Business Context and Reporting Period
This Form 8-K Current Report, filed on September 1, 2011, covers events occurring on August 31, 2011, for NGL Energy Partners LP. The filing announces the entry into a definitive agreement to acquire substantially all assets of SemStream, L.P., the natural gas liquids division of SemGroup Corporation.
Key Financial Metrics and Transaction Terms
The filing details a material definitive agreement rather than periodic financial results. Key transaction metrics include:
- Consideration: SemStream will receive 7,500,000 Common Units plus 203,906 Variable Units (subject to reduction if closing is delayed past October 1, 2011).
- Working Capital Adjustment: The Partnership may issue up to an additional 1,250,000 Common Units and/or make a cash payment not to exceed $100,000,000.
- Ownership Impact: Upon closing, SemStream will hold approximately 37.7% of the Partnership's limited partner interest (or 32.3% if the Osterman transaction also closes).
- General Partner Interest: SemStream will acquire a 7.5% interest in the General Partner and the right to appoint two directors to the General Partner's board.
- Distribution Waiver: SemStream will waive ordinary course cash distributions on 3,750,000 Common Units and the Variable Units until August 30, 2012.
The filing text does not provide specific revenue, profit, cash flow, margin, debt, or liquidity figures for the reporting period.
Material Changes and Transaction Scope
The primary material change is the proposed acquisition of SemStream's assets, excluding those of its wholly-owned subsidiary, SemStream Arizona Propane, LLC. The transaction is expected to close in the fourth quarter of 2011, subject to customary conditions including Hart-Scott-Rodino Antitrust Improvements Act approval.
Outlook, Risks, and Contingencies
Outlook: Management anticipates closing in Q4 2011. The transaction includes a Registration Rights Agreement for the newly issued Common Units.
Risks and Contingencies: Closing is contingent upon the satisfaction of material covenants, accuracy of representations and warranties, and obtaining necessary consents and regulatory approvals. The filing notes that the agreement contains standard risk allocation provisions and should not be relied upon as a description of the parties' state of affairs.
Investor Verification Checklist
- Verify the final closing date and whether the Variable Units were reduced due to delays past October 1, 2011.
- Confirm the final working capital adjustment amount (cash payment and additional unit issuance).
- Monitor the status of the Hart-Scott-Rodino Antitrust approval.
- Assess the impact of the 37.7% ownership stake on future governance and distribution policies.
- Review the status of the previously disclosed Osterman transaction to determine the final ownership percentage.