Southcross Energy Partners Inactive Financial Report Summaries

Risks

• Our business could suffer from a long and protracted restructuring.
• We have substantial liquidity needs and may be required to seek additional financing. If we are unable to maintain adequate liquidity, we may not be able to obtain financing on satisfactory terms.
• Even if a Chapter 11 plan of reorganization is consummated, we will continue to face risks.
• In certain instances, a Chapter 11 case may be converted to a case under Chapter 7 of the Bankruptcy Code.
• We may be subject to claims that will not be discharged in the Chapter 11 proceedings, which could have a material adverse effect on our financial condition and results of operations.
• Our financial results may be volatile and may not reflect historical trends.
• Any Partnership de-levering transaction or change in the Partnership capital structure, including in connection with a plan of reorganization in the Chapter 11 proceedings, may involve significant taxable cancellation-of-debt or other income, such that the Partnership’s unitholders may be required to pay taxes on their share of such income even if they do not receive any cash distributions from the Partnership.
• During the existence of an event of default and the Chapter 11 Cases, we have no borrowing capacity under our Senior Credit Facilities. Unless we are able to successfully restructure our existing indebtedness we may not be able to continue as a going concern.
• We do not have sufficient cash from operations following the establishment of cash reserves and payment of fees and expenses, including cost reimbursements to our General Partner, to enable us to reinstate paying the minimum quarterly distribution, or any distribution, to our unitholders.
• We expect to have a substantial customer concentration, with a limited number of customers accounting for a substantial portion of our revenues as a result of Holding' sale of its Robstown fractionation facility and our affiliate contracts with Holdings.
• Because of the natural decline in production from existing wells in our areas of operation, our success depends in part on producers growing production and replacing declining production and also on our ability to obtain new sources of natural gas. Any decrease in the volumes of natural gas that we gather, compress, process, treat or transport or in the volumes of NGLs that we fractionate or transport could adversely affect our business and operating results.
• We do not obtain independent evaluations of natural gas and liquid reserves connected to our gathering and transportation systems on a regular or ongoing basis; therefore, in the future, volumes of natural gas on our systems could be less than we anticipate.
• Our success depends on drilling activity by customers and our ability to attract and maintain customers in a limited number of geographic areas.
• Our failure to execute effectively on major development projects could result in delays and/or cost over-runs, limitations on our growth and negative effects on our operating results, liquidity and financial position.
• Energy prices are volatile, and a change in these prices in absolute terms, or an adverse change in energy prices, particularly natural gas and NGLs relative to one another, could adversely affect our gross operating margin and cash flow and our ability to make cash distributions to our unitholders.
• Our exposure to direct commodity price risk and volatility in costs to market products may vary.
• Unexpected volume changes due to production variability or to gathering, plant or pipeline system disruptions may increase our exposure to commodity price movements.
• We may not successfully balance our purchases and sales of natural gas, which would increase our exposure to commodity price risks.
• Our industry is highly competitive, and increased competitive pressure could adversely affect our business and operating results.
• Our gathering, processing and transportation contracts subject us to contract renewal risks.
• We depend on a relatively limited number of customers.
• If third-party pipelines, other midstream facilities or purchasers of our products interconnected to our gathering or transportation systems become partially or fully unavailable, or if the volumes we gather, process or transport do not meet the natural gas and NGL quality requirements of such pipelines or facilities, our gross operating margin, cash flow and our ability to make distributions to our unitholders could be adversely affected.
• Significant portions of our pipeline systems and processing plants have been in service for several decades and we have a limited ownership history with respect to all of our assets. There could be unknown events or conditions or increased maintenance or repair expenses and downtime associated with our pipelines and processing and treating plants that could have a material adverse effect on our business and operating results.
• Our business involves many hazards and operational risks, some of which may not be fully covered by insurance. If a significant accident or event occurs for which we are not adequately insured, including any interruption of our operations as a result of such accident or event, or if we fail to recover all anticipated insurance proceeds for significant accidents or events for which we are insured, our operations and financial results could be adversely affected.
• We may not benefit from our acquisition strategy. If we are unable to make acquisitions on economically acceptable terms from Holdings or third parties, our future growth may be affected and the acquisitions we do make may reduce, rather than increase, our cash generated from operations on a per unit basis.
• Our access to capital may be further limited due to deterioration of conditions in the global capital markets, weakening of macroeconomic conditions and negative changes in financial performance.
• Increases in interest rates could adversely impact our unit price and our ability to issue equity or incur debt for acquisitions or other purposes.
• A shortage of skilled labor in the midstream natural gas industry could reduce labor productivity and increase costs, which could have a material adverse effect on our business and results of operations.
• The terms of our indebtedness will include restrictions and financial covenants that may restrict our business and financing activities.
• If we continue to be unable to generate enough cash flow from operations to service our indebtedness or are unable to use future borrowings to refinance our indebtedness or fund other capital needs, we may have to undertake alternative financing plans, which may have onerous terms or may be unavailable.
• We are subject to stringent environmental laws and regulations that may expose us to significant costs and liabilities.
• Climate change legislation, regulatory initiatives and litigation could result in increased operating costs and reduced demand for the natural gas services we provide.
• Increased regulation of hydraulic fracturing could result in reductions or delays in natural gas production by our customers, which could adversely impact our revenues.
• Our construction of new assets may not result in revenue increases and will be subject to regulatory, environmental, political, legal and economic risks, which could adversely affect our results of operations and financial condition.
• A change in the jurisdictional characterization or regulation of our assets or a change in regulatory laws and regulations or the implementation of existing laws and regulations could result in increased regulation of our assets which could materially and adversely affect our financial condition, results of operations and cash flows.
• We may incur greater than anticipated costs and liabilities as a result of pipeline safety regulation, including integrity management program testing and related repairs.
• The implementation of statutory and regulatory requirements for derivative transactions could increase the costs and have an adverse impact on our ability to hedge risks associated with our business and increase the working capital requirements to conduct these activities.
• Cyber-attacks, acts of terrorism or other disruptions could adversely impact our results of operations and our ability to make cash distributions to unitholders.
• Our General Partner's ability to operate our business effectively could be impaired if we fail to attract and retain key management and personnel.
• If we fail to develop or maintain an effective system of internal controls, we may not be able to report our financial results timely and accurately or prevent fraud, which would likely have a negative impact on the market price of our common units.
• The amount of cash we have available for distribution to holders of our common units, subordinated units and Class B Convertible Units depends primarily on our cash flow rather than on our profitability, which may prevent us from making distributions, even during periods in which we record net income.
• Holdings indirectly owns and controls our General Partner, which has sole responsibility for conducting our business and managing our operations as well as has limited duties to us and our unitholders. Holdings, its general partner and owners, and our General Partner have conflicts of interest with us and they may favor their own interests to the detriment of us and our other unitholders.
• Each of Tailwater and EIG is not limited in its ability to compete with us and is not obligated to offer us the opportunity to acquire additional assets or businesses, which could limit our ability to grow and could adversely affect our results of operations and cash available for distribution to our unitholders.
• Our General Partner has limited its liability regarding our obligations.
• Our Partnership Agreement requires that we distribute all of our available cash, which could limit our ability to grow and make acquisitions.
• While our Partnership Agreement requires us to distribute all of our available cash, our Partnership Agreement, including provisions requiring us to make cash distributions contained therein, may be amended.
• Reimbursements due to our General Partner and its affiliates for services provided to us or on our behalf reduce cash available for distribution to our common unitholders. The amount and timing of such reimbursements will be determined by our General Partner.
• Our Partnership Agreement replaces our General Partner’s fiduciary duties to holders of our common and subordinated units with contractual standards governing its duties.
• Our Partnership Agreement restricts the rights of holders of our common and subordinated units with respect to actions taken by our General Partner that might otherwise constitute breaches of fiduciary duty.
• Our General Partner may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to our General Partner’s incentive distribution rights without the approval of the conflicts committee of our General Partner’s board or our unitholders. This election may result in lower distributions to our common unitholders in certain situations.
• Holders of our common units have limited voting rights and are not entitled to elect our General Partner or its directors.
• Even if holders of our common units are dissatisfied, they cannot currently remove our General Partner without its consent.
• Our Partnership Agreement restricts the voting rights of unitholders owning 20% or more of our common units.
• Our General Partner interest or the control of our General Partner may be transferred to a third party without unitholder consent.
• We may issue additional units without your approval, which would dilute your existing ownership interests.
• Holdings may sell our units in the public or private markets, and such sales could have an adverse impact on the trading price of the common units.
• Our General Partner has a limited call right that may require you to sell your units at an undesirable time or price.
• Your liability may not be limited if a court finds that unitholder action constitutes control of our business.
• Unitholders may have liability to repay distributions that were wrongfully distributed to them.
• We may have difficulty attracting, motivating and retaining executives and other employees.
• The price of our common units may be adversely affected by the future issuance and sale of additional common units, or by our announcement that such issuances and sales may occur.
• The market price of our common units may fluctuate significantly, and you could lose all or part of your investment.
• Our common unit price has reflected a great deal of volatility, including a significant decrease over the past few years. The volatility may mean that, at times, our unitholders may be unable to resell their shares at or above the price at which they acquired them.
• Our tax treatment depends on our status as a partnership for federal income tax purposes. If the Internal Revenue Service (IRS) were to treat us as a corporation for federal income tax purposes, which would subject us to entity-level taxation, or if we were otherwise subjected to a material amount of additional entity-level taxation, then our cash available for distribution to our unitholders would be substantially reduced.
• The tax treatment of publicly traded partnerships or an investment in our common units could be subject to legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis.
• Unitholders’ share of our income is taxable to them for federal income tax purposes even if they do not receive any cash distributions from us.
• If the IRS contests the federal income tax positions we take, the market for our common units may be adversely impacted and the cost of any IRS contest will reduce our cash available for distribution to our unitholders. Recently enacted legislation alters the procedures for assessing and collecting taxes due for taxable years beginning after December 31, 2017, in a manner that could substantially reduce cash available for distribution to our unitholders.
• If the IRS makes audit adjustments to our income tax returns for tax years beginning after December 31, 2017, it may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustment directly from us, in which case our cash available for distribution to our unitholders might be reduced.
• Tax gain or loss on the disposition of our common units could be more or less than expected.
• Tax-exempt entities and non-U.S. persons face unique tax issues from owning our common units that may result in adverse tax consequences to them.
• We treat each purchaser of common units as having the same tax benefits without regard to the actual common units purchased. The IRS may challenge this treatment, which could adversely affect the value of the common units.
• We prorate our items of income, gain, loss and deduction for federal income tax purposes between transferors and transferees of our units each month based upon the ownership of our units on the first business day of each month, instead of on the basis of the date a particular unit is transferred. The IRS may challenge aspects of our proration method, and, if successful, we would be required to change the allocation of items of income, gain, loss and deduction among our unitholders.
• A unitholder whose common units are loaned to a “short seller” to effect a short sale of common units may be considered as having disposed of those common units. If so, such unitholder would no longer be treated for federal income tax purposes as a partner with respect to those common units during the period of the loan and may recognize gain or loss from the disposition.
• We have adopted certain valuation methodologies in determining a unitholder's allocation of income, gain, loss and deduction. The IRS may challenge these methodologies or the resulting allocations, and such a challenge could adversely affect the value of the common units.
• As a result of investing in our common units, our unitholders may be subject to state and local taxes and return filing requirements in jurisdictions where we operate or own or acquire properties.
• Compliance with and changes in tax laws could adversely affect our performance.