Energy Capital Partners loaned $35 million under a first-lien secured credit agreement to Summit Midstream Partners LP (SMLP) in connection with SMLP’s acquisition from Energy Capital Partners of Summit Midstream Partners LLC (Summit Investments), the privately held company that indirectly owns SMLP’s general partner, Summit Midstream GP LLC. As part of the transaction, SMLP also acquired 5.9 million SMLP common units owned directly by an affiliate of Energy Capital Partners. The acquisition was for $35 million in cash plus warrants covering up to 10 million SMLP common units.
The credit agreement will bear interest at 8% per annum and mature on March 31, 2021. SMLP intends to utilize the proceeds of the agreement to enhance its liquidity position and for general corporate purposes.
The acquisition aims to create a more simplified corporate structure whereby Summit Investments, and all of its subsidiaries, will become wholly-owned subsidiaries of SMLP, and SMLP will be governed by a board consisting of a majority of independent directors.
Summit Investments owns 100% of Summit Midstream Partners Holdings (SMP Holdings), which owns 100% of Summit Midstream GP LLC, 45.3 million SMLP common units and the $180.75 million deferred purchase price obligation receivable.
SMP Holdings will continue as the borrower under an existing $158.2 million term loan which matures in May 2022 and is secured by approximately 34.6 million SMLP common units owned by SMP Holdings and the Summit Midstream GP LLC interest. The acquired entities, including Summit Investments and SMP Holdings, are unrestricted subsidiaries under SMLP’s senior notes indentures, and are not guarantors or restricted subsidiaries under SMLP’s revolving credit facility.
Following the closing of the transaction, SMLP plans to retire 16.6 million SMLP common units that represent approximately 17.5% of the total SMLP common units outstanding immediately preceding the closing of the transaction. In addition, the remaining 34.6 million SMLP common units that are pledged as collateral under the SMP Holdings term loan will not be considered “outstanding” units under the fourth amended and restated agreement of limited partnership of SMLP, so long as they are held by SMLP or one of its subsidiaries. As such, following the closing of the transaction, the approximately 43.3 million SMLP common units owned by SMLP’s public unitholders will constitute 100% of the outstanding SMLP common units for purposes of voting and distributions.
“The closing of the GP buy-in transaction represents a key milestone in SMLP’s transformation,” Heath Deneke, president and CEO of SMLP, said. “Together with an independent and fully aligned board, SMLP’s management team is focused on generating long-term unitholder value while providing safe, reliable and efficient service for our customers. SMLP is taking control of its future with this transaction, which will enable it to continue to prioritize the balance sheet by reducing debt, controlling costs, increasing financial flexibility and improving credit metrics in today’s volatile market.”
SMLP is a limited partnership focused on developing, owning and operating midstream energy infrastructure assets that are located primarily in shale formations in the continental United States.
