Archrock, Inc. Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K, dated April 26, 2018, details the completion of a merger between Archrock, Inc. ("Archrock") and Archrock Partners, L.P. ("the Partnership"). On this date, Archrock acquired all outstanding common units of the Partnership not already owned by Archrock or its subsidiaries. The transaction was executed pursuant to an Agreement and Plan of Merger dated January 1, 2018, as amended.
Key Financial Metrics and Capital Structure
The filing focuses on the restructuring of debt and equity rather than operational financial performance metrics such as revenue or profit, which are not provided in this document.
- Equity Issuance: Archrock issued approximately 57.8 million shares of common stock to holders of Partnership common units as merger consideration.
- Exchange Ratio: Each outstanding common unit was converted into the right to receive 1.40 shares of Archrock common stock.
- Debt Facility: Archrock entered into a new asset-based revolving credit facility with an aggregate amount of $1.25 billion.
- Facility Maturity: The credit facility matures on March 30, 2022, unless specific senior notes remain outstanding as of December 2, 2020, in which case it matures on December 2, 2020.
- Letters of Credit: Up to $50 million available for issuance.
- Expansion Option: Commitments may be increased by up to $250 million subject to lender consent.
Material Changes Versus Prior Period
The primary material change is the consolidation of the Partnership into Archrock, resulting in the elimination of the Partnership's separate public trading status and the conversion of its equity interests into Archrock stock. Additionally, Archrock terminated its prior credit agreement (dated July 10, 2015) and replaced it with the new $1.25 billion facility. The new agreement adds Archrock as the parent and various subsidiaries as guarantors, securing the debt with substantially all of Archrock's assets and equity interests in restricted subsidiaries.
Guidance, Covenants, and Risks
The filing outlines significant financial covenants required under the new Credit Agreement that Archrock must maintain on a consolidated basis:
- Total Leverage Ratio:
- Not greater than 5.95:1.00 through Q4 2018.
- Not greater than 5.75:1.00 for fiscal year 2019.
- Not greater than 5.50:1.00 for Q1 and Q2 2020.
- Not greater than 5.25:1.00 thereafter (with exceptions for specified acquisitions).
- Interest Coverage Ratio: Not less than 2.50:1.00.
- Senior Secured Leverage Ratio: Not greater than 3.50:1.00.
Other Provisions: The agreement includes customary limitations on indebtedness, investments, liens, equity repurchases, distributions, and asset dispositions. Borrowing costs vary based on a total leverage ratio pricing grid, with LIBOR margins ranging from 2.00% to 3.25% and Base Rate margins from 1.00% to 2.25%.
Key Facts for Investor Verification
- Verify the exact number of shares issued (approx. 57.8 million) and the resulting dilution impact on existing Archrock shareholders.
- Confirm the current utilization of the new $1.25 billion credit facility and the status of the terminated prior credit agreement.
- Monitor Archrock's compliance with the strict Total Leverage Ratio covenants, specifically the 5.95:1.00 cap for the remainder of 2018.
- Review the "Borrowing Base" calculation methodology, which relies on appraisals of eligible inventory and compression units, to understand potential liquidity constraints.
- Check for any outstanding Senior Notes due April 2021, as their status determines whether the credit facility maturity date is accelerated to December 2, 2020.