On October 31, 2016, Dominion Midstream Partners (DM) announced the acquisition of the Questar Pipeline from Dominion Resources (D) for a transaction value of $1.7 billion including debt. The transaction is expected to close on December 1, 2016. The addition is expected to increase the company’s cash flows and more than double its adjusted EBITDA.
Dominion Resources, Dominion Midstream Partners’ parent company, acquired Questar for $4.4 billion in February 2016. Dominion Midstream will also acquire Questar’s natural gas storage and transmission assets in Colorado, Utah, and Wyoming.
Dominion Midstream announced an offering of 13.5 million common LP (limited partner) units at $23.20 per common unit to partially finance the transaction.
Also, the company received commitments from a group of institutional investors led by Stonepeak Infrastructure Partners for $137.5 million of common LP units and up to $600 million of convertible preferred units that will be issued privately.
Dominion Midstream intends to finance the remaining amount through units issued to Dominion and a term loan.
Thomas F. Farrell II, chairman, president, and CEO of Dominion and chairman and CEO of Dominion Midstream said in the related press release, “Dominion Midstream’s planned acquisition of Questar Pipeline and related financing have been anticipated as part of the financing structure of the Dominion-Questar Corporation combination since it was announced in February 2016.”
Farrell added, “The dropdown will also provide Dominion Midstream with additional earnings to support its best-in-class growth rate, without another asset drop or additional equity, until the second half of 2018.”
Acquisition to support Dominion Midstream’s distributions
The above graph shows Dominion Midstream’s targeted distribution growth. Farrell said, “This successful financing also validates our business plan for Dominion Midstream, which involves accessing the capital markets to fund the acquisition of midstream assets to support the partnership’s stated intention to grow distributions by 22 percent per year.”