KNOT Announces Elimination of Incentive Distribution Rights

Source: www.gulfoilandgas.com 9/7/2021, Location: Europe

KNOT Offshore Partners LP announced that the Partnership has entered into an exchange agreement with its sponsor, Knutsen NYK Offshore Tankers AS (“Knutsen NYK”), and its general partner whereby Knutsen NYK will contribute to the Partnership all of Knutsen NYK’s incentive distribution rights (“IDRs”), in exchange for the issuance by the Partnership to Knutsen NYK of 673,080 common units and 673,080 Class B Units, whereupon the IDRs will immediately be cancelled and cease to exist (the “IDR Exchange”). The Class B Units are a new class of limited partner interests which will not be entitled to receive cash distributions in any quarter unless common unitholders receive a distribution of at least $0.52 for such quarter (the “Distribution Threshold”). When common unitholders receive a quarterly distribution at least equal to the Distribution Threshold, then Class B unitholders will be entitled to receive the same distribution as common unitholders. At the current quarterly common unit distribution level of $0.52, the total combined quarterly distribution for the newly issued common units and Class B Units is equivalent to the quarterly distribution to the IDRs prior to the IDR Exchange.

For each quarter (starting with the quarter ending September 30, 2021) that the Partnership pays distributions on the common units that are at or above the Distribution Threshold, one-eighth of the Class B Units will be converted to common units on a one-for-one basis until such time as no further Class B Units exist. The Class B Units will generally vote together with the common units as a single class.

Following the IDR Exchange, and on a Class B Unit fully-converted basis, Knutsen NYK will beneficially own 10,004,028 common units, which would represent approximately 29.2% of KNOP’s outstanding common units. The IDR Exchange is expected to close on September 10, 2021.

Gary Chapman, Chief Executive Officer and Chief Financial Officer of KNOT Offshore Partners LP, commented, “This cash flow neutral elimination of KNOP’s IDRs is an important step forward for the Partnership, further aligning the interests of our sponsor and our common unitholders and enhancing the attractiveness and accessibility of KNOP as an equity investment opportunity. The supportive terms of this transaction reflect a recognition by both the Partnership and our sponsor, which is itself the largest holder of KNOP common units, that elimination of the IDRs removes a longstanding overhang with respect to the Partnership’s capital structure. The Partnership is committed to introducing a growing investor audience to the Partnership’s attractive distribution, our leadership position in the shuttle tanker sector, and the supportive fundamentals underlying our long-term growth prospects.”

The board of directors of each of the Partnership, its general partner and Knutsen NYK, as well as the Conflicts Committee of the Partnership’s board, unanimously approved the IDR Exchange. Evercore served as financial advisor and Richards, Layton & Finger, P.A. served as legal advisor to the Conflicts Committee. Baker Botts L.L.P. served as legal advisor to the Partnership.


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