Dominion Midstream Partners LP (NYSE: DM), and Dominion Resources Inc. (NYSE: D), noted today an agreement in which Dominion Midstream will acquire Questar Pipeline LLC from Dominion for $1.725 billion, including indebtedness of Questar Pipeline.
Dominion Midstream intends to finance the acquisition through the following transactions:
- Dominion Midstream's assumption of Questar Pipeline's $435 million of outstanding indebtedness;
- Equity offerings, including:
- An underwritten public offering of Dominion Midstream common units representing limited partner interests in the partnership,
- Commitments received from a group of institutional investors led by Stonepeak Infrastructure Partners for $137.5 million of common limited partner units and up to $600 million of convertible preferred units representing limited partner interests in the partnership that are to be issued privately, and
- Common units and preferred units that are to be issued to Dominion; and
- A $300 million term loan provided by a group of banks, allowing Dominion Midstream to repay an existing term loan currently provided by Dominion.
Upon closing, the acquisition of Questar Pipeline – which owns and operates Federal Energy Regulatory Commission-regulated natural gas transmission and storage assets in Colorado, Utah and Wyoming – will be immediately accretive to Dominion Midstream's distributable cash flow and supportive of the partnership's intention to grow distributions to unitholders at a compounded annual growth rate of 22% per year. It is also expected to more than double Dominion Midstream's existing adjusted EBITDA, thereby obviating the partnership's need to acquire any additional assets or issue any additional equity to meet its annual distribution growth targets until the second half of 2018.
Subject to certain conditions, the preferred units will pay a distribution of 4.75% per year for two years, and thereafter a distribution equal to the greater of 4.75% per year and the amount that the preferred units would have received if they had converted into common limited partner units. The preferred units will generally be convertible into common limited partner units at a price reflecting an approximate 15% premium to the pricing of this morning's underwritten public offering of common limited partner units on a one-for-one basis after two years, at the purchasers' option, and after three years at Dominion Midstream's option, subject to certain conditions.
Dominion plans to use proceeds from the Questar Pipeline dropdown into Dominion Midstream to retire outstanding debt.
Thomas F. Farrell II, chairman, president and chief executive officer of Dominion and chairman and CEO of Dominion Midstream, said:
"Dominion Midstream's planned acquisition of Questar Pipeline and related financing have been anticipated as part of the financing structure of the Dominion-Questar Corporation combination since it was announced in February 2016. The capital generated from the Questar Pipeline dropdown will allow Dominion to pay down debt while supporting its earnings and dividend growth targets. The dropdown will also provide Dominion Midstream with additional earnings to support its best-in-class growth rate, without another asset drop or additional equity, until the second half of 2018.
The Dominion Midstream GP's Conflicts Committee was advised by Richards, Layton & Finger PA and Evercore Group LLC. This transaction is not subject to additional regulatory or other approvals.