Crestwood Equity Announces Strategic Transactions with Crestwood Holdings

Source: 3/25/2021, Location: North America

Crestwood Equity Partners LP (NCEQP) (Crestwood) announced that it and Crestwood Holdings LLC (“Crestwood Holdings”) have executed a series of definitive agreements whereby Crestwood will acquire approximately 11.5 million common units and the general partner interest from Crestwood Holdings for total consideration of approximately $268 million. In addition, in a separate press release issued today, Crestwood announced that First Reserve priced a private placement of six million common units for total proceeds of $132 million. With the combination of these transactions, First Reserve expects to have fully exited its investment in Crestwood. Crestwood will retire the approximate 11.5 million outstanding common units currently held by First Reserve, and transition to a publicly elected Board of Directors. Additionally, the Board of Directors has authorized a $175 million opportunistic common and preferred unit repurchase program.

Highlights of the Transactions and Updated Strategic Initiatives:

Enhanced corporate governance: Thetransactions enable the implementation of a traditional public company governance structure with a publicly elected board of directors further ensuring alignment between management and the Board of Directors with common unitholders, consistent with Crestwood’s long-term ESG strategy.

Significantly accretive: Distributable cash flow per unit metrics are significantly enhanced with the buyback and retirement of approximately 11.5 million common units, or approximately 15% of total common units outstanding, resulting in annual common distribution savings of approximately $29 million based on the current annual rate of $2.50 per common unit.

Larger and more diversified investor base: Thetransactionsand related dispositions of Crestwood common units by First Reserve are expected to result in theincrease of Crestwood’s public trading float by approximately 12% with more diverse institutional ownership and allow First Reserve to exit its large block ownership position of approximately 24% of total common units outstanding in Crestwood in a strategic and well executed manner.

Credit enhancing: The transactions improve Crestwood’s outlook with the rating agencies with the complete repayment of the Term Loan B at Crestwood Holdings and improve Crestwood’s consolidated capital structure under the agencies’ methodology.

Unit Repurchase Program : In connection with the transactions and enhancements to Crestwood’s future governance structure and investor alignment, Crestwood’s Board of Directors has also approved a $175 million common unit and preferred unit repurchase program effective through December 31, 2022.

“Today marks a great milestone in the history of Crestwood with the buy-in of First Reserve’s interest in a transaction that enhances our alignment with common unitholders, improves our financial flexibility, and advances our strategic objectives to be a best-in-class midstream infrastructure company and maximize returns to our unitholders,” stated Robert G. Phillips, Chairman, President and Chief Executive Officer of Crestwood’s general partner. “I would like to thank the First Reserve organization for their support, guidance and partnership over the last ten years as they helped us tremendously to build Crestwood into a premier midstream company. Crestwood has established a track record of solid execution, disciplined capital allocation and a commitment to embracing a best-in-class MLP sustainability program. Today’s announcements are the next logical steps in our strategy to drive peer leading governance and set the stage for future growth by simplifying our organizational structure, increasing our public float and liquidity, and enhancing our financial flexibility as we strive to generate long-term value for our unitholders.”

Gary D. Reaves, Managing Director of First Reserve said, “First Reserve would like to thank the Crestwood organization for its partnership over the past ten years. While today marks the culmination of over a decade of First Reserve’s ownership of Crestwood, we will certainly maintain our long-standing relationships with the Crestwood team and all Crestwood stakeholders, and we exit this investment proud of all that Crestwood has achieved in the past decade including its leadership role in MLP sustainability initiatives. We continue to believe the outlook is bright for the Crestwood organization and look forward to watching its future success in the years to come.”

Transaction Details

Under the terms of the transactions, First Reserve will exit its investment in Crestwood which included 17.5 million common units, approximately 24% of total common units outstanding, and control of the general partner. In a series of transactions, First Reserve has entered into agreements with third parties to sell six million common units representing limited partner interests in Crestwood, with expected total proceeds of $132 million. In addition, Crestwood expects to repurchase the general partner interest and the remaining 11.5 million units held by First Reserve with $268 million drawn on its existing $1.25 billion revolving credit facility.

Following completion of the transactions, Crestwood will have approximately 62.8 million common units outstanding, representing an approximate 15% reduction in total common unit count. Crestwood’s buyback of First Reserve’s common units results in annual cash distribution savings of approximately $29 million based on the current annual distribution rate of $2.50 per common unit. The closing of the repurchase of First Reserve’s common units is expected to occur on March 30, 2021 and the closing of the acquisition of the general partner interest is expected to occur in the coming months and is not subject to any closing conditions.

The transactions between Crestwood and First Reserve were unanimously approved by the Conflicts Committee of the Board of Directors of the general partner of Crestwood following review with legal counsel Akin Gump Strauss Hauer & Feld LLP and rendering of a fairness opinion to the Conflicts Committee from Evercore. Following the approval by the Conflicts Committee, these transactions were unanimously approved by the Board of Directors of the general partner, with First Reserve affiliated directors abstaining.

Today’s announcement does not affect Crestwood’s nor First Reserve’s ownership in Crestwood Permian Basin Holdings LLC (“CPJV”). CPJV was formed in November 2016 to develop, own, and operate vital midstream infrastructure assets in the Delaware Basin and is held in a separate 10-year fund that First Reserve formed in 2014.

Crestwood to Transition to an Elected Board

Gary D. Reaves and William R. Brown will resign from the Board of Directors at closing of the initial transaction, which is scheduled for March 30, 2021. Going forward, to enhance its corporate governance sustainability initiatives, Crestwood will transition to a fully elected board with traditional public company oversight that includes a staggered board feature, term limits, and a continued commitment to board diversity. Crestwood will maintain a board composed of seven directors until such time as it can appoint two independent replacements.

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