SUBSEQUENT EVENTS | 6 Months Ended |
Jun. 30, 2014 |
Subsequent Events [Abstract] | ' |
SUBSEQUENT EVENTS | ' |
SUBSEQUENT EVENTS |
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Partnership Distribution |
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On July 25, 2014, the Board of Directors of our General Partner (the “Board”) declared a cash distribution of $0.40 per common unit, subordinated unit and General Partner unit, which will be paid on August 14, 2014 to unitholders of record on August 8, 2014. |
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Acquisition of the TexStar Rich Gas System |
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On August 4, 2014, we acquired the TexStar Rich Gas System through a contribution of TexStar’s equity interest in the entities that own the TexStar Rich Gas System (the “Contribution”) to us. In exchange for the Contribution, we paid $80 million in cash, assumed $100 million of debt (which was immediately repaid through our new term loan agreement) and issued 14,633,000 of our newly-established Class B Convertible Units (the “Class B Convertible Units”). The TexStar Rich Gas System consists of a cryogenic processing plant, located in Bee County, Texas, and rich natural gas gathering and residue pipelines across the core producing areas extending from Dimmit to Karnes Counties in the liquids-rich window of the Eagle Ford shale. These pipelines are operated under a split-capacity joint venture with Atlas Pipeline Partners LP. |
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Class B Convertible Units Payment-in-kind |
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To establish the Class B Convertible Units, on August 4, 2014 we amended and restated our agreement of limited partnership and entered into a Third Amended and Restated Agreement of Limited Partnership (as amended and restated, the “Third A&R Partnership Agreement”). The Class B Convertible Units consist of 14,633,000 of such units plus any additional Class B Convertible Units issued in kind as a distribution (“Class B PIK Units”). The Class B Convertible Units have the same rights, preferences and privileges, and are subject to the same duties and obligations, as our common units, with certain exceptions as noted below. |
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The Third A&R Partnership Agreement does not allow additional Class B Convertible Units (other than Class B PIK Units and the 14,633,000 Class B Convertible Units issued in connection with the Contribution) to be issued without the prior approval of our General Partner and the holders of a majority of the outstanding Class B Convertible Units. |
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The Third A&R Partnership Agreement provides that we will procure the listing of the common units issuable upon conversion of the Class B Convertible Units on the New York Stock Exchange or other applicable national securities exchange. |
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Distributions |
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Commencing with the quarter ending September 30, 2014 and until converted, as long as certain requirements are met, the holders of the Class B Convertible Units will receive quarterly distributions in an amount equal to $0.3257 per unit. These distributions will be paid quarterly in Class B PIK Units within 45 days after the end of each quarter. Our General Partner was entitled, and has exercised its right, to retain its 2.0% general partner interest in us in connection with the original issuance of Class B Convertible Units. In connection with future distributions of Class B PIK Units, the General Partner is entitled to a corresponding distribution to maintain its 2.0% general partner interest in us. |
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Conversion |
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The Class B Convertible Units are convertible into common units on a one-for-one basis and, once converted, will participate in cash distributions pari passu with all other common units. The conversion of Class B Convertible Units will occur on the date we (a) make a quarterly distribution equal to or greater than $0.44 per common unit, (b) generate Distributable Cash Flow (as defined in the Third A&R Partnership Agreement) in an amount sufficient to pay, and actually pay, the declared distribution on all units for the two quarters immediately preceding the date of conversion (the “measurement period”) and (c) forecast paying a distribution equal to or greater than $0.44 per unit from forecasted Class B Distributable Cash Flow on all outstanding common units for the two quarters immediately following the measurement period. |
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Voting |
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The Class B Convertible Units generally have the same voting rights as common units, and will have one vote for each common unit into which such units are convertible. |
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Consummation of Combination Transactions |
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Contemporaneously with the consummation of the Contribution, Southcross Energy LLC (“Southcross Energy”), which previously owned a significant stake in our outstanding units and 100% of our General Partner, completed its previously disclosed combination with TexStar (the “Combination Transactions”). |
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As a result of the Combination Transactions, Southcross Holdings LP (“Southcross Holdings”), through Southcross Holdings Borrower LP, a wholly owned subsidiary of Southcross Holdings (“Southcross Borrower”), acquired from (a) BBTS Borrower LP (“BBTS”) 100% of TexStar and its general partner and (b) from Southcross Energy LLC 2,116,400 of our common units and 12,213,713 of our subordinated units, collectively representing an approximate 39.8% limited partner interest in us, as well as 100% of our General Partner, which owns an approximate 2.0% interest in us and our incentive distribution rights. BBTS was controlled by EIG Global Energy Partners and Tailwater Capital, and Southcross Energy LLC was controlled by Charlesbank Partners. The Contribution Transactions resulted in Charlesbank Capital Partners, EIG Global Energy Partners and Tailwater Capital (collectively, the “Sponsors”) each indirectly owning approximately one-third of Southcross Holdings. |
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Board of Directors |
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The Board will continue to be comprised of seven directors. As a result of the Contribution Transactions, BBTS will have the right to designate four directors (two of whom must be independent) and Southcross Energy LLC will have the right to designate two directors (one of whom must be independent). The seventh member of the Board and its chairman will be selected by a majority of the other directors. David W. Biegler has been designated as the chairman of the Board for two years or until his earlier death or resignation. |
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In connection with the closing of the Contribution Transactions, on August 4, 2014, Samuel P. Bartlett and Kim G. Davis resigned as directors of our General Partner, and Wallace Henderson and Jason Downie, as designees of BBTS, were elected as directors of our General Partner. Messrs. Bartlett and Davis did not resign as the result of any disagreement with us or our General Partner. |
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Conversion of Series A Preferred Units into common units |
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Pursuant to the change in control provision in our Second Amended and Restated Agreement of Limited Partnership applicable to our Series A Preferred Units, all of the holders of the Series A Preferred Units elected to convert their Series A Preferred Units into common units based on an exchange ratio of 110.0%. |
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New Debt Arrangements |
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On August 4, 2014, in connection with the consummation of the Contribution, we entered into (a) a Third Amended and Restated Revolving Credit Agreement with Wells Fargo Bank, N.A., as Administrative Agent, UBS Securities LLC and Barclays Bank PLC, as Co-Syndication Agents, JPMorgan Chase Bank, N.A., as Documentation Agent, and a syndicate of lenders (the “Third A&R Credit Agreement”) and (b) a Term Loan Credit Agreement with Wells Fargo Bank, N.A., as Administrative Agent, UBS Securities LLC and Barclays Bank PLC, as Co-Syndication Agents, and a syndicate of lenders (the “Term Loan Agreement” and, together with the Third A&R Credit Agreement, the “Senior Credit Facilities”). |
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The initial borrowings and extensions of credit under the Term Loan Agreement were used to finance the acquisition of the TexStar Rich Gas System (including the immediate repayment of the $100 million of debt assumed in the transaction), the repayment of certain of our existing debt and the payment of fees and expenses in connection with the new debt arrangements and ongoing working capital and other general partnership purposes. No amounts were initially drawn on the Third A&R Credit Agreement. Substantially all of our assets are pledged as collateral under the Senior Credit Facilities, with the security interest of the facilities ranking pari passu. |
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Third A&R Credit Agreement |
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The Third A&R Credit Agreement is a five-year $200 million revolving credit facility. Pursuant to the Third A&R Credit Agreement, among other things: |
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(a) | the letters of credit sublimit is increased to $75 million; |
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(b) | we are given the right to increase the total commitments under the credit facility by obtaining additional commitments from other lenders, as long as our senior secured leverage ratio is less than or equal to 4.50 to 1.00 before and after giving effect to such increase, subject to certain other conditions; |
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(c) | the definition of “Change of Control” is amended to permit the combination transaction with TexStar and to reflect the Sponsors’ control of the General Partner; |
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(d) | our maximum consolidated total leverage ratio is set at (i) 5.75 to 1.00 as of the last day of the fiscal quarter ending each of September 30, 2014 and December 31, 2014, (ii) 5.50 to 1.00 as of the last day of the fiscal quarter ending March 31, 2015, (iii) 5.25 to 1.00 as of the last day of the fiscal quarter ending June 30, 2015 and (iv) 5.00 to 1.00 as of the last day of each fiscal quarter thereafter, in each case without any step-ups in connection with acquisitions; |
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(e) | we have the right, exercisable on or before the date that our annual audited financial statements are due for the 2014 fiscal year, to comply with the consolidated total leverage ratio, consolidated senior secured leverage ratio and the consolidated interest coverage ratio covenants (the “Financial Covenants”) by applying certain specified quarterly base periods pertaining to the TexStar Rich Gas System; |
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(f) | if we fail to comply with the Financial Covenants (a “Financial Covenant Default”), we have the right (which cannot be exercised more than two times in any 12-month period or more than four times during the term of the facility) to cure such Financial Covenant Default by having the Sponsors purchase equity interests in or make capital contributions to us resulting in, among other things, proceeds that, if added to the minimum financial requirements, would result in us satisfying the Financial Covenants; |
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(g) | certain definitions are amended to take into account the TexStar Rich Gas System; and |
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(h) | the negative covenants are amended to permit the entry into, and indebtedness under, the Term Loan Agreement. |
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Term Loan Agreement |
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The Term Loan Agreement is a seven-year $450 million senior secured term loan facility. On August 4, 2014, the lenders funded the full amount of the facility. Under the Term Loan Agreement, among other things: |
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(a) | subject to certain requirements, including the absence of a default and pro forma compliance under the Third A&R Credit Agreement and pro forma compliance with a senior secured leverage ratio less than or equal to 4.50 to 1.00 before and after giving effect to such increase, we may from time to time request incremental term loan commitments subject to certain other conditions; |
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(b) | we may seek commitments from third party lenders in connection with any incremental term loan commitment requests, subject to certain consent rights given to the administrative agent; |
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(c) | the guarantors and the collateral are the same as provided for the benefits of lenders in the Third A&R Credit Agreement; |
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(d) | subject to certain conditions, we may request that the lenders extend the seven-year maturity of all or partially all of the outstanding loans under the facility; |
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(e) | the facility will amortize in equal quarterly installments in an aggregate annual mount equal to 1% of the original principal amount of the initial loan, with the remainder due on the maturity date; |
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(f) | there are customary mandatory prepayment provisions and, subject to certain conditions, permissive prepayment provisions; provided, that if certain repricing transactions occur, we must pay a call premium equal to 1% of the principal amount of the loans subject to the repricing transactions; and |
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(g) | there are customary representations and warranties, affirmative covenants, negative covenants and provisions governing an event of default (including acceleration of payment in connection with material indebtedness, including the Third A&R Credit Agreement). |
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2014 Equity Incentive Plan |
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On August 4, 2014, our General Partner and Southcross GP Management Holdings, LLC, a newly formed entity of which Southross Holdings is the sole managing member (“GP Management”), adopted the Southcross Energy Partners GP, LLC and Southcross GP Management Holdings, LLC 2014 Equity Incentive Plan (the “2014 Incentive Plan”). Under the 2014 Incentive Plan, employees, consultants and directors of our General Partner and GP Management will be eligible to receive incentive compensation awards. |
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The 2014 Incentive Plan generally provides for the grant of awards, from time to time at the discretion of the Board (and, as applicable, the board of directors of the general partner of Southcross Holdings), of non-voting units in our General Partner to GP Management and then a corresponding grant or award of non-voting units of GP Management to the employee, consultant or director. |
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In connection with the adoption of the 2014 Incentive Plan, our General Partner amended and restated its limited liability company agreement and entered into its Second Amended and Restated Limited Liability Company Agreement (as amended and restated, the “A&R LLC Agreement”). The A&R LLC Agreement establishes a new class of non-voting units for issuance pursuant to the 2014 Incentive Plan and designates Southcross Holdings as our General Partner’s managing member. |