Business Context and Reporting Period
This Form 8-K filing by Targa Resources Corp. (the "Registrant") reports on events occurring on January 17, 2019. The filing details a material definitive agreement entered into by Targa Resources Partners LP (the "Partnership"), a subsidiary of the Registrant, and its wholly-owned subsidiary, Targa Resources Partners Finance Corporation (the "Issuers").
Key Financial Metrics and Debt Issuance
The Issuers completed an offering of senior unsecured notes with the following terms:
- Total Principal Amount: $1.5 billion aggregate.
- 2027 Notes: $750 million principal, 6.5% interest rate, maturing July 15, 2027.
- 2029 Notes: $750 million principal, 6.875% interest rate, maturing January 15, 2029.
- Interest Payments: Semi-annually in arrears, commencing July 15, 2019.
- Guarantees: Guaranteed on a senior unsecured basis by certain subsidiary guarantors.
- Use of Proceeds: The Partnership may use a portion of net proceeds to repay borrowings under its credit facilities.
The filing does not provide specific values for revenue, profit, cash flow, or margins as this is a transactional report rather than a periodic financial statement.
Material Changes and Covenants
The entry into the Indenture imposes significant new financial obligations and covenants on the Partnership and its subsidiaries, including restrictions on:
- Incurring additional debt.
- Paying distributions or repurchasing equity interests.
- Making certain investments and incurring liens.
- Entering into transactions with affiliates, merging, or selling assets.
Many of these covenants will terminate if either series of Notes achieves an investment-grade rating from Moody's or S&P Global Ratings and no Default exists.
Redemption Terms and Risks
Redemption Options:
- Equity Offerings: Prior to January 15, 2022, up to 35% of each series may be redeemed at 106.5% (2027 Notes) or 106.875% (2029 Notes) using proceeds from equity offerings.
- Make-Whole: Prior to July 15, 2022 (2027 Notes) and January 15, 2024 (2029 Notes), notes may be redeemed at 100% plus a make-whole premium.
- Scheduled Redemption: After the make-whole periods, redemption prices decline annually to 100% by 2025 (2027 Notes) and 2027 (2029 Notes).
Events of Default: The Indenture defines events of default including failure to pay interest or principal, failure to comply with covenants, cross-defaults on other indebtedness exceeding 3.0% of consolidated net tangible assets, and bankruptcy. Upon certain defaults, the Trustee or holders of 25% of the notes may declare the entire series due and payable immediately.
Registration Rights: The Issuers agreed to use commercially reasonable efforts to consummate an exchange offer or file a shelf registration statement if the notes are not freely tradable under Rule 144 by the 370th day following issuance. Failure to comply may result in liquidated damages in the form of additional interest.
Investor Verification Checklist
- Verify the current credit rating of the Notes to determine if restrictive covenants remain in effect.
- Confirm the exact amount of proceeds used to repay existing credit facilities versus other corporate purposes.
- Review the specific list of subsidiary guarantors to assess the scope of the guarantee.
- Monitor compliance with the 370-day timeline for removing restrictive legends or filing registration statements to avoid liquidated damages.
- Assess the impact of the new debt service obligations on the Partnership's liquidity and distribution capacity.