Business Context and Reporting Period
This Form 8-K, filed on March 16, 2016, by Western Gas Equity Partners, LP (the "Partnership"), reports material events occurring on March 14, 2016. The filing details a significant capital raise by the Partnership's consolidated subsidiary, Western Gas Partners, LP ("WES"), and the subsequent acquisition of midstream assets from affiliates of Anadarko Petroleum Corporation.
Key Financial Metrics and Transactions
- Capital Raise: WES issued 14,030,611 Series A Convertible Preferred Units at $32.00 per unit, generating net proceeds of approximately $440 million.
- Acquisition Consideration: WES acquired a 100% interest in Springfield Pipeline LLC for a total consideration of $712.5 million in cash plus 1,253,761 WES Common Units.
- Acquisition Funding: The cash portion was funded by $440 million from the Preferred Unit private placement, $25 million from the sale of WES Common Units to the Partnership, and $247.5 million in borrowings under WES's revolving credit facility.
- New Debt Facility: The Partnership entered into a new $250 million senior secured revolving credit facility (the "WGP Facility") maturing in March 2019. Initial borrowings of $28 million were made to fund the purchase of WES Common Units and transaction fees.
- Asset Details: The acquired asset includes a 50.1% interest in a gathering system comprising 548 miles of gas lines (795 MMcf/d capacity) and 241 miles of oil lines (130 MBbls/d capacity) in South Texas.
Material Changes and Agreements
The filing reports the entry into several material definitive agreements and amendments:
- Board Observation Agreement: If WES fails to pay four quarterly distributions on the Preferred Units (including two consecutive non-payments), the Preferred Unit holders gain the right to appoint a non-voting observer to the WES GP Board of Directors.
- Partnership Agreement Amendments: WES executed a Second Amended and Restated Partnership Agreement to incorporate the terms of the Preferred Units and consolidate prior amendments. An additional amendment permits a special one-time cash distribution to APC Midstream Holdings, LLC equal to the cash consideration paid for the acquisition.
- Credit Facility Covenants: The new WGP Facility includes a consolidated leverage ratio covenant of not more than 3.50 to 1.00 and an accordion feature allowing commitments to increase up to $500 million.
Outlook, Risks, and Contingencies
The filing does not provide specific forward-looking guidance, revenue projections, or management commentary regarding future performance. However, it highlights the following risks and contingencies:
- Over-Allotment Option: Purchasers in the private placement hold an option to purchase up to an additional 7,892,220 Preferred Units, exercisable on or before March 25, 2016.
- Financial Covenants: The new credit facility imposes strict leverage limits and restrictions on liens, indebtedness, and asset dispositions.
- Pro Forma Information: Financial statements and pro forma information regarding the acquired business are not included in this filing and will be filed within 71 days.
Investor Verification Checklist
- Verify the exercise of the over-allotment option by March 25, 2016, to determine the final capital raised.
- Review the upcoming pro forma financial information (due within 71 days) to assess the impact of the $712.5 million acquisition on leverage and cash flow.
- Monitor WES's ability to meet quarterly distribution requirements to avoid triggering the Board Observation Agreement rights for Preferred Unit holders.
- Confirm the specific terms of the "special one-time cash distribution" to APC Midstream Holdings, LLC and its impact on WES's liquidity.
- Check the consolidated leverage ratio of the Partnership to ensure compliance with the new 3.50 to 1.00 covenant under the WGP Facility.