USAC to acquire ETP’s compression business

USA Compression Partners (USAC), a midstream MLP involved in natural gas contract compression services, announced the acquisition of Energy Transfer Partners’ compression business in a press release published on January 16, 2018. The transaction, which is valued at $1.8 billion, is the first major deal in the midstream energy sector in 2018.

ETP to Own ~27% of USAC after Compression Business SaleAs part of the deal, ETP has agreed to sell its subsidiary, CDM Resource Management, to USAC. CDM’s assets include 1.6 million horsepower of compression capacity and treating capacity spread across the Gulf Coast, Eagle Ford Shale, Rockies, and Permian Basin regions.

In return, ETP would receive $1.2 billion in cash, 19.2 million USAC common units, and 6.4 million USAC Class B units. The class B units won’t receive distribution in the four quarters following the closing of the transaction. Following this, Class B units would be converted to USAC common units, which implies ETP would own 25.6 million units in USAC after the class B unit conversion, representing a ~27% limited partner interest in the partnership, assuming no further equity issuance from USAC in the next one year after the closing of the transaction.

ETE to acquire USAC’s GP

Energy Transfer Equity (ETE), the GP (general partner) of Energy Transfer Partners, has agreed to acquire the GP (general partner) of USAC and 12.5 million USAC common units from USA Compression Holdings in exchange for $250 million in cash.

IDR cancellation

Moreover, ETE has agreed to simplify USAC’s capital structure through cancellation of IDR (incentive distribution rights) and conversion of economic GP interest to non-economic GP interest. In exchange, USAC would issue 8 million common units to USAC GP. Plains All American Pipeline (PAA), Enterprise Products Partners (EPD), and Williams Partners (WPZ) are among the MLPs that have simplified their capital structure.

In the next article, we’ll look into ETP’s recent market performance and technical indicators.

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