USA Compression Partners’ $1.8 billion Acquisition of Compression Business from Energy Transfer Partners

Evercore acted as financial advisor to USA Compression Holdings, LLC. Jefferies LLC acted as financial advisor to USAC’s conflicts committee. Locke Lord LLP acted as legal counsel to USA Compression Holdings, LLC. Vinson & Elkins L.L.P. acted as legal counsel to USAC. Richards Layton & Finger acted as legal counsel to USAC’s conflicts committee. Barclays acted as financial advisor to ETE and ETP. Tudor, Pickering, Holt & Co. acted as financial advisor to ETP’s conflicts committee. Latham & Watkins LLP acted as legal counsel to ETE and ETP. Potter Anderson & Corroon LLP acted as legal counsel to ETP’s conflicts committee.

USA Compression Partners, LP (NYSE: USAC) (“USA Compression” or “USAC”), Energy Transfer Partners, L.P. (NYSE: ETP) (“ETP”) and Energy Transfer Equity, L.P. (NYSE: ETE) (“ETE”) finalized a transaction valued at approximately $1.8 billion, providing for (i) the contribution of ETP’s subsidiaries, CDM Resource Management LLC and CDM Environmental & Technical Services LLC (collectively, “CDM”), to USAC (the “Contribution”) and (ii) the cancellation of the incentive distribution rights (“IDRs”) in USAC and conversion of the general partner interest in USAC into a non-economic general partner interest (the “IDR/GP Restructuring”). As part of the transaction, ETE will acquire the ownership interests in the general partner of USAC (the “GP Acquisition”) and approximately 12.5 million USAC common units from USA Compression Holdings.

The transaction is expected to be accretive to USAC’s distributable cash flow in 2018. In addition, as discussed in more detail below, ETP’s receipt of a special class of common equity that will not pay distributions for the first year will provide for increased USAC LP coverage, which is expected to be in excess of 1.0x in 2018 and increase over time. In addition, USAC’s leverage is expected to decrease to mid-4x by the end of 2018.

The transaction is also expected to strengthen ETP’s balance sheet by allowing ETP to use the approximately $1.225 billion in cash proceeds that it will receive in connection with the transactions to reduce leverage.

CDM currently owns and operates approximately 1.6 million horsepower of natural gas compression and is focused primarily on large horsepower applications. The acquisition of CDM is expected to provide significant benefits for USAC unitholders as the combined business will have increased geographic coverage and will be one of the leading domestic compression providers. The acquisition will further expand USAC’s geographic presence into regions where USAC is currently underrepresented and will result in USAC having broad coverage across U.S. regions. As part of its overall service offerings, CDM also provides a full range of gas treating and emissions testing services. CDM’s treating activities will also complement USAC’s growing station services offerings, in which USAC provides turnkey gas handling solutions for customers. With over 70% of horsepower greater than 1,000 horsepower and an average unit size of approximately 700 horsepower, the CDM fleet has an average age of approximately 7 years and a current operating utilization rate of 87%. On a pro forma combined basis, USAC will own and operate a compression fleet of approximately 3.4 million HP.

For 2018, CDM’s EBITDA is estimated to be in the range of $160 – $170 million, not including the benefit of synergies, which are expected to be at least $20 million on a run-rate basis. Consistent with past practice, USAC expects to provide full-year 2018 guidance at the time of its fourth-quarter earnings call.

The V&E team was led by partners Milam Newby (Picture) and Ramey Layne with assistance from senior associate Doug Lionberger and associates Aaron Carpenter and Raleigh Wolfe. Also advising were partners Brett Santoli, Tzvi Werzberger and David Wicklund, senior associate Sunjung Kim and associates Michael Makhotin and Erin Brown; partners Shane Tucker and Brian Bloom, senior associate Heather Johnson and associate Christen Romero; partners Ryan Carney, Joe Garcia, Glen Rosenbaum and Wendy Salinas, senior associate Laura Gieseke and associates Sam Guthrie, Curt Wimberly and Jen Maul; partner Sean Becker and senior associate Christie Alcalá; partner Neil Imus and associate John Andren; partner Casey Hopkins; counsel Dan Spelkin and associates Connor Long, Jonathan Sapp, Jane Ehinmoro and David Lassetter; and partner Devika Kornbacher and associate Sean Hill.

Kirkland & Ellis LLP advised affiliates of EIG Global Energy Partners on a $500 million investment into USA Compression Partners, LP (NYSE: USAC), USA Compression will use the proceeds in connection with an acquisition of the compression business from Energy Transfer Partners LP.

The Kirkland team included corporate partners John Pitts and Samuel Peca; capital markets partners Julian Seiguer and Justin Hoffman; and debt finance partner Mary Kogut.

 

Involved fees earner: Milam Foster Newby – Vinson & Elkins LLP; Douglas Lionberger – Vinson & Elkins LLP; Aaron Carpenter – Vinson & Elkins LLP; Raleigh Wolfe – Vinson & Elkins LLP; Ramey Layne – Vinson & Elkins LLP; Brett Santoli – Vinson & Elkins LLP; Tzvi Werzberger – Vinson & Elkins LLP; David Wicklund – Vinson & Elkins LLP; Sunjung Kim – Vinson & Elkins LLP; Michael Makhotin – Vinson & Elkins LLP; Shane Tucker – Vinson & Elkins LLP; Brian Bloom – Vinson & Elkins LLP; Heather Reynolds Johnson – Vinson & Elkins LLP; Sean Becker – Vinson & Elkins LLP; Christie Alcalá – Vinson & Elkins LLP; Christen Romero – Vinson & Elkins LLP; Ryan Carney – Vinson & Elkins LLP; Joe Garcia Jr. – Vinson & Elkins LLP; Glen Rosenbaum – Vinson & Elkins LLP; Wendy Trahan Salinas – Vinson & Elkins LLP; Laura Wilhite Gieseke – Vinson & Elkins LLP; Sam Guthrie – Vinson & Elkins LLP; Curt Wimberly – Vinson & Elkins LLP; Jennifer Maul – Vinson & Elkins LLP; Neil Imus – Vinson & Elkins LLP; John Andren – Vinson & Elkins LLP; George Hopkins – Vinson & Elkins LLP; Daniel Spelkin – Vinson & Elkins LLP; Connor Long – Vinson & Elkins LLP; Jonathan Sapp – Vinson & Elkins LLP; Jane Ehinmoro – Vinson & Elkins LLP; David Lassetter – Vinson & Elkins LLP; Devika Kornbacher – Vinson & Elkins LLP; Sean Hill – Vinson & Elkins LLP; John Pitts – Kirkland & Ellis; Samuel Peca – Kirkland & Ellis; Julian Seiguer – Kirkland & Ellis; Justin Hoffman – Kirkland & Ellis; Mary Kogut – Kirkland & Ellis;

Law Firms: Vinson & Elkins LLP; Kirkland & Ellis;

Clients: EIG Global Energy Partners; USA Compression Partners, LP;

 

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Author: Ambrogio Visconti