Rice Energy Inc. (NYSE: RICE) has completed a $375 million equity investment by EIG Global Energy Partners, on behalf of EIG managed funds, into Rice Midstream Holdings LLC (RMH) in exchange for $375 million of Series B units ("preferred equity") in RMH and common units representing an 8.25% limited partner interest in Rice Midstream GP Holdings LP (GP Holdings), a newly formed subsidiary of RMH that holds all of the common units, subordinated units, and incentive distribution rights in Rice Midstream Partners LP (NYSE: RMP) previously held by RMH.
The preferred equity has an 8.0% distribution rate with an option to pay in kind for the first two years. RMH will use approximately $75 million of the proceeds to repay all outstanding borrowings under its revolving credit facility and to pay transaction fees and expenses, and the remaining $300 million will be distributed to Rice Energy to fund a portion of its 2016 development program in the cores of the Marcellus and Utica shale plays. In addition, RMH will have an additional $125 million commitment from EIG (subject to designated drawing conditions precedent) for a period of 18 months.
The proceeds to Rice will provide liquidity, together with cash on hand and operating cash flow, to fully fund the company’s 2016 E&P capital expenditures.
Upon the third anniversary of the closing, RMH may redeem the preferred equity at a price equal to EIG's invested amount plus any accrued but unpaid distributions. In addition, RMH will have an additional $125 million commitment from EIG for a period of 18 months with each $25 million drawn resulting in an issuance of an additional $25 million of preferred equity in RMH and common units representing an additional 0.55% limited partner interest in GP Holdings. EIG has an irrevocable option to cause RMH to redeem the preferred equity upon the tenth anniversary of the closing. The common units in GP Holdings representing a limited partner interest in GP Holdings will be entitled to pro rata distributions.
Barclays Capital Inc. acted as financial advisor, and Vinson & Elkins L.L.P. served as legal counsel to Rice. Kirkland & Ellis LLP represented EIG in the transaction.