Tallgrass Energy Partners (TEP) will acquire an additional 31.3 percent interest in Tallgrass Pony Express Pipeline for cash consideration of $475 million and 6.518 million TEP common units issued to Tallgrass Development.
Based on TEP’s Dec. 31 closing price of $41.21, the total consideration of approximately $743.6 million represents a multiple of approximately 9.0x incremental cash flow to TEP as a result of the acquisition. The acquisition increases TEP’s membership interest in Pony Express to 98 percent.
“This acquisition demonstrates our continued commitment to execute on our strategic plan to grow TEP and increase the cash distributions to our unitholders, even in challenging capital market conditions,” said Tallgrass President and CEO, David G. Dehaemers, Jr. “The attractive acquisition multiple, the inclusion of equity consideration and other favorable terms of the purchase agreement showcase the supportive nature of TEP’s relationship with Tallgrass Development.”
“Consistent with our first two Pony Express acquisitions, we expect this transaction to be immediately accretive to unitholders and intend to recommend that our board of directors increase our quarterly distribution for the first quarter of 2016 by at least $0.06 per unit over our distribution of $0.64 per unit for the fourth quarter of 2015. We continue to affirm our previous distribution growth guidance of approximately 20 percent annually from 2015 through 2017.”
Additional Transaction Details
The cash consideration of $475 million is being funded through borrowings under TEP’s revolving credit facility, which is increased from $1.1 billion to $1.5 billion in connection with the transaction.
As part of the transaction, Tallgrass Development is granting TEP an 18-month call option to repurchase the newly issued 6.518 million common units at a price of $42.50. Thus, the acquisition could become more accretive to TEP if it issues equity for net cash proceeds in excess of $42.50 per common unit and exercises its option. Pro forma for this transaction, TEP’s debt to cash flow ratio is approximately 3.7x and its available liquidity under its revolving credit facility is approximately $272 million. TEP expects that Tallgrass Development will maintain its minority ownership interest in Pony Express for the foreseeable future.
Tags: Pony Express Pipeline, Tallgrass Development LP, Tallgrass Energy