Deal Description: January 12, 2016 - Plains All American Pipeline, L.P. (NYSE: PAA) today announced that it has received binding commitments for the purchase of $1.5 billion of equity capital. The purchasers will acquire approximately 56 million units of a newly authorized series of 8% Perpetual Series A Convertible Preferred Units (the “Preferred Units”) at a price of $26.25 per unit. The Preferred Units will bear an annual distribution of $2.10 per unit. After two years, the Preferred Units are convertible at the purchasers’ option into PAA common units on a one for one basis (subject to customary anti-dilution adjustments), and are convertible at PAA’s option in certain circumstances after three years. Closing of the transaction is scheduled to occur prior to the end of January 2016.
The net proceeds, after deducting offering expenses and including the general partner’s proportionate 2% equity contribution, are approximately $1.5 billion. PAA expects to use the proceeds for capital expenditures, repayment of debt, and general partnership purposes. The primary purchasers include affiliates of EnCap Investments L.P., EnCap Flatrock Midstream, The Energy Minerals Group, Kayne Anderson Capital Advisors, L.P., and First Reserve Advisors, L.L.C.
In connection with this transaction, PAA's general partner agreed to modify its incentive distribution rights ("IDRs"). As a result of this modification, when the Preferred Units convert into PAA common units, the IDRs associated with the resulting common units will only participate in distribution growth above PAA's current distribution level of $2.80 per converted common unit. Assuming all Preferred Units convert into PAA common units, the modification represents a permanent IDR reduction of approximately $90 million per year.
Baker Botts represented the primary purchasers in the transaction.
Baker Botts Lawyers/Office Involved: Josh Davidson (Partner, Houston); Doug Rayburn (Partner, Dallas); Mike Bresson (Partner, Houston); Jeremy Moore (Senior Associate, Houston); Jamie Yarbrough (Associate, Houston).
For more information, please see Plains All American Pipeline, L.P.’s news release by clicking here.
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