of 1,800,000 Class C Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (Class C Preferred Units). The filing does not provide specific revenue, profit, cash flow, or debt figures for the reporting period.
- Security Issued: 1,800,000 Class C Preferred Units (including 200,000 units from a partial overallotment exercise).
- Liquidation Preference: $25.00 per unit.
- Initial Distribution Rate: 9.625% per annum ($2.40625 per unit) from the original issue date until April 15, 2024.
- Future Distribution Rate: Three-Month LIBOR plus 738.4 basis points, effective April 15, 2024.
- Payment Schedule: Quarterly in arrears, commencing July 15, 2019.
Material Changes Versus Prior Period
The primary material change is the amendment of the Partnership Agreement to create the Class C Preferred Units and modify terms for existing Class A Preferred Units.
- New Capital Class: Establishment of Class C Preferred Units ranking senior to Common Units and on parity with Class A and Class B Preferred Units.
- Class A Modification: Reduction of the redemption premium for Class A Preferred Units redeemed between April 1, 2019, and May 13, 2019, from 115% to 111.25% of the Class A Preferred Unit Price.
- Redemption Rights: The Partnership may redeem Class C Preferred Units on or after April 15, 2024, at $25.00 per unit plus accumulated distributions.
Outlook, Risks, and Contingencies
Management commentary is limited to the structural terms of the new securities. Key contingencies and risks include:
- Change of Control: Upon a Change of Control, the Partnership may redeem the units, or holders may convert them into Common Units at a ratio of the lesser of the calculated value or 3.5791 Common Units per Class C Preferred Unit.
- Liquidation Risk: While holders are specially allocated income to achieve a $25.00 capital account balance, actual liquidation proceeds may be less than the preference if gross income and gains are insufficient.
- Voting Rights: Holders have limited voting rights, primarily regarding amendments with a material adverse effect or the issuance of Senior Securities.
Investor Verification Checklist
- Verify the total proceeds raised from the 1,800,000 Class C Preferred Unit offering in the accompanying prospectus or press release.
- Confirm the current status of distributions on existing Class A and Class B Preferred Units to assess cumulative arrearages.
- Review the full text of the Fifth Amended and Restated Agreement (Exhibit 3.1) for specific definitions of "Change of Control" and "Senior Securities."
- Assess the impact of the reduced redemption premium on Class A Preferred Units on the company's near-term liquidity obligations.