Exterran Holdings secures financing to enable spin-off of businesses

Exterran Holdings Inc. (NYSE: EXH) has provided an update to the planned financing in connection with its previously announced separation.

In November 2014, Exterran Holdings said that it intends to separate its international contract operations, international aftermarket services, and global fabrication businesses into a stand-alone, publicly traded company named Exterran Corp. Upon completion of the spin-off, Exterran Holdings, which will continue to own and operate its contract operations and aftermarket services businesses in the US, will be renamed Archrock Inc.

Exterran Holdings has reached financing arrangements for Exterran Corp. and Archrock Inc. that enable Exterran Holdings to move forward with the separation transaction through an all secured financing structure. As a result, Exterran Holdings expects that the spin-off of Exterran Corp. will take place in the fourth quarter of 2015.

The completion of the spin-off will be subject to completion of a review by the US Securities and Exchange Commission of Exterran Corp.’s Form 10, the receipt of an opinion of counsel as to the tax-free nature of the transaction, the execution of separation and intercompany agreements, and final approval of the Exterran Holdings board of directors.

As previously announced, Exterran Corp. entered into a $750 million revolving credit facility on July 10 that would become available upon the completion of the separation and the satisfaction of certain other conditions. On Oct. 5, Exterran Corp. amended and restated the credit agreement to provide for a new $925 million credit facility, consisting of a $680 million revolving credit facility and a $245 million term loan facility. The revolving credit facility will have an interest rate subject to a leverage grid with an expected initial interest rate of LIBOR plus 2.75%. The term loan will carry an interest rate of LIBOR plus 5.75%, with a 1.00% LIBOR floor.

Availability under the new credit facility is conditioned upon the completion of the separation and the satisfaction of certain other customary conditions. The revolving credit facility will mature five years after the effective date of the separation transaction, and the term loan facility will mature two years after the effective date of the separation transaction.

The new credit facility includes, among other covenants, financial covenants requiring Exterran Corp. to maintain (after the separation) an interest coverage ratio of not less than 2.25:1.00 and a total leverage ratio of not greater than 3.75:1.00. Should Exterran Corp. refinance the term loan facility with the proceeds of certain qualified unsecured debt or equity issuances, the financial covenants in the revolving credit facility will be modified to require that Exterran Corp. maintain a total leverage ratio of not greater than 4.50:1.00 and a senior secured leverage ratio of not greater than 2.75:1.00, while the interest coverage ratio will not change. Such capitalized terms are defined in the amended and restated credit agreement.

In connection with the spin-off, Exterran Holdings anticipates that Exterran Corp. initially will borrow under its new credit facility and transfer an amount of proceeds to Exterran Holdings which, when taken together with the proceeds from borrowings under the Archrock credit facility as described below, will enable Exterran Holdings to repay all of its existing indebtedness.

As of June 30, on a pro forma basis after giving effect to the spin-off, Exterran Corp. would have borrowed and transferred to Exterran Holdings approximately $539 million. Subsequent to June 30, and prior to the completion of the spin-off, Exterran Holdings expects to incur additional borrowings under its existing credit facility of between $40 million and $50 million to finance expenses related to the completion of the spin-off, which will increase the amount that Exterran Corp. borrows under its new credit facility and transfers to Exterran Holdings.

Also, Exterran Holdings entered into a $300 million credit facility on July 10 that would become available upon the completion of the separation and the satisfaction of certain other conditions. On Oct. 5, Exterran Holdings executed a first amendment to the credit agreement that, among other things, increases the aggregate commitments under the revolving credit facility from $300 million to $350 million. The revolving credit facility includes, among other covenants, financial covenants requiring Archrock Inc. to maintain (after the separation) an interest coverage ratio of not less than 2.25:1.00 and a total leverage ratio of not greater than 4.25:1.00 (except that the maximum total leverage ratio during a specified acquisition period will be increased to 4.75:1.00), as those capitalized terms are defined in the credit agreement. The revolving credit facility will have an interest rate subject to a leverage grid with an expected initial interest rate of LIBOR plus 1.75%.

Archrock Inc.’s indebtedness under its credit facility upon the closing of the spin-off, and following the redemption of Exterran Holding’s 7.25% senior notes of $350 million, is expected to be $170 million less the aggregate amount of installment payments Exterran Holdings receives from the Venezuelan state-owned oil company before completion of the spin-off. Archrock Inc. expects to incur additional borrowings under its credit facility of $10 million to $15 million to finance expenses related to the completion of the spin-off. The amount of indebtedness of Exterran Partners will not be impacted by the separation.

At Sept. 30, subsidiaries of Exterran Corp. were due $96 million of principal payments from the sales of nationalized Venezuelan assets. In connection with the spin-off, Exterran Corp.’s subsidiary will transfer to an Archrock subsidiary the right to receive an amount equal to the payments made on those remaining receivables as they are received from the Venezuelan state-owned oil company.

In connection with the spin-off, a subsidiary of Exterran Corp. will transfer to a subsidiary of Archrock the right to receive $25 million upon Exterran Corp.’s completion of certain qualified unsecured debt or equity issuances and repayment in full of the term loan portion of Exterran Corp.’s credit facility after the spin-off. Exterran Corp. will use its commercially reasonable efforts to complete such a capital raise on or before the maturity date of its term loan or as soon as practicable thereafter.

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