DEBT | 9 Months Ended |
Sep. 30, 2014 |
Debt Disclosure [Abstract] | ' |
DEBT | ' |
DEBT |
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On June 28, 2013, the Partnership entered into an amended and restated credit agreement which consists of a $400.0 million revolving loan facility. On September 15, 2014, the Partnership amended its credit facility to, among other things, amend the maximum permitted consolidated total leverage ratio as discussed below and to increase the limit on material project adjustments to EBITDA (as defined in the credit agreement). |
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As of October 30, 2014, approximately $212.0 million of revolver borrowings and $0.7 million of letters of credit were outstanding under the credit facility, leaving the Partnership with approximately $187.3 million available capacity for additional revolver borrowings and letters of credit under the credit facility, although the Partnership’s ability to borrow such funds may be limited by the financial covenants in the credit facility. In connection with entering into the amended and restated credit agreement and the amendment thereto, the Partnership paid certain fees to the lenders thereunder, and the Partnership paid certain arrangement and other fees to the arranger and administrative agent of the credit agreement. The proceeds of loans made under the amended and restated credit agreement may be used for working capital and other general corporate purposes of the Partnership. All references herein to the credit agreement on or after June 28, 2013 refer to the amended and restated credit agreement, as amended on September 15, 2014. |
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The credit agreement is guaranteed by all of the Partnership’s existing subsidiaries. Obligations under the credit agreement are secured by first priority liens on substantially all of the Partnership’s assets and those of the guarantors, including all material pipeline, gathering and processing assets, all material storage tanks and asphalt facilities, all material working capital assets and a pledge of all of the Partnership’s equity interests in its subsidiaries. |
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The credit agreement includes procedures for additional financial institutions to become revolving lenders, or for any existing lender to increase its revolving commitment thereunder, subject to an aggregate maximum of $500.0 million for all revolving loan commitments under the credit agreement. |
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The credit agreement will mature on June 28, 2018, and all amounts outstanding under the credit agreement will become due and payable on such date. The Partnership may prepay all loans under the credit agreement at any time without premium or penalty (other than customary LIBOR breakage costs), subject to certain notice requirements. The credit agreement requires mandatory prepayments of amounts outstanding thereunder with the net proceeds of certain asset sales, property or casualty insurance claims, and condemnation proceedings, unless the Partnership reinvests such proceeds in accordance with the credit agreement, but these mandatory prepayments will not require any reduction of the lenders’ commitments under the credit agreement. |
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Borrowings under the credit agreement bear interest, at the Partnership’s option, at either the reserve-adjusted eurodollar rate (as defined in the credit agreement) plus an applicable margin that ranges from 2.0% to 3.0% or the alternate base rate (the highest of the agent bank’s prime rate, the federal funds effective rate plus 0.5%, and the 30-day eurodollar rate plus 1%) plus an applicable margin that ranges from 1.0% to 2.0%. The Partnership pays a per annum fee on all letters of credit issued under the credit agreement, which fee equals the applicable margin for loans accruing interest based on the eurodollar rate, and the Partnership pays a commitment fee ranging from 0.375% to 0.5% on the unused commitments under the credit agreement. The credit agreement does not have a floor for the alternate base rate or the eurodollar rate. The applicable margins for the Partnership’s interest rate, the letter of credit fee and the commitment fee vary quarterly based on the Partnership’s consolidated total leverage ratio (as defined in the credit agreement, being generally computed as the ratio of consolidated total debt to consolidated earnings before interest, taxes, depreciation, amortization and certain other non-cash charges). |
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The credit agreement includes financial covenants that are tested on a quarterly basis, based on the rolling four-quarter period that ends on the last day of each fiscal quarter. |
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Prior to the date on which the Partnership issues qualified senior notes in an aggregate principal amount (when combined with all other qualified senior notes previously or concurrently issued) that equals or exceeds $200.0 million, the maximum permitted consolidated total leverage ratio is 4.50 to 1.00; provided that: |
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• | after the Partnership delivers the Knight Warrior Pipeline Initiation Certificate (as defined in the credit agreement, but generally meaning that the Partnership has spent at least $15.0 million of the projected capital expenditures for its Knight Warrior pipeline project), the maximum permitted consolidated total leverage ratio is 5.00 to 1.00 for the fiscal quarters ending March 31, 2015 through September 30, 2016, 4.75 to 1.00 for the fiscal quarter ending December 31, 2016, and 4.50 to 1.00 for each fiscal quarter thereafter; |
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• | after the Partnership delivers the Knight Warrior Pipeline Leverage Election Certificate (as defined in the credit agreement, but generally meaning that the Partnership has spent at least 50% of the projected capital expenditures for the Knight Warrior pipeline project), the Partnership may elect to increase the maximum permitted consolidated total leverage ratio to 5.50 to 1.00 for two consecutive fiscal quarters ending on or before September 30, 2016; and |
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• | if the Partnership makes a specified acquisition (as defined in the credit agreement, but generally being an acquisition with consideration in excess of $15.0 million), the Partnership may elect to increase the maximum permitted consolidated total leverage ratio to 5.00 to 1.00 from and after the last day of the fiscal quarter immediately preceding the fiscal quarter in which such acquisition occurs to and including the last day of the second full fiscal quarter following the fiscal quarter in which such acquisition occurred. |
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From and after the date on which the Partnership issues qualified senior notes in an aggregate principal amount (when combined with all other qualified senior notes previously or concurrently issued) that equals or exceeds $200.0 million, the maximum permitted consolidated total leverage ratio is 5.00 to 1.00; provided that after the Partnership delivers the Knight Warrior Pipeline Initiation Certificate, the maximum permitted consolidated total leverage ratio is 5.50 to 1.00 for the fiscal quarters ending March 31, 2015 through September 30, 2016, and 5.00 to 1.00 for each fiscal quarter thereafter. |
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The maximum permitted consolidated senior secured leverage ratio (as defined in the credit agreement, but generally computed as the ratio of consolidated total secured debt to consolidated earnings before interest, taxes, depreciation, amortization and certain other non-cash charges) is 3.50 to 1.00, but this covenant is only tested from and after the date on which the Partnership issues qualified senior notes in an aggregate principal amount (when combined with all other qualified senior notes previously or concurrently issued) that equals or exceeds $200.0 million. |
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The minimum permitted consolidated interest coverage ratio (as defined in the credit agreement, but generally computed as the ratio of consolidated earnings before interest, taxes, depreciation, amortization and certain other non-cash charges to consolidated interest expense) is 2.50 to 1.00. |
In addition, the credit agreement contains various covenants that, among other restrictions, limit the Partnership’s ability to: |
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• | create, issue, incur or assume indebtedness; |
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• | create, incur or assume liens; |
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• | engage in mergers or acquisitions; |
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• | sell, transfer, assign or convey assets; |
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• | repurchase the Partnership’s equity, make distributions to unitholders and make certain other restricted payments; |
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• | make investments; |
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• | modify the terms of certain indebtedness, or prepay certain indebtedness; |
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• | engage in transactions with affiliates; |
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• | enter into certain hedging contracts; |
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• | enter into certain burdensome agreements; |
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• | change the nature of the Partnership’s business; |
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• | enter into operating leases; and |
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• | make certain amendments to the Partnership’s partnership agreement. |
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At September 30, 2014, the Partnership’s consolidated total leverage ratio was 3.18 to 1.00 and the consolidated interest coverage ratio was 7.12 to 1.00. The Partnership was in compliance with all covenants of its credit agreement as of September 30, 2014. |
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The credit agreement permits the Partnership to make quarterly distributions of available cash (as defined in the Partnership’s partnership agreement) to unitholders so long as no default or event of default exists under the credit agreement on a pro forma basis after giving effect to such distribution. The Partnership is currently allowed to make distributions to its unitholders in accordance with this covenant; however, the Partnership will only make distributions to the extent it has sufficient cash from operations after establishment of cash reserves as determined by the Board of Directors (the “Board”) of Blueknight Energy Partners G.P., L.L.C. (the “General Partner”) in accordance with the Partnership’s cash distribution policy, including the establishment of any reserves for the proper conduct of the Partnership’s business. See Note 7 for additional information regarding distributions. |
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Each of the following is an event of default under the credit agreement: |
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• | failure to pay any principal, interest, fees, expenses or other amounts when due; |
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• | failure to meet the quarterly financial covenants; |
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• | failure to observe any other agreement, obligation or covenant in the credit agreement or any related loan document, subject to cure periods for certain failures; |
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• | the failure of any representation or warranty to be materially true and correct when made; |
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• | the Partnership’s, or any of its restricted subsidiaries’, default under other indebtedness that exceeds a threshold amount; |
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• | judgments against the Partnership or any of its restricted subsidiaries, in excess of a threshold amount; |
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• | certain ERISA events involving the Partnership or its restricted subsidiaries resulting in a material adverse effect on the Partnership; |
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• | bankruptcy or other insolvency events involving the General Partner, the Partnership or any of its restricted subsidiaries; and |
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• | a change of control (as defined in the credit agreement, but generally being (i) the General Partner ceasing to own 100% of the Partnership’s general partner interest or ceasing to control the Partnership or (ii) Vitol Holding B.V. (together with its affiliates, “Vitol”) and Charlesbank Capital Partners, LLC ceasing to collectively own and control 50.0% or more of the membership interests of the General Partner). |
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If an event of default relating to bankruptcy or other insolvency events occurs with respect to the General Partner or the Partnership, all indebtedness under the credit agreement will immediately become due and payable. If any other event of default exists under the credit agreement, the lenders may accelerate the maturity of the obligations outstanding under the credit agreement and exercise other rights and remedies. In addition, if any event of default exists under the credit agreement, the lenders may commence foreclosure or other actions against the collateral. |
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If any default occurs under the credit agreement, or if the Partnership is unable to make any of the representations and warranties in the credit agreement, the Partnership will be unable to borrow funds or have letters of credit issued under the credit agreement. |
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Upon the execution of the amended and restated credit agreement on June 28, 2013, the Partnership expensed $1.8 million of debt issuance costs related to the extinguished term loan and $0.2 million in debt issuance costs related to its revolving loan facility, leaving a remaining balance of $0.5 million ascribed to those lenders with commitments under both the prior and the amended and restated credit facility. During the nine months ended September 30, 2013, the Partnership capitalized debt issuance costs of $0.2 million related to the prior credit facility. During the three months ended September 30, 2013 and 2014, the Partnership capitalized debt issuance costs of $0.3 million related to the current credit facility for both periods. During the nine months ended September 30, 2013 and 2014, the Partnership capitalized debt issuance costs of $3.4 million and $0.3 million related to the current credit facility, respectively. The debt issuance costs are being amortized over the term of the amended and restated credit agreement. Interest expense related to debt issuance cost amortization for each of the three months ended September 30, 2013 and 2014 was $0.2 million. Interest expense related to debt issuance cost amortization for the nine months ended September 30, 2013 and 2014 was $1.1 million and $0.6 million, respectively, excluding the $1.8 million of debt issuance costs related to the extinguished term loan and $0.2 million in debt issuance costs related to the revolving loan facility that were expensed upon the execution of the amended and restated credit agreement in June of 2013. |
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During the three months ended September 30, 2013 and 2014, the weighted average interest rate under the Partnership’s credit agreement was 3.18% and 3.41%, respectively, resulting in interest expense of approximately $2.2 million and $2.5 million, respectively. During the nine months ended September 30, 2013 and 2014, the weighted average interest rate under the Partnership’s credit agreement, excluding the $2.0 million of debt issuance costs related to the prior credit facility that was expensed in the nine months ended September 30, 2013, was 4.39% and 3.41%, respectively, resulting in interest expense of approximately $8.2 million and $7.3 million, respectively. As of September 30, 2014, borrowings under the Partnership’s amended and restated credit agreement bore interest at a weighted average interest rate of 3.72%. |
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During the three months ended September 30, 2013 and 2014, the Partnership capitalized interest of $0.3 million and $0.1 million, respectively. During the nine months ended September 30, 2013 and 2014, the Partnership capitalized interest of $1.0 million and $0.2 million, respectively. |
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The Partnership is exposed to market risk for changes in interest rates related to its credit facility. Interest rate swap agreements are used to manage a portion of the exposure related to changing interest rates by converting floating-rate debt to fixed-rate debt. In March 2014 the Partnership entered into two interest rate swap agreements with an aggregate notional amount of $200.0 million. The first agreement has a notional amount of $100.0 million, became effective June 28, 2014, and matures on June 28, 2018. Under the terms of the first interest rate swap agreement, the Partnership pays a fixed rate of 1.45% and receives one-month LIBOR with monthly settlement. The second agreement has a notional amount of $100.0 million, becomes effective January 28, 2015, and matures on January 28, 2019. Under the terms of the second interest rate swap agreement, the Partnership will pay a fixed rate of 1.97% and will receive one-month LIBOR with monthly settlement. During each of the three and nine months ended September 30, 2014, the Partnership recorded swap interest expense of $0.3 million. The fair market value of the interest rate swaps at September 30, 2014 is a liability of $0.9 million and is recorded in long-term derivative liabilities on the consolidated balance sheet. The interest rate swaps do not receive hedge accounting treatment under ASC 815 - Derivatives and Hedging. Changes in the fair value of the interest rate swaps are recorded in interest expense in the statements of operations. |