CVR Partners, LP - Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K, dated April 7, 2016, covers events occurring on April 1, 2016. CVR Partners, LP (the "Partnership") completed the previously announced merger with East Dubuque Nitrogen Partners, L.P. (formerly Rentech Nitrogen Partners, L.P.). The transaction involved the merger of two wholly-owned subsidiaries of the Partnership into Rentech Nitrogen and its general partner, resulting in Rentech Nitrogen becoming a subsidiary of the Partnership.
Key Financial Metrics and Capital Structure
- Merger Consideration: The Partnership issued approximately 40.1 million Partnership Common Units and paid approximately $99.2 million in cash to holders of Rentech Nitrogen Common Units and certain phantom unit holders.
- Exchange Ratio: Each Rentech Nitrogen Common Unit was converted into 1.04 Partnership Common Units plus $2.57 in cash per unit.
- New Debt Facilities:
- AEPC Facility: A new $320 million senior term loan facility with American Entertainment Properties Corp. (AEPC). Term: 2 years. Interest Rate: 12% per annum. Purpose: Funding change of control offers or tender offers for Rentech Nitrogen's Second Lien Notes.
- Coffeyville Facility: A new $300 million senior term loan facility with Coffeyville Resources, LLC. Term: 2 years. Interest Rate: 12% per annum. Purpose: Repayment of prior credit agreements, funding cash consideration, and paying transaction fees.
- Debt Repayment: The Partnership repaid all amounts outstanding under its existing Credit Agreement dated April 13, 2011, and Rentech Nitrogen's Credit Agreement dated July 22, 2014. These agreements were terminated.
Material Changes Versus Prior Period
The primary material change is the structural consolidation of Rentech Nitrogen into the Partnership. This resulted in:
- The issuance of 40.1 million new Partnership units, increasing the outstanding unit count.
- An increase in total debt load by $620 million ($320 million AEPC + $300 million Coffeyville) to finance the transaction and refinance existing obligations.
- The termination of previous credit facilities held by both the Partnership and Rentech Nitrogen.
- Changes to the Board of Directors, expanding it to eleven members with the appointment of four new directors.
Guidance, Outlook, and Governance Changes
Management Commentary and Governance:
- Board Appointments: On April 4, 2016, Keith B. Forman and Patrick Fleury were appointed to the Board of CVR GP, LLC, representing the Rentech Nitrogen Unitholders. Jonathan Frates and Louis J. Pastor were also appointed. These directors will not receive compensation for their service.
- Director Rights: Rentech Nitrogen Unitholders retain the right to appoint two directors, subject to ownership thresholds (reduced to one seat if ownership falls below 15%, terminated if below 7.5%).
- Financial Statements: Financial statements and pro forma information for the acquired business are not included in this filing but will be filed within 71 calendar days.
Risks and Contingencies:
- The new debt facilities contain customary events of default, including failure to pay sums due and defaults on other indebtedness exceeding $25.0 million.
- The AEPC Facility is specifically tied to potential tender offers for Rentech Nitrogen's 6.500% Second Lien Senior Secured Notes due 2021.
Key Facts for Investor Verification
- Verify the total dilution impact of the 40.1 million new units issued to Rentech Nitrogen unitholders.
- Confirm the interest expense implications of the new $620 million in debt carrying a 12% annual interest rate.
- Monitor the upcoming filing (within 71 days) for pro forma financial information to assess the combined entity's leverage and liquidity.
- Review the status of Rentech Nitrogen's Second Lien Notes and whether the AEPC Facility will be utilized for a tender offer.
- Track the ownership percentage of Rentech Nitrogen Unitholders to determine the duration of their board representation rights.