Business Context and Reporting Period
This Form 8-K filing by Energy Transfer Equity, L.P. (ETE) reports material events occurring on March 23, 2012, and March 26, 2012. The filing details the completion of two major mergers: the "Citrus Merger" (acquiring CrossCountry Energy, LLC) and the "Sigma Merger" (acquiring Southern Union Company). Additionally, the company entered into new financing agreements to fund these transactions and amended existing credit facilities.
Key Financial Metrics and Capital Structure
- Acquisition Consideration (Citrus Merger): ETP issued 2,249,092 common units valued at $105,000,000 and distributed $1,895,000,000 in cash to CCE Holdings, LLC.
- Acquisition Consideration (Sigma Merger): Southern Union shareholders elected to receive either $44.25 in cash or 1.00x ETE common unit per share. Approximately 54% of shares (67,985,929) elected cash, while 46% (56,981,860) elected ETE units.
- New Term Loan: ETE secured a $2,000,000,000 senior secured term loan with a maturity date of March 26, 2017. Interest accrues at LIBOR + 3.00% or Base Rate + 2.00%.
- Revolving Credit Facility: ETE amended its revolving credit facility to maintain a $200,000,000 commitment (expandable to $300,000,000) with a maturity of September 20, 2015. No amounts were outstanding as of the closing of the Sigma Merger.
- Debt Covenants: Both the Term Loan and Revolver limit the funded debt to EBITDA ratio to 5.50:1.00 (increasable to 6.00:1.00 for acquisitions) and require an EBITDA to fixed charges ratio of at least 1.50:1.00.
- General Partner Distribution Rights: The General Partner of ETP agreed to relinquish $13.75 million in incentive distribution rights per quarter for 16 consecutive quarters starting March 31, 2012.
Material Changes Versus Prior Period
The filing represents a significant structural change for the registrant. ETE completed the acquisition of Southern Union Company, making it a wholly owned subsidiary. Simultaneously, ETP completed the acquisition of CrossCountry Energy, LLC. These transactions were funded through a combination of new debt ($2 billion term loan), cash on hand, and the issuance of equity units. The company terminated a previously undrawn $200 million senior bridge term loan agreement dated October 17, 2011, replacing it with the new permanent term loan facility.
Guidance, Outlook, and Risks
The filing includes forward-looking statements regarding the anticipated benefits of the Sigma Merger, noting that these benefits may not be fully realized. Management highlighted risks associated with the integration of the acquired entities and the ability to meet debt covenants. The company explicitly stated it undertakes no obligation to update forward-looking statements. The new credit agreements include standard events of default, including change of control provisions and limitations on liens and new lines of business.
Investor Verification Checklist
- Verify the final cash outflow for the Sigma Merger based on the 54% cash election rate versus the 46% equity election rate.
- Confirm the pro forma leverage ratios post-merger to ensure compliance with the 5.50:1.00 debt-to-EBITDA covenant.
- Review the full text of the "Citrus Guarantee" and "Support Agreement" (Exhibits 10.1 and 10.2) to understand the contingent support obligations of PEPL Holdings.
- Monitor the impact of the General Partner relinquishing $13.75 million in quarterly distributions on ETP's distributable cash flow.
- Check for the filing of pro forma financial information, which is due within 71 days of this report.