Business Context and Reporting Period
This Form 8-K Current Report was filed by NGL Energy Partners LP on March 26, 2019. The filing details the entry into a material definitive agreement regarding an underwritten public offering of preferred units and related agreements with existing preferred unitholders.
Key Financial Metrics and Transaction Details
- Offering Size: 1,600,000 9.625% Class C Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (Firm Units).
- Offering Price: $25.00 per Class C Preferred Unit.
- Over-Allotment Option: Underwriters granted a 30-day option to purchase up to an additional 240,000 Class C Preferred Units.
- Net Proceeds: Approximately $38,240,000 (assuming no exercise of the over-allotment option), after deducting underwriters' discount and estimated offering expenses.
- Distribution Rate: 9.625% per annum ($2.40625 per unit) until April 15, 2024. Thereafter, the rate will be three-month LIBOR plus 738.4 basis points.
- Redemption Plan: The Partnership plans to redeem approximately $90 million of outstanding 10.75% Class A Convertible Preferred Units. The total redemption cost is capped at $100 million, funded by net proceeds and borrowings under the Credit Agreement.
Material Changes and Agreements
The filing reports the execution of an Underwriting Agreement with RBC Capital Markets, LLC, Morgan Stanley & Co. LLC, and UBS Securities LLC. Closing of the issuance is scheduled for April 2, 2019.
Additionally, the Partnership entered into a Waiver, Consent, Redemption and Amendment Agreement with the holders of 100% of the outstanding Class A Preferred Units (Highstar NGL Prism/IV-A Interco LLC, Highstar NGL Main Interco LLC, NGL CIV A, LLC, and NGL Prism/IV-A Blocker LLC). Key terms include:
- Waiver of preemptive rights by Class A Preferred Unitholders regarding the Class C offering.
- Consent to amend the Partnership Agreement to reduce the redemption premium for Class A Preferred Units from 115% to 111.25% of the Class A Preferred Unit Price for redemptions occurring between April 1, 2019, and May 13, 2019.
- Amendments to registration rights, board representation, and warrant agreements to preserve rights in the event of a partial redemption.
Guidance, Outlook, and Risks
Use of Proceeds: Net proceeds are intended to repay indebtedness under the Amended and Restated Credit Agreement. These funds may be re-borrowed for general partnership purposes, specifically to fund the redemption of Class A Preferred Units.
Contingencies: The Waiver, Consent, Redemption and Amendment Agreement will terminate and be null and void if the first closing of the Class C Preferred Unit Offering does not occur on or prior to April 20, 2019.
Related Party Transaction: Jared Parker, a member of the Board of Directors of the Partnership's general partner, is a Managing Director of Oaktree Capital Management L.P., which manages the funds comprising the Class A Preferred Unitholders.
Financial Metrics: The filing text does not provide current revenue, profit, cash flow, or margin data, as this is a transaction-specific report rather than a periodic financial statement.
Investor Verification Checklist
- Verify the closing date of the Class C Preferred Unit Offering (scheduled for April 2, 2019).
- Confirm whether the underwriters exercise the 30-day option to purchase the additional 240,000 units.
- Monitor the execution of the Class A Preferred Unit redemption and the associated reduction in the redemption premium.
- Review the impact of the new 9.625% distribution obligation on future cash flows compared to the redeemed 10.75% Class A obligations.
- Check for any updates regarding the related party transaction involving Jared Parker and Oaktree Capital Management L.P.