| Item 1.01 | Entry into a Material Definitive Agreement. |
Securities Exchange Agreement and Series A Cumulative Convertible Preferred Unit Purchase Agreement
On September 30, 2020 (the “Closing Date”), Enterprise Products Partners L.P. (the “Partnership”), and OTA Holdings, Inc., a wholly owned subsidiary of the Partnership (“OTA”), entered into a Securities Exchange Agreement (the “Exchange Agreement”), pursuant to which the Partnership issued 855,915 Series A Cumulative Convertible Preferred Units representing limited partner interests in the Partnership (the “Preferred Units”) in exchange for 54,807,352 common units representing limited partner interests in the Partnership (“Common Units”) held by OTA. The Exchange Agreement contains customary representations, warranties and covenants of the Partnership and OTA.
Additionally, on the Closing Date, the Partnership entered into a Series A Cumulative Convertible Preferred Unit Purchase Agreement (the “Purchase Agreement”) with a group of investors, including (i) certain funds managed by Kayne Anderson Capital Advisors, L.P. and Tortoise Capital Advisors, L.L.C. and (ii) Manxome Investors L.P. (collectively, the “Purchasers”), pursuant to which the Partnership issued and sold in a private placement $50.0 million of Preferred Units. The Partnership issued 50,000 Preferred Units to the Purchasers at a price of $1,000 per Preferred Unit (the “Preferred Unit Purchase Price”). The Purchase Agreement contains customary representations, warranties and covenants of the Partnership and the Purchasers. Net cash proceeds to the Partnership from the sale of the Preferred Units, after deduction of fees and expenses, are expected to be approximately $31.4 million. In addition to cash proceeds, certain Purchasers exchanged an aggregate of 1,120,588 Common Units as partial consideration for the Preferred Units. Manxome Investors L.P. is an affiliate of the general partner of the Partnership.
Seventh Amended and Restated Agreement of Limited Partnership
On the Closing Date, in connection with the transactions contemplated by the Purchase Agreement and the Exchange Agreement, the general partner of the Partnership (the “General Partner”) executed the Seventh Amended and Restated Agreement of Limited Partnership of the Partnership (the “Amended Partnership Agreement”) to authorize and establish the rights, preferences and privileges of the Preferred Units. The Preferred Units represent a new class of partnership interests that rank senior to Common Units with respect to distributions and liquidation. The Preferred Units not held by the Partnership or its subsidiaries or affiliates generally will vote on an as-converted basis with the Common Units and will have certain class voting rights with respect to a limited number of matters, including (subject to certain exceptions) with respect to: (i) amendments to the Amended Partnership Agreement that would be materially adverse to any of powers, preferences, duties or special rights of the Preferred Units; and (ii) amendments to the Amended Partnership Agreement that would materially and adversely affect any holder of Preferred Units in a disproportionate manner compared to any other holder of Preferred Units, without the consent of the holder(s) of Preferred Units disproportionately affected.
Holders of the Preferred Units are entitled to receive cumulative distributions of 7.25% per annum. While the Preferred Units are outstanding, the Partnership will be prohibited from paying distributions on any junior securities, including Common Units, unless full cumulative distributions on the Preferred Units (and any parity securities) have been, or contemporaneously are being, paid or set aside for payment through the most recent Preferred Unit distribution payment date. At any time prior to an investment grade rating event (as described below) or the Common Units are no longer listed for trading on a national securities exchange, the Preferred Unit distributions may be paid, in the sole discretion of the General Partner (subject to certain rights of a holder to elect cash), in additional Preferred Units, with the remainder paid in cash.
On and after the fifth anniversary of the Closing Date, each holder of Preferred Units may convert, in whole or in part, at any time and from time to time upon the request of such holder, subject to certain limitations, its Preferred Units into a number of Common Units equal to (a) the number of Preferred Units to be converted multiplied by (b) the quotient of (i) the Preferred Unit Purchase Price plus any accrued and unpaid distributions per Preferred Unit, divided by (ii) 92.5% of the volume-weighted average price of the Common Units for the five consecutive full trading days ending on the last full trading day immediately prior to the delivery of a conversion notice.
Upon the occurrence of an investment grade rating event, as described below, at any time on or prior to the sixth anniversary of the Closing Date, each holder of Preferred Units may convert its Preferred Units into a number of Common Units equal to the quotient of (a) $1,010 plus any accrued and unpaid distributions per Preferred Unit, divided by (b) 92.5% of the volume-weighted average price of the Common Units for the five consecutive full trading days ending on the last full trading day immediately prior to the delivery of an investment grade rating event notice. An investment grade rating event would occur if the senior notes issued by Enterprise Products Operating LLC cease to have a rating of at least “BBB-” or higher by S&P Global, Inc., “BBB-” or higher by Fitch Ratings, Inc. or “Baa3” or higher by Moody’s Investor Services, Inc.
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