Enters into agreement to acquire 60% of Eureka Midstream and 100%
of Hornet Midstream
-
Attractive, fee-based gas gathering systems with growing cash flows,
underpinned by long-term contracts from a diverse mix of active
producers
-
Adds approximately 200,000 acres dedicated in core Marcellus and Utica
development areas, with minimum volume commitments representing
roughly 50% of current throughput
-
Contiguous asset footprint creates significant commercial
opportunities and accelerates growth of EQM Midstream Partners’ water
services business
-
Acquisition to be fully funded by a committed, convertible preferred
units issuance to lead investors consisting of funds managed by
BlackRock, GSO Capital Partners, and Magnetar Capital
PITTSBURGH--(BUSINESS WIRE)--
Equitrans Midstream Corporation (NYSE: ETRN) and EQM Midstream Partners,
LP (NYSE: EQM) today announced that EQM has entered into a definitive
agreement with a fund managed by Morgan Stanley Infrastructure Partners
to acquire a 60% interest in Eureka Midstream Holdings, LLC (Eureka
Midstream) and a 100% interest in Hornet Midstream Holdings, LLC (Hornet
Midstream) for total consideration of $1,030 million, comprised of
approximately $860 million in cash and approximately $170 million of
assumed pro-rata debt. The proposed acquisition is expected to close on
or about April 15, 2019, subject to customary regulatory and other
closing conditions.
This press release features multimedia. View the full release here:
https://www.businesswire.com/news/home/20190314005234/en/
ETRN and EQM Strategic Acquisition - Map of Assets (Graphic: Business Wire)
“This bolt-on acquisition, within our footprint, leverages our existing
assets and core operating competencies and is the first step in
executing our strategy to grow into a top-tier midstream company,” said
Thomas F. Karam, chief executive officer of EQM. “These assets will
complement EQM’s basin-leading gathering and transmission system,
allowing us to continue being the low-cost provider for gas
transportation and, increasingly, for water handling as well. As we
continue to implement our plan, we are committed to maintaining our
strong balance sheet and to delivering shareholder value.”
“The Eureka team did a tremendous job in building out the system during
the last few years and attracting a strong mix of producer customers,”
added Diana M. Charletta, chief operating officer of EQM. “With the
ongoing natural gas development activity surrounding the Eureka system,
we see significant value in leveraging our fast-growing water services
business. We want to be the low-cost provider and partner of choice
across all aspects of our business. This acquisition will help us
achieve our goal by providing added scale and by allowing us to
facilitate new commercial opportunities to deliver innovative and
cost-effective solutions for our customers.”
Asset Overview
Eureka Midstream is a 190-mile gathering header pipeline system in Ohio
and West Virginia that services both dry Utica and wet Marcellus
production. Hornet Midstream is a 15-mile, high-pressure gathering
system in West Virginia that connects to the Eureka system.
Asset Highlights
-
Averaged approximately 1.6 Bcf/d gathered volume during Q4 2018
-
Minimum volume commitments (MVCs) of 0.8 Bcf/d and growing to 1.3
Bcf/d by 2021
-
Volume mix of 67% dry gas and 33% wet gas
-
Approximately 200,000 acres dedicated in core Marcellus and Utica
-
Multiple producer customers with 17-year weighted average contract life
-
Several interstate pipeline interconnects and access to four major
processing plants
-
Access to EQM system and downstream pipelines at Clarington, OH and
Mobley, WV
Combined, the gathering system assets and complementary water services
opportunities are expected to generate approximately $100 million of EQM
EBITDA during the first twelve months. EQM forecasts that the acquired
assets and corresponding water services will achieve greater than 20%
annual EBITDA growth over the next several years. The transaction is
expected to be neutral to EQM distributable cash flow over the first
12-months and accretive thereafter.
Financing
EQM will fund the acquisition with cash proceeds from the issuance of
$1,100 million of newly issued Series A Convertible Preferred Units
(Convertible Preferred Units). The financing is consistent with EQM’s
leverage targets, and the Convertible Preferred Units issuance is
expected to close simultaneously with the proposed acquisition close.
EQM has entered into an agreement to sell the Convertible Preferred
Units to lead investors consisting of funds managed by BlackRock, GSO
Capital Partners, and Magnetar Capital; and to supporting investors The
Carlyle Group and Foundation Infrastructure Partners in connection with
Neuberger Berman Private Credit. The Convertible Preferred Units will
receive quarterly cash distributions based on an 8.5% annual coupon. Two
years after issuance, the Convertible Preferred Units will be
convertible by the holders on a one-for-one basis into EQM Common Units
and convertible by EQM, under certain circumstances. The Convertible
Preferred Units will be priced at $48.77 per unit, a 20.0% premium to
the 20-day volume weighted average price of the EQM Common Units, prior
to agreement signing.
Advisors
Citi and Guggenheim Securities, LLC are acting as financial advisors and
Latham & Watkins is acting as legal advisor to ETRN and EQM. Citi and
Guggenheim Securities, LLC are also acting as joint placement agents for
the Convertible Preferred Units issuance.
Conference Call
ETRN and EQM will host a conference call today, March 14, 2019, at 10:00
AM (ET) with security analysts to discuss the proposed acquisition. A
live webcast will be available on the internet via the Investors pages
at www.equitransmidstream.com
and www.eqm-midstreampartners.com.
Security analysts may access the call: U.S. tollfree at (877) 790-5829;
and internationally at (647) 689-5636. The conference ID is 6890519.
Call Replay: For 14 days following the call, an audio replay will
be available at (800) 585-8367 or (416) 621-4642. The conference ID:
6890519
Investor Presentation
A presentation highlighting the proposed acquisition is available online
via the companies’ respective Investors pages at www.equitransmidstream.com
and www.eqm-midstreampartners.com.
NON-GAAP DISCLOSURES
Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA)
As used in this news release, EBITDA means net income before interest
expense, income tax expense, depreciation and amortization of the Eureka
Midstream Holdings, LLC and Hornet Midstream Holdings, LLC midstream
assets (Target Assets).
As used in this news release, distributable cash flow means EQM adjusted
EBITDA (defined as net (loss) income attributable to EQM plus net
interest expense, depreciation, amortization of intangible assets;
impairment of goodwill; income tax expense; payments on EQM's preferred
interest in EQT Energy Supply, LLC (Preferred Interest); non-cash,
long-term compensation expense and transaction costs less equity income;
AFUDC-equity; pre-acquisition capital lease payments for Allegheny
Valley Connector, LLC; and adjusted EBITDA of assets prior to
acquisition) less net interest expense, excluding interest income on
Preferred Interest; capitalized interest and AFUDC-debt; and ongoing
maintenance capital expenditures net of reimbursements. Distributable
cash flow should not be viewed as indicative of the actual amount of
cash that EQM has available for distributions from operating surplus or
that EQM plans to distribute.
EBITDA of the Target Assets and distributable cash flow are non-GAAP
supplemental financial measures that management and external users of
ETRN’s and EQM’s consolidated financial statements, such as industry
analysts, investors, lenders and rating agencies, use to assess, in the
case of EBITDA, the potential contribution of the Target Assets to
ETRN’s and EQM’s future operating performance and cash flows and, in the
case of distributable cash flow, EQM’s operating performance as compared
to other publicly traded partnerships in the midstream energy industry
without regard to historical cost basis; the ability of EQM’s assets to
generate sufficient cash flow to make distributions to EQM unitholders;
EQM’s ability to incur and service debt and fund capital expenditures;
the viability of acquisitions and other capital expenditure projects;
and the returns on investment of various investment opportunities.
ETRN and EQM believe that the projected EBITDA of the Target Assets and
distributable cash flow provide useful information to investors in
assessing the impact of the potential acquisition on ETRN’s and EQM’s
future results of operations. EBITDA and distributable cash flow should
not be considered as alternatives to net income, operating income, net
cash provided by operating activities, or any other measure of financial
performance or liquidity presented in accordance with GAAP. EBITDA and
distributable cash flow have important limitations as analytical tools
because they exclude some, but not all, items that affect net income and
net cash provided by operating activities, respectively. Additionally,
because EBITDA and distributable cash flow may be defined differently by
other companies in ETRN’s and EQM’s industry, the definition of EBITDA
and distributable cash flow may not be comparable to similarly titled
measures of other companies, thereby diminishing the utility of the
measures.
ETRN and EQM have not provided projected net income from the Target
Assets, the most comparable financial measure calculated in accordance
with GAAP, or a reconciliation of projected EBITDA to projected net
income of the Target Assets. ETRN and EQM do not control the Target
Assets or prepare the related financial statements. ETRN and EQM are
unable to provide projected net income of the Target Assets or a
reconciliation of the projected EBITDA of the Target Assets to projected
net income from those assets because the calculation of projected EBITDA
was based on projected volume growth and rate information combined with
high-level, cash operating cost assumptions related to the Target
Assets. As such, ETRN and EQM do not have sufficient information to
project net income from the Target Assets, such as the book value of the
assets, the depreciable lives of the assets and any interest incurred in
respect of the assets, nor does ETRN or EQM have sufficient information
regarding all of the reconciling items that may exist between projected
EBITDA and projected net income for the Target Assets. Therefore,
projected net income of the Target Assets and a reconciliation of
projected EBITDA of the assets to projected net income from those assets
are not available without unreasonable effort.
About Equitrans Midstream Corporation
Equitrans Midstream Corporation (ETRN) has a premier asset footprint in
the Appalachian Basin and is one of the largest natural gas gatherers in
the United States. With a rich 135-year history in the energy industry,
ETRN was launched as a standalone company in 2018 and, through its
subsidiaries, has an operational focus on gas gathering systems,
transmission and storage systems, and water services assets that support
natural gas producers across the Basin. ETRN is helping to meet
America’s growing need for clean-burning energy, while also providing a
rewarding workplace and enriching the communities where its employees
live and work. ETRN owns the non-economic general partner interest and
an approximate 60% limited partner interest in EQM.
For more information on Equitrans Midstream Corporation, visit www.equitransmidstream.com
About EQM Midstream Partners
EQM Midstream Partners, LP (EQM) is a growth-oriented limited
partnership formed to own, operate, acquire, and develop midstream
assets in the Appalachian Basin. As one of the largest gatherers of
natural gas in the United States, EQM provides midstream services to
producers, utilities, and other customers through its strategically
located natural gas transmission, storage, and gathering systems, and
water services to support energy development and production in the
Marcellus and Utica regions. EQM owns approximately 950 miles of
FERC-regulated interstate pipelines and approximately 2,200 miles of
high- and low-pressure gathering lines.
For more information on EQM Midstream Partners, LP, visit www.eqm-midstreampartners.com
Cautionary Statements
The Convertible Preferred Units to be sold in the private placement have
not been registered under the Securities Act of 1933, as amended
(Securities Act), or applicable state securities laws, and accordingly
may not be offered or sold in the United States except pursuant to an
effective registration statement or an applicable exemption from the
registration requirements of the Securities Act and such applicable
state securities laws. This news release does not constitute an offer to
sell or the solicitation of an offer to buy these securities, nor shall
there be any sale of these securities in any state or jurisdiction in
which the offer, solicitation or sale of these securities would be
unlawful prior to registration or qualification under the securities
laws of any such state or jurisdiction.
Disclosures in this news release contain certain forward-looking
statements within the meaning of Section 21E of the Securities Exchange
Act of 1934, as amended, and Section 27A of the Securities Act.
Statements that do not relate strictly to historical or current facts
are forward-looking. Without limiting the generality of the foregoing,
forward-looking statements contained in this news release specifically
include the expectations of plans, strategies, objectives and growth and
anticipated financial and operational performance of Equitrans Midstream
Corporation (ETRN) and its subsidiaries, including EQM Midstream
Partners, LP (EQM), including guidance regarding EQM’s gathering and
water services revenue and volume growth; projected revenue and
expenses; infrastructure programs (including the timing, cost, capacity,
and sources of funding with respect to gathering and water projects);
the cost, capacity, timing of regulatory approvals, and anticipated
in-service dates of current projects; EQM’s ability to provide produced
water handling services and realize expansion and optimization
opportunities; acquisitions and other strategic transactions, including
the proposed acquisition of interests in Eureka Midstream Holdings, LLC
(Eureka) and Hornet Midstream Holdings, LLC (Hornet), and EQM’s ability
to complete the proposed acquisition, effectively integrate the proposed
acquisition and achieve anticipated synergies and accretion associated
with the proposed acquisition, including, through increased scale, EQM’s
ability to access new customers for its water services business
associated with the proposed acquisition; the expected timing of the
closing of the proposed transaction and related financing (including
amounts); the expected accretion from the proposed transaction; the
expected ratings impact, if any, associated with the proposed
acquisition; the expected cash flows and minimum volume commitments
related to the acquired assets; capital commitments, projected capital
contributions and capital and operating expenditures, including the
amount and timing of reimbursable capital expenditures, capital budget
and sources of funds for capital expenditures; liquidity and financing
requirements, including funding sources and availability; dividend and
distribution amounts, timing, rates and growth; projected adjusted
EBITDA, projected EBITDA, projected EBITDA of the acquired assets,
projected leverage, and projected coverage ratio; the effects of
government regulation, tariffs and litigation; and tax position. These
forward-looking statements involve risks and uncertainties that could
cause actual results to differ materially from projected results.
Accordingly, investors should not place undue reliance on
forward-looking statements as a prediction of actual results. ETRN and
EQM have based these forward-looking statements on current expectations
and assumptions about future events. While ETRN and EQM consider these
expectations and assumptions to be reasonable, they are inherently
subject to significant business, economic, competitive, regulatory and
other risks and uncertainties, many of which are difficult to predict
and are beyond ETRN’s and/or EQM’s control. The risks and uncertainties
that may affect the operations, performance, and results of ETRN’s and
EQM’s business and forward-looking statements include, but are not
limited to, those set forth under Item 1A, “Risk Factors” of ETRN’s Form
10-K for the year-ended December 31, 2018 as filed with the Securities
and Exchange Commission (SEC), and Item 1A, “Risk Factors” of EQM’s Form
10-K for the year-ended December 31, 2018 as filed with the SEC, in each
case as may be updated by any subsequent Form 10-Qs. Any forward-looking
statement speaks only as of the date on which such statement is made,
and neither ETRN nor EQM intends to correct or update any
forward-looking statement, whether as a result of new information,
future events or otherwise.
Source: Equitrans Midstream Corporation
View source version on businesswire.com:
https://www.businesswire.com/news/home/20190314005234/en/
Analyst/Investor inquiries:
Nate Tetlow
Vice
President, Corporate Development and Investor Relations
412-553-5834
[email protected]
Media
inquiries:
Natalie A. Cox
Director, Corporate
Communications
412-395-3941
[email protected]
Source: Equitrans Midstream Corporation