| Item 1.01 | Entry into a Material Definitive Agreement. |
On March 18, 2022, DCP Midstream, LP (the “Partnership”) and its 100% owned subsidiary, DCP Midstream Operating, LP (the “Company”), entered into the Third Amended and Restated Credit Agreement with Mizuho Bank, Ltd. (“Mizuho”), as Administrative Agent, and the lenders party thereto (the “Credit Agreement”). Amongst other changes, the Credit Agreement extended the maturity date of the agreement from December 9, 2024 to March 18, 2027, updated interest rate provisions to term SOFR, implemented a sustainability adjustment margin, and amended the debt covenant with respect to indebtedness attributable to a qualified securitization transaction.
The Credit Agreement provides for an unsecured revolving credit facility in an aggregate principal amount of up to $1.4 billion, with an option for the Company to increase the revolving loan commitment by an aggregate principal amount of up to $500 million, subject to requisite lender approval. Loans under the Credit Agreement will be used for working capital and for other general partnership purposes, including acquisitions. The Credit Agreement has a five-year term and may be extended for up to two additional one-year periods subject to requisite lender approval.
The Credit Agreement provides sublimits for swingline loans and for the issuance of letters of credit. Loans under the Credit Agreement accrue interest based, at the Company’s election, on either the term SOFR rate or the base rate plus, in each case, an applicable margin. The applicable margin used in connection with interest rates and fees under the Credit Agreement is based on the Partnership’s or the Company’s, as applicable, non-credit-enhanced, senior unsecured long-term debt rating at the applicable time.
In addition, the Credit Agreement implements a sustainability adjustment (the “ESG Margin”) to the interest and facility fee payable by the Company that may result in a positive or negative adjustment of up to (a) 0.04% for the applicable margin and (b) 0.01% for the facility fee. The ESG Margin will be calculated based on the Partnership’s performance under two metrics: (i) relative change in greenhouse gas emissions of the Partnership and its subsidiaries and (ii) the Partnership’s total recordable incident rate compared to its peers.
The Company’s obligations under the Credit Agreement are unsecured and are guaranteed by the Partnership. None of the Company’s subsidiaries will guarantee the obligations under the Credit Agreement, unless the subsidiaries agree to guarantee certain other debt of the Company in the future or the Company otherwise elects to cause any such subsidiary to become a guarantor of the obligations under the Credit Agreement.
The Credit Agreement contains customary covenants including, but not limited to, (1) a maximum consolidated leverage ratio of the Partnership (the ratio of Consolidated Net Indebtedness to Consolidated EBITDA, in each case as defined in the Credit Agreement) of 5.00 to 1.00 as of the end of each fiscal quarter of the Partnership; provided that, for certain material acquisitions, the consolidated leverage ratio shall not exceed 5.50 to 1.00 at the end of such quarter and at the end of the two fiscal quarters immediately thereafter, and (2) limitations on incurrence of liens on assets, indebtedness, mergers and consolidations, transactions with affiliates, and sales of assets. The Credit Agreement also includes customary lending conditions, representations and warranties, events of default and indemnification provisions. Amounts outstanding under the Credit Agreement may be accelerated for typical defaults including, but not limited to, the failure to repay the principal or interest of a borrowing, failure to observe or perform any covenant, failure to pay a material judgment, certain bankruptcy events or a change of control, subject in some cases to cure periods.
Affiliates of certain of the lenders under the Credit Agreement have provided from time to time, and may provide in the future, investment and commercial banking and financial advisory services to the Partnership and its affiliates in the ordinary course of business, for which they have received, and may continue to receive, customary fees and commissions.
The foregoing description of the Credit Agreement is not complete and is qualified in its entirety by reference to the full and complete terms of the Credit Agreement, which is filed as Exhibit 10.1 hereto and incorporated herein by reference.
