NuStar Energy L.P. (NYSE:NS) Files An 8-K Entry into a Material Definitive Agreement
Item1.01.Entry into a Material Definitive Agreement.
Acquisition Agreement
On April11, 2017, NuStar Logistics, L.P. (Logistics), a
wholly-owned subsidiary of NuStar Energy L.P. (the
Partnership), and the Partnership entered into a
Membership Interest Purchase and Sale Agreement (the
Acquisition Agreement) with FR Navigator Holdings LLC (the
Seller), to which Logistics agreed to acquire (the
Acquisition) all of the issued and outstanding limited
liability company interests in Navigator Energy Services, LLC
(Navigator). Under the Acquisition Agreement, Logistics
will acquire Navigator for consideration of approximately
$1.475billion, subject to customary adjustments at and following
closing. The Acquisition is expected to close in the second
quarter of 2017, subject to customary closing conditions,
including the receipt of regulatory approvals.
Navigator owns and operates crude oil transportation, pipeline
gathering and storage assets located in the Midland Basin of West
Texas.
Logistics intends to fund the Acquisition with cash on hand, the
proceeds of one or more securities offerings, borrowings under
its revolving credit agreement and, if applicable, borrowings
under a bridge facility described under Item 8.01 to this Current
Report on Form 8-K.
The Acquisition Agreement contains various representations,
warranties and covenants of Logistics and Seller that are
customary in transactions of this type. The closing of the
Acquisition is subject to satisfaction or waiver of customary
specified conditions, including the material accuracy of the
representations and warranties of Logistics and the Seller and
obtaining any necessary approvals under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended. The Acquisition
Agreement contains certain customary termination rights for both
Logistics and the Seller, including the rights of either party to
terminate in the event that the Acquisition has not been
completed by August11, 2017.
A copy of the Acquisition Agreement is filed with this Current
Report on Form 8-K and is incorporated herein by reference. The
foregoing summary of the material terms of the Acquisition
Agreement does not purport to be a complete description thereof
and is qualified in its entirety by the full text of the
Acquisition Agreement, which is attached as Exhibit 2.1 to this
Current Report on Form 8-K and is incorporated herein by
reference. The Acquisition Agreement is included to provide
investors and security holders with information regarding its
terms. It is not intended to provide any other factual
information about the parties thereto. The representations and
warranties of each party set forth in the Acquisition Agreement
have been made, or will be made, solely for the benefit of the
other parties to the Acquisition Agreement and such
representations and warranties should not be relied on by any
other person. In addition, such representations and warranties
(i)have been, or will be, qualified by disclosures made to the
other parties thereto, (ii)are subject to the materiality
standards contained in the Acquisition Agreement which may differ
from what may be viewed as material by investors, and (iii)were,
or will be, made only as of the date of the Acquisition Agreement
or such other date as is specified in the Acquisition Agreement.
Nothing in this Current Report on Form 8-K shall be deemed an offer
to sell or a solicitation of an offer to buy any securities of
the Partnership.
Item2.02.
Results of Operations and Financial Condition
Preliminary
Financial Results for the First Quarter of 2017
(unaudited)
The information
presented below has not been reviewed by our independent auditors
and is subject to revision as we prepare our unaudited condensed
consolidated financial statements as of and for the three months
ended March31, 2017. This information is not a comprehensive
statement of our financial results for the quarterly period ended
March31, 2017, and our actual results may differ materially from
these estimates as a result of the completion of our financial
closing process, final adjustments (if any) and other
developments arising between now and the time that our financial
results for the three months ended March31, 2017 are finalized.
The following information should be read in conjunction with
Managements Discussion and Analysis of Financial Condition and
Results of Operations for the year ended December31, 2016 and our
financial statements and notes to financial statements as set
forth in our Annual Report on Form 10-K for the year ended
December31, 2016.
Based on
preliminary analysis of the financial results for the three
months ended March31, 2017, we expect net income to be between
$55.0million and $62.0million and earnings before interest,
taxes, depreciation and amortization (EBITDA) to be
between $149.0million and $159.0million. Additionally, we expect
distributable cash flow (DCF) to be between $100.7million
and $108.2million.
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Non-GAAP Financial
Measures
We utilize
financial measures, such as EBITDA, DCF and distribution coverage
ratio, which are not defined in U.S. generally accepted
accounting principles (GAAP). Management believes these
financial measures provide useful information to investors and
other external users of our financial information because (i)they
provide additional information about the operating performance of
the Partnerships assets and the cash the business is generating
and (ii)investors and other external users of our financial
statements benefit from having access to the same financial
measures being utilized by management and our board of directors
when making financial, operational, compensation and planning
decisions.
Our board of
directors and management use EBITDA and/or DCF when assessing the
following: (i)the performance of our assets, (ii)the viability of
potential projects, (iii)our ability to fund distributions,
(iv)our ability to fund capital expenditures and (v)our ability
to service debt. In addition, our board of directors uses a
distribution coverage ratio, which is calculated based on DCF, as
the metric for determining the company-wide bonus and the vesting
of performance units awarded to management as our board of
directors believes DCF appropriately aligns managements interest
with our unitholders interest in increasing distributions in a
prudent manner. DCF is a widely accepted financial indicator used
by the master limited partnership (MLP) investment
community to compare partnership performance. DCF is used by the
MLP investment community, in part, because the value of a
partnership unit is partially based on its yield, and its yield
is based on the cash distributions that a partnership can pay its
unitholders.
None of these
financial measures are presented as an alternative to net income.
They should not be considered in isolation or as substitutes for
a measure of performance prepared in accordance with GAAP. The
following is a reconciliation of our non-GAAP financial measures
to net income:
| Three Months Ended March31, | ||||||||||||
|
(Unaudited,ThousandsofDollars,Except Ratio Data) |
||||||||||||
| (Estimated) | ||||||||||||
| Low | High | |||||||||||
|
Net income |
$ | 55,000 | $ | 62,000 | $ | 57,401 | ||||||
|
Interest expense, net |
36,000 | 37,000 | 34,123 | |||||||||
|
Income tax expense |
2,000 | 3,000 | 2,870 | |||||||||
|
Depreciation and amortization expense |
56,000 | 57,000 | 53,142 | |||||||||
|
EBITDA |
149,000 | 159,000 | 147,536 | |||||||||
|
Interest expense, net |
(36,000 | ) | (37,000 | ) | (34,123 | ) | ||||||
|
Reliability capital expenditures |
(5,000 | ) | (6,000 | ) | (6,017 | ) | ||||||
|
Income tax expense |
(2,000 | ) | (3,000 | ) | (2,870 | ) | ||||||
|
Mark-to-market impact of hedge transactions(a) |
(2,000 | ) | (3,000 | ) | 4,684 | |||||||
|
Unit-based compensation(b) |
2,000 | 2,500 | 1,086 | |||||||||
|
Preferred unit distributions |
(4,800 | ) | (4,800 | ) | ||||||||
|
Other items(c) |
(500 | ) | (503 | ) | ||||||||
|
DCF |
$ | 100,700 | $ | 108,200 | $ | 109,793 | ||||||
|
Less DCF available to general partner |
12,900 | 12,900 | 12,766 | |||||||||
|
DCF available to common limited partners |
$ | 87,800 | $ | 95,300 | 97,027 | |||||||
|
Distributions applicable to common limited partners(d) |
$ | 86,172 | $ | 86,172 | $ | 85,285 | ||||||
|
Distribution coverage ratio(d)(e) |
1.02x | 1.11x | 1.14x |
| (a) |
DCF excludes the impact of unrealized mark-to-market gains and losses that arise from valuing certain derivative contracts, as well as the associated hedged inventory. The gain or loss associated with these contracts is realized in DCF when the contracts are settled. |
| (b) |
In connection with the employee transfer from NuStar GP, LLC on March1, 2016, we assumed obligations related to awards issued under a long-term incentive plan, and we intend to satisfy the vestings of equity-based awards with the issuance of our common units. As such, the expenses related to these awards are considered non-cash and added back to DCF. Certain awards include distribution equivalent rights (DERs). Payments made in connection with DERs are deducted from DCF. |
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| (c) |
Other items primarily consist of adjustments for throughput deficiency payments and construction reimbursements for all periods presented. |
| (d) |
The distribution applicable to common limited partners and the distribution coverage ratio do not reflect distributions that will be paid on the common units that may be issued for cash to pay a portion of the consideration for the Acquisition. Assuming an estimated distribution per unit of $1.095 paid to the common units that may be issued, distributions applicable to common limited partners would be higher by $11,497,500 and the distribution coverage ratio would be lower by 0.14x |
| (e) |
Distribution coverage ratio is calculated by dividing DCF available to common limited partners by distributions applicable to common limited partners. |
Item8.01.
Other Events
Bridge
Facility Commitment Letter
In conjunction
with the Acquisition, Logistics entered into a commitment letter
(the Commitment Letter) with Mizuho Bank, Ltd., regarding
financing for the Acquisition. The Commitment Letter
contemplates, among other things, a senior unsecured bridge loan
to Logistics in an aggregate principal amount not to exceed
$1.475billion, to be drawn, if at all, at the closing of the
Acquisition (the Bridge Facility). Logistics intends to
fund the cash consideration payable in connection with the
Acquisition with cash on hand, the proceeds of one or more
capital markets transactions in which we or Logistics, as
applicable, may issue common units, preferred units, senior notes
or other securities (Supplemental Financings) or
borrowings under Logistics revolving credit agreement and
therefore Logistics does not currently expect to fully draw on
the Bridge Facility, if at all. Borrowings under the Bridge
Facility, if any, would bear interest at Logistics option, based
on an alternative base rate or a LIBOR-based rate, in each case
plus a margin, and mature 364 days following entry into the
Bridge Facility.
Incentive
Distribution Rights Waiver
In conjunction
with the Acquisition, the Partnerships general partner intends to
amend the Partnerships Fourth Amended and Restated Agreement of
Limited Partnership to provide for a waiver of quarterly
distributions made to the general partner, as holder of the
Partnerships incentive distribution rights (IDRs), by the
amount equal to the excess in available cash attributable to any
common units of the Partnership issued from the date of the
Acquisition Agreement through the end of the ten consecutive
quarter period following the closing of the Acquisition
(excluding any equity issued under any long-term incentive plan
or equity compensation plan implemented by the Partnership or its
affiliates), subject to an aggregate cap of $22.0million. If for
any reason the Acquisition is not consummated, the waiver of
distributions on the IDRs will not become effective.
Risk
Factors Supplement
As part of the
filing of this Current Report on Form 8-K, the Partnership
intends to supplement its risk factors, including those contained
in the Partnerships Annual Report on Form 10-K for the year ended
December31, 2016. The risk factors below should be considered
together with the other risk factors described in the
Partnerships Annual Report on Form 10-K for the year ended
December31, 2016 and other filings with the Securities and
Exchange Commission under the Exchange Act.
Future
acquisitions and expansions, including the Acquisition, may
increase substantially the level of our contingent liabilities,
and we may be unable to integrate them effectively into our
existing operations.
We evaluate and
acquire assets and businesses that we believe complement or
diversify our existing assets and businesses. Acquisitions and
business expansions, including the Acquisition, may require
substantial capital. If we consummate the Acquisition or any
future material acquisitions, our capitalization and results of
operations may change significantly.
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Acquisitions and
business expansions, including the Acquisition, involve numerous
risks, including difficulties in the assimilation of the assets
and operations of the acquired businesses, inefficiencies and
difficulties that arise because of unfamiliarity with new assets,
new geographic areas and the businesses associated with them.
Further, unexpected costs and challenges may arise whenever
businesses with different operations or employees are combined,
and we may experience unanticipated delays in realizing the
benefits of an acquisition, including the Acquisition.
Following the
Acquisition, we may discover previously unknown liabilities
associated with the acquired business for which we have no
recourse under applicable indemnification provisions, if any. In
addition, the terms of an acquisition, including the Acquisition,
may require us to assume certain prior known or unknown
liabilities for which we may not be indemnified or have adequate
insurance.
Any
acquisitions we complete, including the Acquisition, are subject
to substantial risks that could reduce our ability to make
distributions to unitholders.
Even if we do make
acquisitions that we believe will increase distributable cash
flow, these acquisitions, including the Acquisition, may
nevertheless result in a decrease in distributable cash flow. Any
acquisition, including the Acquisition, involves potential risks,
including, among other things:
|
we may not be able to obtain the cost savings and financial improvements we anticipate or acquired assets may not perform as we expect; |
|
we may not be able to successfully integrate the assets, management teams or employees of the businesses we acquire with our assets and management team; |
|
we may fail or be unable to discover some of the liabilities of businesses that we acquire, including liabilities resulting from a prior owners noncompliance with applicable federal, state or local laws; |
|
acquisitions may divert the attention of our senior management from focusing on our core business; |
|
we may experience a decrease in our liquidity by using a significant portion of our available cash or borrowing capacity to finance acquisitions; and |
|
we may face the risk that our existing financial controls, information systems, management resources and human resources will need to grow to support future growth. |
Financing the
Acquisition will substantially increase our
indebtedness.
Logistics intends
to finance the Acquisition with the proceeds of one or more
Supplemental Financings, and, to the extent necessary or
desirable, by borrowing under its revolving credit agreement and
by entering into and borrowing under the Bridge Facility. Our
total outstanding long-term indebtedness as of December31, 2016
was approximately $3.0billion. An increase in our indebtedness
may reduce our flexibility to respond to changing business and
economic conditions or to fund capital expenditures or working
capital needs.
A
ratings agency downgrade could lead to increased borrowing costs
and credit stress.
If one or more
rating agencies that rate or will rate our debt or preferred
equity securities, including any Supplemental Financings, either
assigns such debt or preferred equity securities a rating lower
than the rating expected by the investors, or reduces its rating
in the future, the market price of our debt or preferred equity
securities, as applicable, or our common units, may be adversely
affected. In addition, if any of our debt or preferred equity
securities that are or will be rated, including any Supplemental
Financings, is downgraded, raising capital will become more
difficult for us, borrowing costs under our revolving credit
agreement and other future borrowings may increase and the market
price of our common units may decrease.
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| Item9.01. |
Financial Statements and Exhibits. |
| (d) | Exhibits |
|
Exhibit Number |
Description |
|
| Exhibit2.1* |
Membership Interest Purchase and Sale Agreement, dated April11, 2017, by and between NuStar Energy L.P. and FR Navigator Holdings LLC |
| * |
Schedules and similar attachments to the Membership Interest Purchase and Sale Agreement have been omitted to Item601(b)(2) of Regulation S-K. The registrant will furnish a supplemental copy of any omitted schedule or similar attachment to the Commission upon request. |
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to the
requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
| NUSTAR ENERGY L.P. | ||||||||||
| By: | Riverwalk Logistics, L.P. | |||||||||
| its general partner | ||||||||||
| By: | NuStar GP, LLC | |||||||||
| its general partner | ||||||||||
| Date: April11, 2017 | By: |
/s/ Amy L. Perry |
||||||||
| Name: | Amy L. Perry | |||||||||
| Title: |
Senior Vice President, General Counsel – Corporate Commercial Law and Corporate Secretary |
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EXHIBIT
INDEX
|
Exhibit Number |
Description |
|
| Exhibit2.1* |
Membership Interest Purchase and Sale Agreement, dated April11, 2017, by and between NuStar Energy L.P. and FR Navigator Holdings LLC |
| * |
Schedules and similar attachments to the Membership Interest Purchase and Sale Agreement have been omitted |
About NuStar Energy L.P. (NYSE:NS)
NuStar Energy L.P. is engaged in the transportation of petroleum products and anhydrous ammonia; the terminaling and storage of petroleum products, and the marketing of petroleum products. The Company’s operating segments include pipeline, storage and fuels marketing. The pipeline segment consists of the transportation of refined petroleum products, crude oil and anhydrous ammonia. The storage segment includes terminal and storage facilities that provide storage, handling and other services for petroleum products, crude oil, specialty chemicals and other liquids. The fuels marketing segment involve the purchase of crude oil, fuel oil, bunker fuel, fuel oil blending components and other refined products for resale. The Company’s assets include approximately 5,500 miles of refined product pipelines with over 20 associated terminals; over 2,000 miles of anhydrous ammonia pipelines; approximately 1,200 miles of crude oil pipelines, and over 50 terminal and storage facilities. NuStar Energy L.P. (NYSE:NS) Recent Trading Information
NuStar Energy L.P. (NYSE:NS) closed its last trading session up +0.04 at 51.47 with 79,598 shares trading hands.
