Business Context and Reporting Period
This Form 8-K Current Report, dated May 17, 2012, covers material events for NGL Energy Partners LP (NGL). The primary event is the entry into definitive agreements on May 18, 2012, to acquire High Sierra Energy, LP (High Sierra). The report also details the appointment of a new director to the NGL general partner's board.
Key Financial Metrics and Transaction Terms
- Transaction Consideration: Aggregate merger consideration of $693 million, less High Sierra's net indebtedness (indebtedness plus cash) as of June 1, 2012, and transaction expenses.
- Payment Structure (High Sierra Unitholders): 82% of aggregate consideration, consisting of NGL common units (valued at $21.50 per unit) and $100 million in cash.
- Payment Structure (High Sierra General Partner): 18% of aggregate consideration, consisting of membership interests in the NGL general partner (based on an equity value of $400 million) and $50 million in cash.
- Proposed Financing: NGL anticipates funding the transaction via approximately $700 to $750 million in new debt under a senior secured credit facility and $150 to $200 million in senior secured notes. No commitments for this financing were in place as of the filing date.
- Historical Financials: The filing text does not provide specific revenue, profit, cash flow, or margin figures for NGL or High Sierra.
Material Changes and Corporate Actions
- Acquisition: NGL entered into a Merger Agreement and a GP Merger Agreement to acquire High Sierra. Upon completion, High Sierra will become a direct, wholly owned subsidiary of NGL.
- Board Appointment: Bryan K. Guderian was appointed as a director of the NGL general partner, effective May 17, 2012. He is an independent director and will serve on the Audit Committee, expanding the board to nine directors.
- Approvals: All required approvals from High Sierra unitholders and the High Sierra general partner members have been obtained. The transaction remains subject to regulatory approvals and financing conditions.
Guidance, Outlook, and Risks
- Strategic Rationale: Management believes the merger will provide growth opportunities, create synergies with NGL's logistics business, potentially increase quarterly distributions, improve credit metrics, and diversify the business.
- Projections: Prospective financial information for the fiscal year ending March 31, 2013, is included in Exhibit 99.3. Management explicitly states these projections are not predictive of actual results, have not been audited, and are not prepared in accordance with GAAP.
- Distribution Impact: Former High Sierra unitholders will not receive distributions for the quarter ending March 31, 2012. They will receive one-third of the distribution for the quarter ending June 30, 2012, and full distributions thereafter.
- Risks: Key risks include the failure to obtain necessary financing, inability to satisfy regulatory conditions, integration challenges, and the uncertainty of achieving projected synergies or distribution increases.
Investor Verification Checklist
- Verify the final net indebtedness of High Sierra as of June 1, 2012, to determine the exact cash consideration paid.
- Confirm the successful closing of the proposed $850 million to $950 million debt financing package.
- Monitor the receipt of all necessary governmental and regulatory approvals, including the expiration of the Hart-Scott-Rodino waiting period.
- Review the unaudited prospective financial information in Exhibit 99.3 to understand the assumptions behind the projected accretion and distribution increases.
- Track the integration progress and the appointment of the two High Sierra-affiliated individuals to the NGL board post-closing.