Tallgrass Energy Partners LP (NYSE: TEP) is acquiring an additional 31.3% interest in Tallgrass Pony Express Pipeline LLC for cash consideration of $475 million and 6.518 million TEP common units issued to Tallgrass Development.
Based on TEP’s Dec. 31, 2015, closing price of $41.21, the total consideration of $743.6 million represents a multiple of 9.0x incremental cash flow to TEP as a result of the acquisition. The acquisition increases TEP’s membership interest in Pony Express to 98%.
The cash consideration of $475 million is being funded through borrowings under TEP’s revolving credit facility, which is increased from $1.1 billion to $1.5 billion in connection with the transaction.
As part of the transaction, Tallgrass Development is granting TEP an 18-month call option to repurchase the newly issued 6.518 million common units at a price of $42.50. Thus, the acquisition could become more accretive to TEP if it issues equity for net cash proceeds in excess of $42.50 per common unit and exercises its option. Pro forma for this transaction, TEP’s debt to cash flow ratio is 3.7x and its available liquidity under its revolving credit facility is $272 million. TEP expects that Tallgrass Development will maintain its minority ownership interest in Pony Express for the foreseeable future.