Business Context and Reporting Period
This Form 8-K Current Report, filed on October 6, 2017, covers events occurring on October 4, 2017, for Plains GP Holdings, L.P. The filing details a material definitive agreement entered into by the registrant's consolidated subsidiary, Plains All American Pipeline, L.P. ("PAA"), regarding a new equity offering.
Key Financial Metrics and Transaction Details
- Offering Size: 800,000 Series B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units.
- Public Price: $1,000 per unit.
- Gross Proceeds: Approximately $800 million.
- Net Proceeds: Approximately $787.8 million (after underwriting discounts and estimated expenses).
- Initial Distribution Rate: 6.125% per annum (fixed) until November 15, 2022.
- Post-2022 Rate: Three-month LIBOR plus a spread of 4.11% (floating).
- Payment Frequency: Semi-annually until November 2022; quarterly thereafter.
- Use of Proceeds: Repayment of amounts outstanding under credit facilities and commercial paper programs, and general partnership purposes (including debt repayment, acquisitions, and capital expenditures).
Material Changes and Capital Structure
The filing announces the creation of a new class of preferred units (Series B) which alters the capital structure of PAA. The Series B Preferred Units rank:
- Senior to: Common units and any future equity securities not expressly made senior or pari passu.
- Pari Passu with: Existing Series A Convertible Preferred Units and other parity securities.
- Junior to: All existing and future indebtedness and other liabilities.
The transaction requires the execution of the Seventh Amended and Restated Agreement of Limited Partnership of PAA to establish the rights and preferences of the new units.
Outlook, Risks, and Unusual Items
- Closing Date: Expected on October 10, 2017, subject to customary closing conditions.
- Redemption Terms: The units have no stated maturity. PAA may redeem them following certain ratings agency events at 102% of the liquidation preference, or at any time on or after November 15, 2022, at 100% of the liquidation preference.
- Voting Rights: Holders generally have no voting rights, except for limited rights regarding amendments affecting their preferences, issuance of senior securities, or payment of distributions to common unitholders out of capital surplus.
- Liquidity Risk: Distributions are payable only when, as, and if declared by the General Partner out of legally available funds. PAA will not pay distributions on junior securities unless full cumulative distributions are paid on the Series B and parity securities.
Investor Verification Checklist
- Verify the final closing date of the offering (expected October 10, 2017) and the actual net proceeds received.
- Confirm the specific allocation of proceeds between debt repayment and general partnership purposes.
- Review the full text of the Underwriting Agreement (Exhibit 1.1) for specific representations, warranties, and termination provisions.
- Monitor the credit rating of PAA to assess the potential for early redemption at the 102% premium.
- Check subsequent filings for the declaration of the initial pro-rated distribution payable on November 15, 2017.