Eagle Rock will receive total consideration of up to $1.325 billion, subject to certain closing conditions, consisting of $200 million of newly-issued Regency common units and a combination of cash and assumed debt. Regency will conduct an offer to exchange Eagle Rock's $550 million of outstanding senior unsecured notes into an equivalent amount of Regency senior unsecured notes with the same tenor, coupon and a comparable covenant package. The cash portion of the purchase price will be reduced by the amount of notes exchanged subject to a 10% adjustment factor such that if all $550 million of bonds are exchanged, the total consideration will equal $1.27 billion ($1.325 billion less $55 million) consisting of $200 million in Regency units, $550 million of assumed debt and $520 million of cash proceeds.
Following the closing of the transaction, which is expected in the first half of 2014, Eagle Rock will be a pure-play upstream MLP. The partnership intends to use the cash proceeds from the contribution of its midstream business to pay down borrowings under its revolving credit facility. Pro-forma for the sale, the partnership anticipates its Total Leverage Ratio will be under 1.75x.
Evercore Group LLC and Citigroup Global Markets Inc. acted as financial advisors and Vinson & Elkins LLP acted as legal counsel to Eagle Rock.