Regency will finance the acquisition by issuing $900 million of new Regency units to Southern Union, including $750 million of new common units (31.4 million) and $150 million of new Class F common units (6.3 million). The Class F common units will be equal to common units except they won't receive distributions for eight quarters after closing. The remaining $600 million -- $570 million to Southern Union and $30 million to ETC Texas Pipeline Ltd. -- will be paid in cash funded from long-term borrowings, which may include a new issuance of public debt, a new credit facility or a combination, according to a Securities and Exchange Commission filing Thursday, Feb. 28.
Energy Transfer Equity, which owns the general partner and incentive distribution rights of Regency, agreed to forgo the incentive distribution rights payments associated with the new common units for eight quarters after closing and cut the $10 million annual management fee due from Regency for two years after closing.
The deal needs to clear Hart-Scott-Rodino but is expected to close in the second quarter.
Regency said the acquisition will significantly expand its presence in the Permian, one of the most productive oil and liquids-rich basins in North America.
Southern Union Gathering owns Southern Union Gas Services Ltd., whose assets include a 5,600-mile gathering system and 500 million cubic feet per day of processing and treating facilities for natural gas and natural gas liquids. It also is finishing construction of the 200 million cubic-feet-per-day Red Bluff processing and treating plant, which is expected to be in service in the second quarter. Also, a 200 million cubic-feet-per-day cryogenic processing and treating facility is in the planning stages and should be up and running in mid- to late 2014.
"This acquisition represents a significant growth opportunity for Regency and is very strategic to our plans for expansion in the Permian Basin," Regency Energy Partners CEO Mike Bradley said in a statement. Bradley added that the company expects the acquisition to be neutral to slightly accretive this year and enhance its outlook for long-term distribution growth.
JPMorgan's Jimmy Elliott, Carsten Woehrn, Stephen Clark and John Ciolek and Locke Lord LLP's Dan Fleckman and Van Jolas advised Regency. Evercore Partners' Rob Pacha, Christopher Juban, Eric Bauer, Reilly Bliton, Will Fitzgerald and Amit Bushan and Akin Gump Strauss Hauer & Feld LLP's Christine LaFollette and John Goodgame assisted Regency's conflicts committee. Credit Suisse Securities (USA) LLC's Jamie Welch, Sean Tobin and Sloane Child advised ETP Holdco Corp., a unit of Energy Transfer Partners and Energy Transfer Equity and the parent of Southern Union. Last year Energy Transfer Equity dropped down its Southern Union interest into Energy Transfer Partners-controlled ETP Holdco in exchange for a 60% stake.
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