Business Context and Reporting Period
This Form 8-K, dated September 30, 2014, reports the consummation of the "General Partner Acquisition" by CrossAmerica Partners LP (formerly Lehigh Gas Partners LP). On October 1, 2014, CST Brands, Inc. acquired 100% of the membership interests of the Partnership's General Partner and all incentive distribution rights. Consequently, the Partnership changed its name to CrossAmerica Partners LP and its ticker symbol to "CAPL." CST Brands now controls the General Partner and has the right to appoint all board members.
Key Financial Metrics and Agreements
The filing details significant amendments to financial and operational agreements rather than reporting period-specific revenue or profit figures.
- Debt and Liquidity: The Partnership amended its Credit Agreement to increase borrowing availability by $100 million to a total of $550 million. Lehigh Gas Wholesale Services, Inc. became a co-borrower.
- Leverage Ratios: The Total Leverage Ratio was increased to 5.50:1.00, and the Senior Leverage Ratio was decreased to 3.00:1.00 (pro forma), contingent on the issuance of Qualified Senior Notes of at least $175 million.
- Transaction Consideration: CST Brands paid $0.5 million in cash for the General Partner interests. Separately, LGC acquired wholesale fuel supply rights for 78 locations from the Partnership for $5.7 million, plus a potential $0.8 million earn-out.
- Executive Compensation: Joseph V. Topper, Jr. was appointed CEO and President of the General Partner with a base salary of $525,000, eligible for a short-term incentive of 75% of base salary and an equity award of 200% of base salary.
Material Changes Versus Prior Period
The primary material change is the shift in control from the Topper Trust/LGC to CST Brands. This resulted in:
- Management Services: CST Brands (via CST Services LLC) assumed management services previously provided by LGC under an Amended and Restated Omnibus Agreement with a five-year initial term.
- Board Composition: Five directors resigned, and CST Brands appointed new directors, including Kimberly S. Lubel as Chairman. Mr. Topper and Mr. Reilly remain on the board.
- Asset Divestiture: The Partnership terminated fuel supply rights for 78 locations in Pennsylvania and New York, which were acquired by LGC.
- Pricing Terms: The Wholesale Fuel Supply Agreement with LGO was amended to formally establish "rack plus pricing" (fixed cent-per-gallon margin), replacing the previous variable dealer tank wagon pricing.
Guidance, Outlook, and Risks
The filing does not provide specific financial guidance or revenue outlooks. Key operational and governance developments include:
- Acquisition Rights: The Amended Omnibus Agreement grants the Partnership a Right of First Refusal and Right of First Offer on assets or businesses in the wholesale motor fuel or retail gas station sectors valued over $5 million, offered by Mr. Topper, LGC, or LGO.
- Voting Agreement: Mr. Topper and affiliates agreed to vote their Partnership units in accordance with the General Partner board's recommendations while holding significant ownership or officer positions.
- Restrictive Covenants: Mr. Topper's employment agreement includes non-solicitation and non-compete restrictions during his employment and for one year following termination.
Investor Verification Checklist
- Verify the impact of the $5.7 million asset sale to LGC on the Partnership's future revenue streams and operating margins.
- Confirm the status of the $175 million Qualified Senior Notes issuance required to trigger the amended leverage ratios.
- Review the full text of the Amended Omnibus Agreement (Exhibit 10.2) to understand the scope of the Right of First Refusal and potential conflicts of interest.
- Monitor the transition of management services from LGC to CST Brands and the effectiveness of the new board composition.
- Assess the long-term implications of the "rack plus pricing" model with LGO on wholesale fuel margins.