Partners' Capital | 15. PARTNERS’ CAPITAL Outstanding Units As of September 30, 2017, we had 31,000,887 Class B Preferred Units outstanding, and 14,773,192 common units outstanding. Common Unit Issuances In connection with providing services under the Services Agreement for the first and second quarters of 2017, the Partnership issued 139,110 and 170,497 common units, respectively, to SP Holdings, LLC on June 30, 2017 and August 31, 2017, respectively. In connection with providing services under the Services Agreement for the third and fourth quarters of 2016, the Partnership issued 170,750 and 154,737 common units, respectively, to SP Holdings, LLC on March 6, 2017. See Note 12, “Related Party Transactions” for additional information related to the Services Agreement. The Partnership elected to pay the first quarter 2017 distribution on the Class B preferred units in part cash and, with the consent of the Class B preferred unitholder, in part common units (in lieu of additional Class B preferred units). Accordingly, the Partnership issued 184,697 common units on May 22, 2017, to the holder of Class B preferred units. In April 2017, we issued 84,577 common units in registered offerings for gross proceeds of approximately $1.3 million pursuant to a shelf registration statement originally filed with the SEC on March 6, 2015 as updated by that certain prospectus supplement filed with the SEC on April 6, 2017 (the “Shelf Registration Statement”). The Shelf Registration Statement allows the Partnership to sell up to $50.0 million of common units at-the-market to fund general limited partnership purposes, including possible acquisitions. Proceeds from the at-the-market equity issuance were used for general limited partnership purposes. The Partnership elected to pay the fourth quarter 2016 distribution on the Class B preferred units in part cash and, with the consent of the Class B preferred unitholder, in part common units (in lieu of additional Class B preferred units). Accordingly, the Partnership issued 208,594 common units on February 20, 2017 to the holder of Class B preferred units. In November 2016, we completed a public offering and private placement of common units. The public offering consisted of 6,745,107 common units (which includes partial exercise of the underwriters’ overallotment of 194,305 common units) for net proceeds of approximately $69.7 million, after deducting customary offering expenses. The private placement consisted of 2,272,727 common units issued to Sanchez Energy for net proceeds of approximately $25.0 million. In March 2016, the Partnership converted all remaining outstanding Class A Preferred Units into common units of the Partnership on a one for one basis, adjusted for the 1-for-10 unit split in August 2015. Class B Preferred Unit Offering On October 14, 2015, pursuant to that certain Class B Preferred Unit Purchase Agreement dated September 25, 2015 between the Partnership and Stonepeak Catarina Holdings LLC (“Stonepeak”), the Partnership sold and Stonepeak purchased 19,444,445 of the Partnership’s newly created Class B Preferred Units (the “Class B Preferred Units”) in a privately negotiated transaction for an aggregate cash purchase price of $18.00 per Class B Preferred Unit, which resulted in gross proceeds to the Partnership of approximately $350.0 million. The Partnership used the net proceeds to pay a portion of the consideration for the acquisition of Western Catarina Midstream, along with the payment to Stonepeak of a fee equal to 2.25% of the consideration paid for the Class B Preferred Units. Under the terms of our partnership agreement, holders of the Class B Preferred Units received a quarterly distribution, at the election of the board of directors of our general partner, of 10.0% per annum if paid in full in cash or 12.0% per annum if paid in part cash (8.0% per annum) and in part paid-in-kind units (4.0% per annum). Distributions are to be paid on or about the last day of each of February, May, August and November after the end of each quarter. In accordance with the partnership agreement, on December 6, 2016, we issued an additional 9,851,996 Class B preferred units to Stonepeak. On January 25, 2017, the Partnership and Stonepeak entered into a Settlement Agreement and Mutual Release (the “Settlement Agreement”) to settle a dispute arising from the calculation of an adjustment to the number of Class B Preferred Units pursuant to Section 5.10(g) of the Second Amended and Restated Agreement of Limited Partnership of the Partnership (the “Amended Partnership Agreement”). Pursuant to the Settlement Agreement, and in accordance with Section 5.4 of the Amended Partnership Agreement, the Partnership issued 1,704,446 Class B Preferred Units to Stonepeak in a privately negotiated transaction as partial consideration for the Settlement Agreement, with the “Class B Preferred Unit Price” being established at $11.29 per Class B Preferred Unit. Pursuant to the terms of the Amended Partnership Agreement, the Class B Preferred Units are convertible at any time, at the option of Stonepeak, into common units of the Partnership, subject to the requirement to convert a minimum of $17.5 million of Class B Preferred Units. The issuance of the Class B Preferred Units pursuant to the Settlement Agreement was made in reliance upon an exemption from the registration requirements of the Securities Act of 1933 pursuant to Section 4(a)(2) thereof. The Class B Preferred Units are accounted for as mezzanine equity in the consolidated balance sheet consisting of the following (in thousands): September 30, December 31, 2017 2016 Mezzanine equity beginning balance $ 342,991 $ 172,111 Discount — (87) Amortization of discount 1,300 23,477 Distributions 27,125 39,375 Distributions paid (28,000) (37,168) Transfer embedded derivative to Class B — 145,283 Total mezzanine equity $ 343,416 $ 342,991 Earnings per Unit Net income (loss) per common unit for the period is based on any distributions that are made to the unitholders (common units) plus an allocation of undistributed net income (loss) based on provisions of the partnership agreement, divided by the weighted average number of common units outstanding. The two-class method dictates that net income (loss) for a period be reduced by the amount of distributions and that any residual amount representing undistributed net income (loss) be allocated to common unitholders and other participating unitholders to the extent that each unit may share in net income (loss) as if all of the net income for the period had been distributed in accordance with the partnership agreement. Unit-based awards granted but unvested are eligible to receive distributions. The underlying unvested restricted unit awards are considered participating securities for purposes of determining net income (loss) per unit. Undistributed income (loss) is allocated to participating securities based on the proportional relationship of the weighted average number of common units and unit-based awards outstanding. Undistributed losses (including those resulting from distributions in excess of net income) are allocated to common units based on provisions of the partnership agreement. Undistributed losses are not allocated to unvested restricted unit awards as they do not participate in net losses. Distributions declared and paid in the period are treated as distributed earnings in the computation of earnings per common unit even though cash distributions are not necessarily derived from current or prior period earnings. Our general partner does not have an economic interest in the Partnership and, therefore, does not participate in the Partnership’s net income. The following table presents the weighted average basic and diluted units outstanding for the periods indicated: Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Common units - Basic 14,313,999 3,998,209 13,888,057 3,556,675 Weighted Common units - Basic 14,313,999 3,998,209 13,888,057 3,556,675 Common units - Diluted 14,313,999 23,771,370 13,888,057 3,556,675 Weighted Common units - Diluted 14,313,999 23,771,370 13,888,057 3,556,675 At September 30, 2017, we had 385,042 common units that were restricted unvested common units granted and outstanding. No losses were allocated to participating restricted unvested units because such securities do not have a contractual obligation to share in the Partnership’s losses. The following table presents our basic and diluted loss per unit for the three months ended September 30, 2017 (in thousands, except for per unit amounts): Total Common Units Assumed net loss to be allocated $ (5,442) $ (5,442) Basic and diluted loss per unit $ (0.38) The following table presents our basic and diluted loss per unit for the three months ended September 30, 2016 (in thousands, except for per unit amounts): Total Common Units Assumed income to be allocated $ 9,949 $ 9,949 Basic earnings per unit $ 2.49 Assumed income to be allocated $ 28,807 $ 28,807 Diluted earnings per unit $ 1.21 The following table presents our basic and diluted loss per unit for the nine months ended September 30, 2017 (in thousands, except for per unit amounts): Total Common Units Assumed net loss to be allocated $ (31,754) $ (31,754) Basic and diluted loss per unit $ (2.29) The following table presents our basic and diluted loss per unit for the nine months ended September 30, 2016 (in thousands, except for per unit amounts): Total Common Units Assumed net loss to be allocated $ (17,997) $ (17,997) Basic and diluted loss per unit $ (5.06) |