Tallgrass Energy Partners LP (NYSE: TEP) has closed on the acquisition of an additional 33.3% interest in Tallgrass Pony Express Pipeline LLC for a cash consideration of $700 million. The acquisition increases TEP’s membership interest in Pony Express to 66.7%.
“We are excited to complete our third dropdown acquisition at TEP, which increases our size and scale and provides TEP with additional firm, fee-based cash flows supported by long-term contracts,” said David G. Dehaemers Jr., Tallgrass president and CEO. “This acquisition furthers one of our commitments: to grow TEP’s cash distributions to its unitholders through dropdown transactions at attractive multiples. Consistent with our first Pony Express acquisition, we expect this transaction to be immediately accretive to unitholders and expect to recommend that our board of directors increase our distribution over the next two quarters by an aggregate of at least 15%, providing clear visibility toward achieving our previously announced distribution growth guidance of approximately 20% for 2015.”
The $700 million cash purchase price was funded through TEP’s follow-on equity offering of 10 million common units, which closed on Feb. 27, and borrowings under its revolving credit facility. The terms of the transaction provide TEP an additional minimum quarterly preference payment of $20 million, bringing TEP’s total quarterly preference payment amount to $36.65 million for its 66.7% interest. The preference will continue through distributions made with respect to the quarter ended Dec. 31, with distributions of available cash generally shared pro rata thereafter. The aggregate pro-rated preference payment to TEP for the first quarter of 2015 will be approximately $23.5 million.