Long-Term Debt | 12 Months Ended |
Dec. 31, 2013 |
Long-Term Debt | ' |
Long-Term Debt | ' |
(5) Long-Term Debt |
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The long-term debt of the Partnership consisted of the following at December 31 (in thousands): |
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| | 2013 | | 2012 | |
Senior debt | | $ | 420,933 | | $ | 502,266 | |
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(a) Senior Debt |
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On December 23, 2010, the Partnership entered into a Third Amended and Restated Credit Agreement. Borrowing availability under this senior debt facility was limited to the lesser of the $400 million committed facility amount and a borrowing base defined in the credit agreement. The senior debt facility was evidenced by notes issued to each of several lenders named in the credit agreement, was secured by a first priority lien against the assets of the Partnership and matured on October 5, 2015. Interest on debt issued under the facility was due and payable in arrears and calculated, at the option of the Partnership, on either a floating rate basis, payable monthly or a LIBOR basis, payable at the end of the applicable LIBOR period (1, 2, 3, or 6 months), but no less frequently than quarterly. LIBOR borrowings bore interest at LIBOR for the applicable period plus a margin of 3.00% to 3.75% based on the leverage ratio of the Partnership’s amount outstanding under this facility to consolidated EBITDA (earnings before interest, taxes, depreciation and amortization) as defined in the credit agreement. Floating rate borrowings bore interest at a rate per annum that is the higher of the bank prime rate or the federal funds rate plus 0.50%, without additional margin. Generally, the Partnership has maintained several tranches of LIBOR and floating rate borrowings at any time. In addition, the Partnership paid an annual administration fee and an unused commitment fee of 0.50%. The $400 million facility included a $20 million sub-line for issuing letters of credit for a fee at a per annum rate equal to the margin for LIBOR borrowings on the average daily undrawn stated amount of each letter of credit issued under the facility. The Partnership paid various loan fees and incurred costs in respect of the Third Amended and Restated Credit Agreement in the amount of $5.1 million in 2010. |
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On June 6, 2011, the Partnership entered into the first amendment to the credit agreement converting each reference to “USA Compression Holdings, LP” to “USA Compression Partners, LP” and each reference to USA Compression Holdings, LP as a “Texas limited partnership” in the credit agreement or any other loan document to be a reference to USA Compression Partners, LP as a “Delaware limited partnership.” |
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On November 16, 2011, the Partnership entered into the second amendment to the credit agreement whereby the aggregate commitment under the facility increased from $400 million to $500 million and reduced the applicable margin for LIBOR loans to a range of 200 to 275 basis points above LIBOR, depending on the Partnership’s leverage ratio. In addition, the unused commitment fee was reduced to 0.375%. The Partnership paid various loan fees and incurred costs in respect of the first and second amendment to the credit agreement in the amount of $1.1 million in 2011. |
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On June 1, 2012, the Partnership entered into the third amendment to the credit agreement whereby the aggregate commitment under the facility increased from $500 million to $600 million. In addition, on June 1, 2012, the Partnership entered into the Fourth Amended and Restated Credit Agreement in order to provide a covenant structure that is more appropriate for a public company than was the prior credit agreement, including a reduction of the applicable margin for LIBOR loans to a range of 175 to 250 basis points above LIBOR, depending on the Partnership’s leverage ratio. This amended and restated credit agreement became effective on January 18, 2013, the closing date of the Partnership’s initial public offering, continued to be secured by a first priority lien against our assets and had a scheduled maturity of October 5, 2015. On December 10, 2012, the Partnership amended the Fourth Amended and Restated Credit Agreement to extend the periods during which the maximum funded debt to EBITDA ratio thresholds would apply. The Partnership paid various loan fees and incurred costs in respect of the third amendment to the credit agreement and the Fourth Amended and Restated Credit Agreement in the amount of $1.6 million, in 2012. |
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On December 13, 2013, the Partnership entered into the Fifth Amended and Restated Credit Agreement whereby the aggregate commitment under the facility increased from $600 million to $850 million (subject to availability under our borrowing base and a further potential increase of $100 million) and reduced the applicable margin for LIBOR loans to a range of 150 to 225 basis points above LIBOR, depending on the Partnership’s leverage ratio. The revolving credit facility is secured by a first priority lien against the Partnership’s assets and matures on December 13, 2018, at which point all amounts outstanding will become due. |
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The Fifth Amended and Restated Credit Agreement permits us to make distributions of available cash to unitholders so long as (a) no default under the facility has occurred, is continuing or would result from the distribution, (b) immediately prior to and after giving effect to such distribution, the Partnership is in compliance with the facility’s financial covenants and (c) immediately after giving effect to such distribution, the Partnership has availability under the revolving credit facility of at least $20 million. In addition, the amended and restated credit agreement contains various covenants that may limit, among other things, the Partnership’s ability to(subject to exceptions): |
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· grant liens; |
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· make certain loans or investments; |
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· incur additional indebtedness or guarantee other indebtedness; |
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· enter into transactions with affiliates; |
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· merge or consolidate; |
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· sell the Partnership’s assets; or |
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· make certain acquisitions |
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The Fifth Amended and Restated Credit Agreement also contains various financial covenants, including covenants requiring the Partnership to maintain: |
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· a minimum EBITDA to interest coverage ratio of 2.5 to 1.0; and |
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· a maximum funded debt to EBITDA ratio, determined as of the last day of each fiscal quarter, for the annualized trailing three months of (a) 5.50 to 1.0, with respect to any fiscal quarter ending on or after December 13, 2013, the closing date of the amended credit facility, through June 30, 2015 or (b) 5.00 to 1.0, with respect to the fiscal quarter ending September 30, 2015 and each fiscal quarter thereafter, in each case subject to a provision for increases to such thresholds by 0.5 in connection with certain future acquisitions for the six consecutive month period following the period in which any such acquisition occurs. |
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If a default exists under the revolving credit facility, the lenders will be able to accelerate the maturity on the amount then outstanding and exercise other rights and remedies. |
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The Partnership paid various loan fees and incurred costs in respect of the Fifth Amended and Restated Credit Agreement in the amount of $3.0 million in 2013, which were capitalized to loan costs and will be amortized through December 2018. The Partnership wrote off $0.3 million in 2013 related to certain third parties that exited the credit facility. |
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As of December 31, 2013 and 2012, the Partnership was in compliance with all of its covenants under the current credit agreement. |
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At December 31, 2013, the Partnership had outstanding borrowings of $420.9 million and borrowing availability under the revolving credit facility of $264.6 million. The borrowing base consists of eligible accounts receivable, inventory and compression units. The largest component, representing 94% and 96% of the borrowing base at December 31, 2013 and 2012, respectively, is eligible compression units—compressor packages that are leased, rented or under service contracts to customers and carried in the financial statements as fixed assets. The Partnership’s effective interest rate in effect for all borrowings under its revolving credit facility at December 31, 2013 and 2012, was 2.17% and 2.96%, respectively, and an average interest rate of 2.43% and 2.99%, excluding the effects from the interest rate swap instruments discussed below for 2012, for the year then ended, respectively. There were no letters of credit issued at December 31, 2013 and 2012. |
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The senior debt facility expires in December 2018 and the Partnership expects to maintain this facility for the term. The facility is a ‘‘revolving credit facility’’ that includes a ‘‘springing’’ lock box arrangement, whereby remittances from customers are forwarded to a bank account controlled by the Partnership, and the Partnership is not required to use such remittances to reduce borrowings under the facility, unless there is a default or excess availability under the facility is reduced below $20 million. As the remittances do not automatically reduce the debt outstanding absent the occurrence of a default or a reduction in excess availability below $20 million, the debt has been classified as long-term at December 31, 2013 and 2012. |
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Maturities of long-term debt (in thousands): |
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Year ending December 31, | | | | | | |
2014 | | — | | | | |
2015 | | — | | | | |
2016 | | — | | | | |
2017 | | — | | | | |
2018 | | 420,933 | | | | |
Total Debt | | $ | 420,933 | | | | |
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(b) Hedging and Use of Derivative Instruments |
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During 2012, the Partnership had only limited involvement with derivative financial instruments and used them principally to manage well-defined interest rate risk. Interest rate swap agreements are used to reduce the potential impact of fluctuations in interest rates on variable rate long-term debt. The swaps were not used for trading or speculative purposes. |
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In November 2008, the Partnership entered into an interest rate swap agreement expiring October 5, 2012 for a notional amount of $75 million. In May 2009, the Partnership entered into an interest rate swap agreement expiring June 1, 2012 for a notional amount of $35 million. In August 2009, the Partnership entered into an interest rate swap agreement expiring August 1, 2012 for a notional amount of $30 million. |
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As of December 31, 2011, the Partnership did not designate these interest rate swaps as cash flow hedges. |
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The swap agreements entitled the Partnership to pay or receive from the counter-party, monthly, the amount by which the counter-party’s variable rate (reset monthly) was less than or exceeded the Partnership’s fixed rate under the agreements with respect to the notional amount. Under the swaps, the Partnership received fixed rates of 3%, 1.9% and 2.055% on the notional amounts of $75 million, $35 million and $30 million, respectively, in exchange for a floating rate tied to the BBA London Interbank Offering Rate (“LIBOR”). The swaps minimized interest rate exposure on the revolving senior debt facility, and in effect, converted variable interest payments on the aggregate notional amount to fixed interest payments. Amounts paid or received from the interest rate swap were charged or credited to interest expense and matched with the cash flow and interest expense of the senior debt being hedged, resulting in an adjustment to the effective interest rate. The swap payments for the years ended December 31, 2012 and 2011 were $2.3 million and $3.3 million, respectively. During 2012 and 2011, interest expense was reduced by $2.2 million and $2.6 million, respectively, due to changes in the fair value of the interest rate swaps. |