8-KAcquisitions & DispositionsMaterial AgreementsSecurities & Listing+3

Energy Transfer LP 8-K Report, Material Agreement (Jun 2, 2010)

Filed June 2, 2010For Securities:ETET-PI

Summary

Energy Transfer Equity, L.P. (ETE) filed an 8-K on June 2, 2010, detailing significant strategic transactions completed on May 26, 2010. These include the acquisition of the general partner entities of Regency Energy Partners LP (Regency), a redemption and exchange transaction with Energy Transfer Partners, L.P. (ETP), and a contribution transaction that resulted in ETE acquiring a substantial common unit stake in Regency. These transactions were facilitated by an amendment and restatement of ETE's existing credit facility, which increased its borrowing capacity and adjusted covenants to incorporate the acquired assets and liabilities. The Regency acquisition involved the issuance of Series A Convertible Preferred Units to GE Energy Financial Services, Inc., providing Regency Acquirer with certain registration and board representation rights. The transactions with ETP and Regency are complex exchanges involving pipeline assets and partnership interests, with potential post-closing purchase price adjustments. The amended credit agreement now secures ETE's obligations with a broader range of assets, including ETP and Regency units and general partner interests, indicating a deepening of ETE's consolidation strategy and its control over key infrastructure assets.

Key Highlights

  • 1ETE acquired the general partner entities of Regency Energy Partners LP (Regency) by issuing 3,000,000 Series A Convertible Preferred Units to Regency Acquirer.
  • 2ETE amended and restated its $1.95 billion credit facility (combining a $500 million revolving credit facility and a $1.45 billion term loan) to accommodate these transactions.
  • 3The amended credit agreement uses a wider array of ETE's assets as collateral, including ETP common units, ETE's general partner interests in ETP and Regency, and acquired Regency common units.
  • 4ETE completed a redemption transaction with ETP, exchanging membership interests in ETC Midcontinent Express Pipeline III, L.L.C. for 12,273,830 ETP common units previously held by ETE.
  • 5ETE contributed its rights and interests related to ETC Midcontinent Express Pipeline III to a Regency subsidiary in exchange for 26,266,791 Regency common units.
  • 6The Series A Preferred Units issued to Regency Acquirer carry specific conversion and redemption terms, including automatic conversion after four years, potential cash redemption by ETE, and rights for Regency Acquirer under certain conditions.
  • 7Regency Acquirer has been granted the right to appoint a board observer to the General Partner of ETE, reflecting its significant stake and interest in the transactions.

Frequently Asked Questions

The primary objectives appear to be consolidating control over key midstream assets and partnerships. By acquiring the general partner of Regency, ETE gains direct influence and incentive distribution rights over Regency's operations. The transactions with ETP also seem aimed at streamlining asset ownership and potentially strengthening ETE's overall collateral base.

ETE amended and restated its credit facility, increasing its capacity and security. The obligations under the amended agreement are secured by a more comprehensive set of ETE's assets, including units and general partner interests in both Energy Transfer Partners (ETP) and Regency. This suggests that the financial structure was adjusted to support the increased scale and complexity of its operations and asset base.

These preferred units represent a form of non-cash consideration for the Regency general partner acquisition. They provide Regency Acquirer with a return (preferential cash distributions) and an eventual pathway to owning ETE common units, along with certain conversion, redemption, and registration rights. This structure allows ETE to finance the acquisition without immediate cash outflow while creating a future stake for the seller in ETE.

These transactions represent a complex exchange and contribution of interests in pipeline assets. ETP transferred interests in ETC Midcontinent Express Pipeline III to ETE, receiving ETP units in return. Subsequently, ETE contributed these interests to a Regency subsidiary for Regency units. This series of moves likely aims to consolidate ownership or operational control of the Midcontinent Express Pipeline under a more strategic structure, potentially benefiting ETE's overall portfolio and operational synergies.