Breitburn Energy Partners LP (NASDAQ: BBEP) and EIG Global Energy Partners have definitive agreements whereby Breitburn will sell $350 million of perpetual convertible preferred units and $650 million of senior secured notes in simultaneous private offerings to investment funds managed by EIG, and other purchasers.
The Series B perpetual convertible preferred units will be issued at a price of $7.50, representing a premium of approximately 27% to Breitburn’s common unit closing price on March 27. The Series B preferred units will pay monthly distributions at a rate equal to 8% per annum, payable in cash or additional Series B preferred units at Breitburn’s option for the first three years, and in cash thereafter. After three years, the Series B preferred units will be convertible at the option of the holder, and earlier in certain limited circumstances. After three years, the Series B preferred units will be convertible by Breitburn under certain circumstances. The Series B preferred units will vote on an as-converted basis with Breitburn’s common units and will have certain other class voting rights. At close, the Series B preferred units will have a combined voting interest of approximately 18%.
The senior secured notes due May 2020 will pay interest at the rate of 9.25% per annum. The senior notes will be secured on a second-priority basis and be effectively subordinated to the extent of the value of the collateral to Breitburn’s credit facility. The senior notes will be effectively senior to Breitburn's existing 2020 senior notes and 2022 senior notes and any existing and future unsecured indebtedness to the extent of the value of the collateral securing the senior notes. The senior notes are not callable prior to the third anniversary of the closing date, other than at a customary make-whole premium, and are callable at par beginning on the fourth anniversary of the closing date. The senior notes do not include any financial maintenance covenants.
Breitburn expects to use the net proceeds from the private offerings of approximately $938 million to repay borrowings under its credit facility, resulting in net borrowings, at closing, of approximately $1.24 billion.
In conjunction with the private offerings, Breitburn is amending its credit facility to allow for the issuance of the senior notes and to establish a revised borrowing base of $1.8 billion through April 2016, subject to limited exceptions. Simultaneously, Breitburn intends to reduce its common distribution to $0.50 per unit on an annualized basis in conjunction with these private offerings. This lower distribution rate is part of an overall plan to increase Breitburn’s liquidity and strategic flexibility for a potentially prolonged market downturn.
These offerings are expected to close on April 8, subject to the approval of an amendment to Breitburn’s senior credit facility and the satisfaction of other customary closing conditions. Upon completion of the financing transactions with EIG, Breitburn has agreed to appoint Kurt Talbot, vice chairman of EIG, to its board of directors.
Jefferies LLC is serving as lead placement agent and sole financial advisor to Breitburn, and Credit Suisse is serving as financial advisor to EIG.