Filed Pursuant to Rule 424(b)(2)
Registration No. 333-207862
PROSPECTUS SUPPLEMENT
(To Prospectus dated November 20, 2015)
Common Units
Representing Limited Partner Interests
Having an Aggregate Offering Price of Up to
$1,000,000,000
This prospectus supplement and the accompanying base
prospectus relate to the issuance and sale from time to time of common units representing limited partner interests in Spectra Energy Partners, LP having an aggregate offering price of up to $1,000,000,000 through Citigroup Global Markets Inc.,
Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, Mitsubishi UFJ Securities (USA), Inc., Mizuho Securities USA Inc., RBC Capital Markets, LLC, SMBC Nikko Securities America, Inc., SunTrust Robinson
Humphrey, Inc., UBS Securities LLC and Wells Fargo Securities, LLC as our sales agents (the “Sales Agents”). These sales, if any, will be made pursuant to the terms of the equity distribution agreement dated December 8, 2015 between
us and the Sales Agents, which will be filed as an exhibit to a Current Report on Form 8-K to be filed with the Securities and Exchange Commission.
Under the terms of the equity distribution agreement, we also may sell common units to any of the Sales Agents as principal for its own
account at a price agreed upon at the time of the sale. If we sell common units to any Sales Agent as principal, we will enter into a separate terms agreement with such Sales Agent and we will describe that agreement in a separate prospectus
supplement or pricing supplement.
Our common
units trade on the New York Stock Exchange (the “NYSE”) under the symbol “SEP.” On December 7, 2015, the last reported sale price of our common units on the NYSE was $37.89 per unit. Sales of common units under this
prospectus supplement, if any, will be made by means of ordinary brokers’ transactions through the facilities of the NYSE, any other national securities exchange or facility thereof, a trading facility of a national securities association or an
alternate trading system, to or through a market maker or directly on or through an electronic communication network, a “dark pool” or any similar market venue, at market prices, in block transactions, or as otherwise agreed upon by one or
more of the Sales Agents and us. The Sales Agents are not required to sell any specific number or dollar amount of common units but will use their reasonable efforts, as our agents and subject to the terms of the equity distribution agreement, to
sell the common units offered, as instructed by us.
Investing in our common units involves risks. See “Risk Factors” on page S-3 of this prospectus
supplement.
The compensation of the Sales
Agents for sales of common units shall be at a fixed commission rate of up to 2.0% of the gross sales price per common unit. The net proceeds from any sales under this prospectus supplement will be used as described under “Use of Proceeds”
in this prospectus supplement.
Neither the
Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying base prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
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| Citigroup |
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Credit Suisse |
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Deutsche Bank Securities |
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| J.P. Morgan |
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Mizuho Securities |
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MUFG |
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| RBC Capital Markets |
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SMBC Nikko |
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SunTrust Robinson Humphrey |
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| UBS Investment Bank |
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Wells Fargo Securities |
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The date of this prospectus supplement is December 8, 2015.
TABLE OF CONTENTS
Prospectus Supplement
Prospectus
S-i
ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is this
prospectus supplement, which describes our business and the specific terms of this offering. The second part is the accompanying base prospectus, which gives more general information, some of which may not apply to this offering. Generally, when we
refer only to the “prospectus,” we are referring to both parts combined. If the information about the offering varies between this prospectus supplement and the accompanying base prospectus, you should rely on the information in this
prospectus supplement.
Any statement made in this
prospectus or in a document incorporated or deemed to be incorporated by reference into this prospectus will be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus or in any
other subsequently filed document that is also incorporated by reference into this prospectus modifies or supersedes that statement. Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a
part of this prospectus. Please read “Information Incorporated by Reference” on page S-12 of this prospectus supplement.
Neither we nor any of the Sales Agents have authorized anyone to provide you with additional or different information. We take no
responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell the common units, and seeking offers to buy the common units, only in jurisdictions where offers and
sales are permitted. You should not assume that the information contained in this prospectus supplement, the accompanying base prospectus or any free writing prospectus is accurate as of any date other than the dates shown in these documents or that
any information we have incorporated by reference herein is accurate as of any date other than the date of the document incorporated by reference. Our business, financial condition, results of operations and prospects may have changed since such
dates.
S-ii
SUMMARY
This summary highlights information contained elsewhere in
this prospectus supplement and the accompanying base prospectus. It does not contain all of the information that you should consider before making an investment decision. You should read this entire prospectus supplement, the accompanying base
prospectus and the documents incorporated herein by reference for a more complete understanding of our business and this offering, as well as material tax and other considerations that may be important to you in making your investment decision.
Please read “Risk Factors” on page S-3 of this prospectus supplement and in our Annual Report on Form 10-K for the year ended December 31, 2014 for information regarding risks you should consider before investing in our common units.
Throughout this prospectus supplement,
when we use the terms “we,” “us,” “our” or the “partnership,” we are referring either to Spectra Energy Partners, LP in its individual capacity or to Spectra Energy Partners, LP and its operating subsidiaries
collectively, as the context requires. References in this prospectus supplement to our “general partner” refer to Spectra Energy Partners (DE) GP, LP and/or Spectra Energy Partners GP, LLC, the general partner of Spectra Energy Partners
(DE) GP, LP, as appropriate.
Spectra Energy
Partners, LP
Spectra Energy Partners, LP,
through its subsidiaries and equity affiliates, is engaged in the transmission, storage and gathering of natural gas, the transportation and storage of crude oil, and the transportation of natural gas liquids (NGLs), through interstate pipeline
systems with over 15,000 miles of transmission and transportation pipelines and the storage of natural gas in underground facilities with aggregate working gas storage capacity of approximately 166 billion cubic feet (Bcf) in North America. We
are a Delaware master limited partnership formed in 2007.
We own and operate natural gas transmission, gathering and storage assets, and crude oil transportation and storage assets, in central, southern and eastern United States as well as western
Canada. Our assets are strategically located in geographic regions of the United States and Canada where demand, primarily for natural gas used in electricity generation, and crude oil, is expected to increase steadily. We have a broad mix
of customers, including local gas distribution companies (LDCs), municipal utilities, interstate and intrastate pipelines, direct industrial users, electric power generators, marketers and producers, and exploration and production
companies. Our interstate gas transmission pipeline and storage operations and our liquids crude oil transportation and storage operations are regulated by either the Federal Energy Regulatory Commission (FERC), the U.S.
Department of Transportation (DOT), or the National Energy Board (NEB) with the exception of Moss Bluff intrastate storage operations and Ozark gathering facilities, which are subject to oversight by various state commissions.
Our operations and activities are managed by our general
partner, Spectra Energy Partners (DE) GP, LP, which in turn is managed by its general partner, Spectra Energy Partners GP, LLC (the Ultimate General Partner). The Ultimate General Partner is wholly owned by a subsidiary of Spectra Energy Corp.
(Spectra Energy). Spectra Energy is a separate entity, the common stock of which trades on the NYSE under the symbol “SE.” As of November 30, 2015, Spectra Energy and its other subsidiaries collectively owned 78% of us and the remaining
22% was publicly owned.
Our principal executive
offices are located at 5400 Westheimer Court, Houston, Texas 77056, and our telephone number is 713-627-5400.
S-1
The Offering
| Common Units Offered |
Common units having an aggregate offering price of up to $1,000,000,000. |
| Use of Proceeds |
We intend to use the net proceeds from this offering, including our general partner’s proportionate capital contribution, after deducting the Sales Agents’ commissions and our offering
expenses, for general partnership purposes, which may include debt repayment, future acquisitions, capital expenditures and additions to working capital. Please read “Use of Proceeds.” |
| Exchange Listing |
Our common units are traded on the NYSE under the symbol “SEP.” |
| Risk Factors |
There are risks associated with this offering and our business. You should consider carefully the risk factors on page S-3 of this prospectus supplement and the other risks identified in the
documents incorporated by reference herein before making a decision to purchase common units in this offering. |
S-2
RISK FACTORS
An investment in our common units involves risk. You should
carefully consider the risk factors set forth in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, together with all of the other information included in, or incorporated by
reference into, this prospectus supplement and the accompanying base prospectus, when evaluating an investment in our common units. If any of these risks were to occur, our business, financial condition or results of operations could be materially
adversely affected. In that case, the trading price of our common units could decline and you could lose all or part of your investment.
S-3
USE OF PROCEEDS
We intend to use the net proceeds of this offering, including
our general partner’s proportionate capital contribution, after deducting the Sales Agents’ commissions and our offering expenses, for general partnership purposes, which may include debt repayment, future acquisitions, capital
expenditures and additions to working capital.
Affiliates of the Sales Agents are lenders under our credit facility and affiliates of the Sales Agents may in the future hold our
commercial paper. To the extent we use proceeds from this offering to repay indebtedness under our credit facility or our commercial paper program, such affiliates may receive proceeds from this offering. Please read “Plan of Distribution”
in this prospectus supplement for further information.
As of September 30, 2015, we had no amounts outstanding under our $2 billion credit facility and had no outstanding commercial paper borrowings, which would reduce our drawing capacity under the
credit facility. The credit facility matures in December 2019, which we may extend, on up to two occasions, for an additional period of one year.
S-4
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The tax consequences to you of an investment
in our common units will depend in part on your own tax circumstances. For a discussion of the principal federal income tax considerations associated with our operations and the purchase, ownership and disposition of our common units, please read
“Material United States Federal Income Tax Consequences” beginning on page 33 in the accompanying base prospectus. You are urged to consult with your own tax advisor about the federal, state, local and foreign tax consequences particular
to your circumstances.
S-5
PLAN OF DISTRIBUTION
We have entered into an equity distribution agreement with
Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, Mitsubishi UFJ Securities (USA), Inc., Mizuho Securities USA Inc., RBC Capital Markets, LLC, SMBC Nikko Securities America,
Inc., SunTrust Robinson Humphrey, Inc., UBS Securities LLC and Wells Fargo Securities, LLC as sales agents, under which we are permitted to offer and sell common units having an aggregate offering price of up to $1,000,000,000 from time to time. We
will file the equity distribution agreement as an exhibit to a Current Report on Form 8-K, which will be incorporated by reference in this prospectus supplement. The sales, if any, of common units made under the equity distribution agreement will be
made by means of ordinary brokers’ transactions through the facilities of the NYSE, any other national securities exchange or facility thereof, a trading facility of a national securities association or an alternate trading system, to or
through a market maker or directly on or through an electronic communication network, a “dark pool” or any similar market venue, at market prices, in block transactions, or as otherwise as agreed upon by one or more of the Sales Agents and
us. The Sales Agents will not engage in any prohibited stabilizing transactions with respect to our common units.
Under the terms of the equity distribution agreement, we also may sell common units to one or more of the Sales Agents as principal for
its own account at a price agreed upon at the time of sale. If we sell common units to one or more of the Sales Agents as principal, we will enter into a separate agreement with such Sales Agent and we will describe this agreement in a separate
prospectus supplement or pricing supplement.
We
will designate the maximum amount of common units to be sold through the Sales Agents on a daily basis or otherwise as we and the Sales Agents agree and the minimum price per common unit at which such common units may be sold. Subject to the terms
and conditions of the equity distribution agreement, the Sales Agents will use their reasonable efforts to sell on our behalf all of the designated common units. We may instruct the Sales Agents not to sell any common units if the sales cannot be
effected at or above the price designated by us in any such instruction. We or the Sales Agents may suspend the offering of common units at any time and from time to time by notifying the other party.
The Sales Agents will provide to us written confirmation
following the close of trading on the New York Stock Exchange each day in which common units are sold under the equity distribution agreement. Each confirmation will include the number of common units sold on that day, the gross sales proceeds and
the net proceeds to us (after regulatory transaction fees, if any, but before other expenses). We will report at least quarterly the number of common units sold through the Sales Agents under the equity distribution agreement, the net proceeds to us
(before expenses) and the commissions of the Sales Agents in connection with the sales of the common units.
We will pay the Sales Agents a commission of up to 2% of the gross sales price per common unit sold through it as our agent under the
equity distribution agreement. We have agreed to reimburse the Sales Agents for certain of their expenses.
Settlement for sales of common units will occur on the third business day following the date on which any sales were made in return for
payment of the net proceeds to us. There is no arrangement for funds to be received in an escrow, trust or similar arrangement.
If we or any of the Sales Agents have reason to believe that our common units are no longer an “actively-traded security” as
defined under Rule 101(c)(l) of Regulation M under the Securities Exchange Act of 1934, as amended, that party will promptly notify the others and sales of common units pursuant to the equity distribution agreement or any terms agreement will be
suspended until in our collective judgment Rule 101(c)(1) or another exemptive provision has been satisfied.
The offering of common units pursuant to the equity distribution agreement will terminate upon the earlier of (1) the sale of all
common units subject to the equity distribution agreement or (2) the termination of the equity distribution agreement by us or by the Sales Agents.
S-6
In connection with the sale of the common units on our behalf, each of the Sales Agents may
be deemed to be an “underwriter” within the meaning of the Securities Act of 1933, as amended (Securities Act), and the compensation paid to the Sales Agents may be deemed to be underwriting commissions or discounts. We have agreed to
provide indemnification and contribution to the Sales Agents against certain liabilities, including civil liabilities under the Securities Act.
The Sales Agents and/or affiliates of each of the Sales Agents have, from time to time, performed, and may in the future perform, various
financial advisory and commercial and investment banking services for us and our affiliates, for which they have received and in the future will receive customary compensation and expense reimbursement. Affiliates of the Sales Agents are lenders
under our credit facility and affiliates of the Sales Agents may hold our commercial paper or other securities. To the extent we use proceeds from this offering to repay indebtedness under our credit facility or our commercial paper program or to
redeem or repurchase such other securities, such affiliates may receive proceeds from this offering. Because FINRA views the common units offered hereby as interests in a direct participation program, this offering is being made in compliance with
Rule 2310 of the FINRA Rules.
Selling Restrictions
Notice to Prospective Investors in
Hong Kong
The common units have not been
offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made
under that Ordinance; or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the
meaning of that Ordinance. No advertisement, invitation or document relating to the common units has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is
directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to common units which are or are intended to be
disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
Notice to Prospective Investors in Australia
No placement document, prospectus, product disclosure
statement or other disclosure document has been lodged with the Australian Securities and Investments Commission (“ASIC”), in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other
disclosure document under the Corporations Act 2001 (the “Corporations Act”), and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
Any offer in Australia of the common units may
only be made to persons (the “Exempt Investors”), who are:
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“sophisticated investors” (within the meaning of section 708(8) of the Corporations Act), “professional investors” (within the meaning of section
708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act; and |
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“wholesale clients” (within the meaning of section 761G of the Corporations Act), |
so that it is lawful to offer the common units without disclosure to investors under Chapters 6D and 7 of
the Corporations Act.
The common units applied
for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapters 6D and 7 of the
Corporations Act would not be required pursuant to an exemption
S-7
under both section 708 and Subdivision B of Division 2 of Part 7.9 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapters 6D and
7 of the Corporations Act. Any person acquiring common units must observe such Australian on-sale restrictions.
This prospectus contains general information only and does not take account of the investment objectives, financial situation or
particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate to
their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.
S-8
LEGAL MATTERS
The validity of the common units offered in this prospectus
supplement will be passed upon for us by Gibson, Dunn & Crutcher LLP. Certain legal matters will be passed upon for the Sales Agents by Baker Botts L.L.P., Houston, Texas.
EXPERTS
The consolidated financial statements, and the related
financial statement schedule, incorporated in this prospectus by reference from Spectra Energy Partners, LP’s Annual Report on Form 10-K, and the effectiveness of Spectra Energy Partners, LP’s internal control over financial reporting have
been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report, which is incorporated herein by reference. Such consolidated financial statements and financial statement schedule have been
so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
S-9
FORWARD-LOOKING STATEMENTS
Some of the information included in this prospectus
supplement and the documents we incorporate by reference herein contain “forward-looking” statements. All statements that are not statements of historical facts, including statements regarding our future financial position, business
strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. These forward-looking statements are identified by terms and phrases such as: anticipate, believe, intend, estimate,
expect, continue, should, could, may, plan, project, predict, will, potential, forecast, and similar expressions. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this
prospectus supplement, the accompanying base prospectus and the documents we have incorporated by reference.
These forward-looking statements reflect our intentions, plans, expectations, assumptions and beliefs about future events and are subject
to risks, uncertainties and other factors, many of which are outside our control. Important factors that could cause actual results to differ materially from the expectations expressed or implied in the forward-looking statements include known and
unknown risks. Known risks and uncertainties include, but are not limited to, the risk factors and other cautionary statements set forth in “Risk Factors” on page S-3 in this prospectus supplement and in “Item 1A. Risk Factors”
in our Annual Report on Form 10-K for the year ended December 31, 2014, as well as the following risks and uncertainties:
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state, provincial, federal and foreign legislative and regulatory initiatives that affect cost and investment recovery, have an effect on rate
structure, and affect the speed at and degree to which competition enters the natural gas and oil industries; |
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outcomes of litigation and regulatory investigations, proceedings or inquiries; |
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weather and other natural phenomena, including the economic, operational and other effects of hurricanes and storms; |
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the timing and extent of changes in interest rates and foreign currency exchange rates; |
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general economic conditions, including the risk of a prolonged economic slowdown or decline, or the risk of delay in a recovery, which can affect the
long-term demand for natural gas and oil and related services; |
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potential effects arising from terrorist attacks and any consequential or other hostilities; |
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changes in environmental, safety and other laws and regulations; |
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the development of alternative energy resources; |
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results and costs of financing efforts, including the ability to obtain financing on favorable terms, which can be affected by various factors,
including credit ratings and general market and economic conditions; |
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increases in the cost of goods and services required to complete capital projects; |
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growth in opportunities, including the timing and success of efforts to develop U.S. and Canadian pipeline, storage, gathering and other related
infrastructure projects and the effects of competition; |
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the performance of natural gas transmission, storage and gathering facilities, and crude oil transportation and storage; |
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the extent of success in connecting natural gas and oil supplies to transmission and gathering systems and in connecting to expanding gas and oil
markets; |
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the effects of accounting pronouncements issued periodically by accounting standard-setting bodies; |
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conditions of the capital markets during the periods covered by these forward-looking statements; and |
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the ability to successfully complete merger, acquisition or divestiture plans; regulatory or other limitations imposed as a result of a merger,
acquisition or divestiture; and the success of the business following a merger, acquisition or divestiture. |
S-10
You should read these statements carefully because they discuss our expectations about our
future performance, contain projections of our future operating results or our future financial condition, or state other “forward-looking” information. Before you invest, you should be aware that the occurrence of any of the events
described in “Risk Factors” on page S-3 in this prospectus supplement, in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014 and in the other documents incorporated by reference
into this prospectus supplement could substantially harm our business, results of operations and financial condition. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or
might occur to a different extent or at a different time than we have described. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
S-11
INFORMATION INCORPORATED BY REFERENCE
We file annual, quarterly and other reports with and furnish
other information to the Securities and Exchange Commission, or SEC. You may read and copy any document we file with or furnish to the SEC at the SEC’s public reference room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. Please call
the SEC at 1-800-732-0330 for further information on their public reference room. Our SEC filings are also available at the SEC’s website at http://www.sec.gov.
The SEC allows us to “incorporate by reference” the
information we have filed with the SEC. This means that we can disclose important information to you without actually including the specific information in this prospectus supplement by referring you to those documents. The information incorporated
by reference is an important part of this prospectus supplement. Information that we file later with the SEC will automatically update and may replace information in this prospectus supplement and information previously filed with the SEC. We
incorporate by reference the documents listed below and any future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act (excluding any information furnished under Items 2.02 or 7.01 on any current report on Form
8-K), including all such documents we may file with the SEC after the date of this prospectus supplement and until the termination of this offering:
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Our Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC on February 27, 2015;
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Our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2015, June 30, 2015, and September 30, 2015, as filed
with the SEC on May 7, 2015, August 6, 2015, and November 5, 2015, respectively; |
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Our Current Reports on Form 8-K filed with the SEC on March 12, 2015, March 25, 2015, July 6, 2015, and October 19, 2015;
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The description of our common units contained in our registration statement on Form 8-A, as filed with the SEC on June 22, 2007, and any
subsequent amendment or report filed for the purpose of updating such description. |
You may obtain any of the documents incorporated by reference in this prospectus from the SEC through the SEC’s website at the
address provided above. You may request a copy of any document incorporated by reference into this prospectus (including exhibits to those documents specifically incorporated by reference in this document), at no cost, by visiting our website at
http://www.spectraenergypartners.com, or by writing or calling us at the following address:
Spectra Energy Partners, LP
5400 Westheimer Court
Houston, Texas 77056
Attention: Secretary
Telephone: (713) 627-5400
The information contained on our website is not part of this
prospectus supplement.
S-12
PROSPECTUS
Spectra Energy Partners, LP
Common Units
We may offer, from time to
time, common units representing limited partnership interests in Spectra Energy Partners, LP. The common units we may offer will be offered at prices and on terms to be set forth in one or more accompanying prospectus supplements.
Our common units are traded on the New York Stock Exchange (NYSE) under the symbol “SEP.”
This prospectus provides you with a general description of the securities we may offer. Each time we offer to sell securities we will provide a prospectus
supplement that will contain specific information about those securities and the terms of that offering, including the specific manner in which we will offer the securities. The prospectus supplement also may add, update or change information
contained in this prospectus. This prospectus may be used to offer and sell securities only if accompanied by a prospectus supplement. You should read this prospectus and any prospectus supplement carefully before you invest. You should also
carefully read the documents we refer to in the “Where You Can Find More Information” section of this prospectus for information on us and our financial statements.
Our principal executive offices are located at 5400 Westheimer Court, Houston, Texas 77056. Our telephone number is (713) 627-5400.
Investing in our securities involves risks. You should carefully consider each of the factors described under “Risk
Factors,” referenced on page 6 of this prospectus, before you make an investment in our securities.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is November 20, 2015
TABLE OF CONTENTS
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You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with
different information or to make representations other than those contained in this prospectus. We do not take any responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. You should
not assume that the information incorporated by reference or provided in this prospectus or any prospectus supplement is accurate as of any date other than the date on the front of each such document. Our business, financial condition, results of
operations and prospects may have changed since that date.
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-3 that we have filed with the Securities and Exchange Commission, or SEC, using a
“shelf” registration process. Under this shelf registration process, we may offer from time to time our common units described in this prospectus in one or more offerings. This prospectus provides you with a general description of us and
the securities offered under this prospectus.
Each time we sell common units under this prospectus, we will provide a prospectus supplement that will
contain specific information about the terms of that offering and the securities being offered. The prospectus supplement also may add to, update, or change information in this prospectus. If there is any inconsistency between the information in
this prospectus and any prospectus supplement, the information in the prospectus supplement will control. We urge you to read carefully this prospectus, any prospectus supplement and the additional information described below under the heading
“Where You Can Find More Information.”
This prospectus contains summaries of certain provisions contained in some of the documents described
herein, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by reference to the actual documents. Copies of some of the documents referred to herein have been filed or will be
filed or incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and you may obtain copies of those documents as described below in the section entitled “Where You Can Find More Information.”
Unless the context clearly indicates otherwise, references in this prospectus to “Spectra Energy Partners,” “we,” “our,”
“us” or like terms refer to Spectra Energy Partners, LP. References in this prospectus to our “general partner” refer to Spectra Energy Partners (DE) GP, LP or Spectra Energy Partners GP, LLC, the general partner of Spectra
Energy Partners (DE) GP, LP, as appropriate. References to “Spectra Energy” refer to Spectra Energy Corp, the parent company of our general partner.
1
ABOUT SPECTRA ENERGY PARTNERS, LP
Spectra Energy Partners, LP, through its subsidiaries and equity affiliates, is engaged in the transmission, storage and gathering of natural gas, the
transportation and storage of crude oil, and the transportation of natural gas liquids (NGLs), through interstate pipeline systems with over 15,000 miles of transmission and transportation pipelines and the storage of natural gas in underground
facilities with aggregate working gas storage capacity of approximately 166 billion cubic feet (Bcf) in the United States. We are a Delaware master limited partnership formed in 2007.
We own and operate natural gas transmission, gathering and storage assets, and crude oil transportation and storage assets, in central, southern and eastern
United States as well as western Canada. Our assets are strategically located in geographic regions of the United States and Canada where demand, primarily for natural gas used in electricity generation, and crude oil, is expected to
increase steadily. We have a broad mix of customers, including local gas distribution companies (LDCs), municipal utilities, interstate and intrastate pipelines, direct industrial users, electric power generators, marketers and producers, and
exploration and production companies. Our interstate gas transmission pipeline and storage operations and our liquids crude oil transportation and storage operations are regulated by either the Federal Energy Regulatory Commission
(FERC), the U.S. Department of Transportation (DOT), or the National Energy Board (NEB) with the exception of Moss Bluff intrastate storage operations and Ozark gathering facilities, which are subject to oversight by various state commissions.
Our operations and activities are managed by our general partner, Spectra Energy Partners (DE) GP, LP, which in turn is managed by its general partner,
Spectra Energy Partners GP, LLC (the Ultimate General Partner). The Ultimate General Partner is wholly owned by a subsidiary of Spectra Energy. Spectra Energy is a separate entity the common stock of which trades on the NYSE under the symbol
“SE.” As of October 31, 2015, Spectra Energy and its other subsidiaries collectively owned 78% of us and the remaining 22% was publicly owned.
2
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and other reports with and furnish other information to the Securities and Exchange Commission, or SEC. You may read and copy any
document we file with or furnish to the SEC at the SEC’s public reference room at 100 F Street, NE, Washington, D.C. 20549. Please call the SEC at 1-800-732-0330 for further information on their public reference room. Our SEC filings are also
available at the SEC’s web site at http://www.sec.gov. You may also inspect and copy the information we file with the SEC at the offices of the NYSE at 20 Broad Street, New York, New York 10005.
The SEC allows us to “incorporate by reference” the information we have filed with the SEC. This means that we can disclose important information to
you without actually including the specific information in this prospectus by referring you to those documents. The information incorporated by reference is an important part of this prospectus. Information that we file later with the SEC will
automatically update and may replace information in this prospectus and information previously filed with the SEC. We incorporate by reference the documents listed below and any future filings made with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act of 1934, as amended (the “Exchange Act”), (excluding any information furnished under Items 2.02 or 7.01 on any Current Report on Form 8-K) after the date of this prospectus:
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Our Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC on February 27, 2015; |
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Our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2015, June 30, 2015, and September 30, 2015, as filed with the SEC on May 7, 2015, August 6, 2015, and
November 5, 2015, respectively; |
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Our Current Reports on Form 8-K, as filed with the SEC on March 12, 2015, March 25, 2015, July 6, 2015, and October 19, 2015; and |
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The description of our common units contained in our registration statement on Form 8-A, as filed with the SEC on June 22, 2007, and any subsequent amendment or report filed for the purpose of updating such
description. |
You may obtain any of the documents incorporated by reference in this prospectus from the SEC through the SEC’s website
at the address provided above. You may request a copy of any document incorporated by reference into this prospectus and any prospectus supplement (including exhibits to those documents specifically incorporated by reference in this prospectus or
any prospectus supplement), at no cost, by visiting our website at http://www.spectraenergypartners.com, or by writing or calling us at the following address:
Spectra Energy Partners, LP
5400
Westheimer Court
Houston, Texas 77056
Attention: Secretary
Telephone:
(713) 627-5400
The information contained on our website is not part of this prospectus.
3
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the information included in this prospectus and the documents we incorporate by reference herein contain “forward-looking” statements. All
statements that are not statements of historical facts, including statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking
statements. These forward-looking statements are identified by terms and phrases such as: anticipate, believe, intend, estimate, expect, continue, should, could, may, plan, project, predict, will, potential, forecast, and similar expressions. When
considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this prospectus.
These
forward-looking statements reflect our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors, many of which are outside our control. Important factors that could cause
actual results to differ materially from the expectations expressed or implied in the forward-looking statements include known and unknown risks. Known risks and uncertainties include, but are not limited to, the risk factors and other cautionary
statements described under the headings “Risk Factors” included in our most recent Annual Report on Form 10-K, any subsequently filed Quarterly Reports on Form 10-Q and any subsequently filed Current Reports on Form 8-K, all of which are
incorporated by reference in this prospectus.
Forward-looking statements may include statements about our:
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state, provincial, federal and foreign legislative and regulatory initiatives that affect cost and investment recovery, have an effect on rate structure, and affect the speed at and degree to which competition enters
the natural gas and oil industries; |
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outcomes of litigation and regulatory investigations, proceedings or inquiries; |
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weather and other natural phenomena, including the economic, operational and other effects of hurricanes and storms; |
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the timing and extent of changes in interest rates and foreign currency exchange rates; |
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general economic conditions, including the risk of a prolonged economic slowdown or decline, or the risk of delay in a recovery, which can affect the long-term demand for natural gas and oil and related services;
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potential effects arising from terrorist attacks and any consequential or other hostilities; |
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changes in environmental, safety and other laws and regulations; |
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the development of alternative energy resources; |
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results and costs of financing efforts, including the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings and general market and economic conditions;
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increases in the cost of goods and services required to complete capital projects; |
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growth in opportunities, including the timing and success of efforts to develop U.S. and Canadian pipeline, storage, gathering, and other related infrastructure projects and the effects of competition;
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the performance of natural gas transmission, storage and gathering facilities, and crude oil transportation and storage; |
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the extent of success in connecting natural gas and oil supplies to transmission and gathering systems and in connecting to expanding gas and oil markets; |
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the effects of accounting pronouncements issued periodically by accounting standard-setting bodies; |
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conditions of the capital markets during the periods covered by these forward-looking statements; and |
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the ability to successfully complete merger, acquisition or divestiture plans; regulatory or other limitations imposed as a result of a merger, acquisition or divestiture; and the success of the business following a
merger, acquisition or divestiture. |
You should read these statements carefully because they discuss our expectations about our future
performance, contain projections of our future operating results or our future financial condition, or state other “forward-looking” information. Before you invest, you should be aware that the occurrence of any of the events described
under the headings “Risk Factors” included in our most recent Annual Report on Form 10-K, any subsequently filed Quarterly Reports on Form 10-Q and any subsequently filed Current Reports on Form 8-K could substantially harm our business,
results of operations and financial condition. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have
described. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
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RISK FACTORS
An investment in our securities involves risks. You should carefully consider all of the information contained in or incorporated by reference in this
prospectus and additional information which may be incorporated by reference in this prospectus or any prospectus supplement in the future as provided under “Where You Can Find More Information,” including our annual reports on Form 10-K,
quarterly reports on Form 10-Q and Current Reports on Form 8-K, including the risk factors described under “Risk Factors” in such reports. This prospectus also contains forward looking statements that involve risks and uncertainties.
Please read “Cautionary Note Regarding Forward-Looking Statements.” Our actual results could differ materially from those anticipated in the forward looking statements as a result of certain factors, including the risks described elsewhere
in this prospectus or any prospectus supplement and in the documents incorporated by reference into this prospectus or any prospectus supplement. If any of these risks occur, our business, financial condition or results of operation could be
adversely affected.
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USE OF PROCEEDS
Unless otherwise indicated to the contrary in an accompanying prospectus supplement, we will use the net proceeds from the sale of the securities covered by
this prospectus for general partnership purposes, which may include debt repayment, future acquisitions, capital expenditures and additions to working capital.
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DESCRIPTION OF THE COMMON UNITS
The Units
The common units are
a class of limited partner interests in us. The holders of units are entitled to participate in partnership distributions and exercise the rights or privileges available to limited partners under our partnership agreement. For a description of the
rights and privileges of limited partners under our partnership agreement, including voting rights, please read “The Partnership Agreement.”
Transfer Agent and Registrar
Duties. American Stock Transfer & Trust Company serves as registrar and transfer agent for the common units. We will pay all fees
charged by the transfer agent for transfers of common units except the following that must be paid by unitholders:
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surety bond premiums to replace lost or stolen certificates, taxes and other governmental charges; |
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special charges for services requested by a common unitholder; and |
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other similar fees or charges. |
There will be no charge to unitholders for disbursements of our cash
distributions. We will indemnify the transfer agent, its agents and each of their stockholders, directors, officers and employees against all claims and losses that may arise out of acts performed or omitted for its activities in that capacity,
except for any liability due to any gross negligence or intentional misconduct of the indemnified person or entity.
Resignation or Removal.
The transfer agent may resign, by notice to us, or be removed by us. The resignation or removal of the transfer agent will become effective upon our appointment of a successor transfer agent and registrar and its acceptance of the appointment. If no
successor has been appointed and has accepted the appointment within 30 days after notice of the resignation or removal, our general partner may act as the transfer agent and registrar until a successor is appointed.
Transfer of Common Units
Any
transfer of a common unit will not be recorded by the transfer agent or recognized by us unless the transferee executes and delivers a properly completed transfer application. By executing and delivering a transfer application, the transferee of
common units:
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becomes the record holder of the common units and is an assignee until admitted into our partnership as a substituted limited partner; |
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automatically requests admission as a substituted limited partner in our partnership; |
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executes and agrees to be bound by the terms and conditions of our partnership agreement; |
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represents that the transferee has the capacity, power and authority to enter into our partnership agreement; |
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grants powers of attorney to the officers of our general partner and any liquidator of us as specified in our partnership agreement; |
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gives the consents, covenants, representations and approvals contained in our partnership agreement; and |
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that the transferee is an individual or is an entity subject to United States federal income taxation on the income generated by us; or |
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that, if the transferee is an entity not subject to United States federal income taxation on the income generated by us, as in the case, for example, of a mutual fund taxed as a regulated investment company or a
partnership, all the entity’s owners are subject to United States federal income taxation on the income generated by us. |
An assignee
will become a substituted limited partner of our partnership for the transferred common units automatically upon the recording of the transfer on our books and records. Our general partner will cause any unrecorded transfers for which a properly
completed and duly executed transfer application has been received to be recorded on our books and records no less frequently than quarterly.
A
transferee’s broker, agent or nominee may, but is not obligated to, complete, execute and deliver a transfer application. We are entitled to treat the nominee holder of a common unit as the absolute owner. In that case, the beneficial
holder’s rights are limited solely to those that it has against the nominee holder as a result of any agreement between the beneficial owner and the nominee holder.
Common units are securities and are transferable according to the laws governing transfer of securities. In addition to other rights acquired upon transfer,
the transferor gives the transferee the right to request admission as a substituted limited partner in our partnership for the transferred common units. A purchaser or transferee of common units who does not execute and deliver a properly completed
transfer application obtains only:
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the right to assign the common unit to a purchaser or other transferee; and |
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the right to transfer the right to seek admission as a substituted limited partner in our partnership for the transferred common units. |
Thus, a purchaser or transferee of common units who does not execute and deliver a properly completed transfer application:
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will not receive cash distributions; |
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will not be allocated any of our income, gain, deduction, losses or credits for federal income tax or other tax purposes; |
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may not receive some federal income tax information or reports furnished to record holders of common units; and |
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will have no voting rights; |
unless the common units are held in a nominee or “street name” account
and the nominee or broker has executed and delivered a transfer application and certification as to itself and any beneficial holders.
The transferor of
common units has a duty to provide the transferee with all information that may be necessary to transfer the common units. The transferor does not have a duty to ensure the execution of the transfer application by the transferee and has no liability
or responsibility if the transferee neglects or chooses not to execute and deliver a properly completed transfer application to the transfer agent. Please read “The Partnership Agreement — Status as Limited Partner.”
Until a common unit has been transferred on our books, we and the transfer agent may treat the record holder of the unit as the absolute owner for all
purposes, except as otherwise required by law or stock exchange regulations.
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PROVISIONS OF OUR PARTNERSHIP AGREEMENT RELATING TO CASH
DISTRIBUTIONS
Set forth below is a summary of the significant provisions of our partnership agreement that relate to cash distributions.
Distributions of Available Cash
General. Our partnership agreement requires that, within 60 days after the end of each quarter, we distribute all of our available cash to
unitholders of record on the applicable record date.
Definition of Available Cash. Available cash, for any quarter, consists
of all cash on hand at the end of that quarter:
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less the amount of cash reserves established by our general partner to: |
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provide for the proper conduct of our business; |
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comply with applicable law, any of our debt instruments or other agreements; or |
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provide funds for distributions to our unitholders and to our general partner for any one or more of the next four quarters; |
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plus, if our general partner so determines, all or a portion of cash on hand on the date of determination of available cash for the quarter. |
Minimum Quarterly Distribution. We will distribute to the holders of common units on a quarterly basis at least the minimum quarterly
distribution of $0.30 per unit, or $1.20 per year, to the extent we have sufficient cash from our operations after establishment of cash reserves and payment of fees and expenses, including payments to our general partner. However, there is no
guarantee that we will pay the minimum quarterly distribution on the units in any quarter. Even if our cash distribution policy is not modified or revoked, the amount of distributions paid under our policy and the decision to make any distribution
is determined by our general partner, taking into consideration the terms of our partnership agreement. We will be prohibited from making any distributions to unitholders if it would cause an event of default, or an event of default is existing,
under our credit agreement.
General Partner Interest and Incentive Distribution Rights. Our general partner is entitled to 2%
of all quarterly distributions since inception that we make prior to our liquidation. This general partner interest is represented by 5,770,574 general partner units. Our general partner has the right, but not the obligation, to contribute a
proportionate amount of capital to us to maintain its current general partner interest. The general partner’s initial 2% interest in these distributions will be reduced if we issue additional units in the future and our general partner does not
contribute a proportionate amount of capital to us to maintain its 2% general partner interest.
Our general partner also currently holds
incentive distribution rights that entitle it to receive increasing percentages, up to a maximum of 50%, of the cash we distribute from operating surplus (as defined below) in excess of $0.345 per unit per quarter. The maximum distribution of 50%
includes distributions paid to our general partner on its 2% general partner interest and assumes that our general partner maintains its general partner interest at 2%. The maximum distribution of 50% does not include any distributions that our
general partner may receive on units that it owns. Please read “— General Partner Interest and Incentive Distribution Rights” for additional information.
Operating Surplus and Capital Surplus
General. All cash distributed to unitholders will be characterized as either “operating surplus” or “capital surplus.” Our
partnership agreement requires that we distribute available cash from operating surplus differently than available cash from capital surplus.
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Operating Surplus. We define operating surplus in the partnership agreement and for any period it
generally means:
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an operating surplus “basket” equal to the sum of (i) two times the amount needed to pay the minimum quarterly distribution on all of our units (including the general partner units) and (ii) two
times the amount in excess of the minimum quarterly distribution needed for any quarter to pay a distribution on our common units at the same per-unit amount as was distributed on our common units in excess of the minimum quarterly distribution in
the immediately preceding quarter, provided the amount in (ii) will be deemed to be operating surplus only to the extent that the distribution paid in respect of such amounts is paid on our common units; plus |
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all of our cash receipts after the closing of our initial public offering, excluding cash from interim capital transactions, as defined below under “— Capital Surplus”; less |
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all of our operating expenditures after the closing of our initial public offering, excluding the repayment of borrowings, but including maintenance capital expenditures (including any capital contribution to our equity
affiliates to be used by them for maintenance capital expenditures); less |
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the amount of cash reserves established by our general partner to provide funds for future operating expenditures. |
We define operating expenditures in the partnership agreement, and it generally means all of our expenditures, including, but not limited to, taxes,
reimbursement of expenses incurred by our general partner on our behalf, non-pro rata purchases of units (other than those made with the proceeds of an interim capital transaction (as defined below)), interest payments, payments made in the ordinary
course of business under interest rate hedge contracts and commodity hedge contracts and maintenance capital expenditures, provided that operating expenditures will not include:
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payments of principal of and premium on indebtedness; |
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expansion capital expenditures; |
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payment of transaction expenses (including taxes) related to interim capital transactions; |
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distributions to our partners; and |
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non-pro rata purchases of units of any class made with the proceeds of an interim capital transaction. |
Maintenance capital expenditures represent capital expenditures made to replace partially or fully depreciated assets, to maintain the existing operating
capacity of our assets and to extend their useful lives, or other capital expenditures that are incurred in maintaining existing system volumes and related asset base. Expansion capital expenditures represent capital expenditures made to increase
the long-term operating capacity or asset base, whether through construction or acquisition. Expansion capital expenditures include any capital contribution made to our equity affiliates to be used by them for expansion capital expenditures. Costs
for repairs and minor renewals to maintain facilities in operating condition and that do not extend the useful life of existing assets will be treated as operations and maintenance expenses as we incur them. Our partnership agreement provides that
our general partner, with the concurrence of the conflicts committee, determines how to allocate a capital expenditure for the acquisition or expansion of our assets between maintenance capital expenditures and expansion capital expenditures.
Capital Surplus. We also define capital surplus in the partnership agreement and in “— Characterization of Cash Distributions”
below, and it will generally be generated only by the following, which we call “interim capital transactions”:
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sales of our equity and debt securities; |
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sales or other dispositions of assets for cash, other than inventory, accounts receivable and other current assets sold in the ordinary course of business or as part of normal retirement or replacement of assets;
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the termination of interest rate hedge contracts or commodity hedge contracts prior to the termination date specified therein; |
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capital contributions received; and |
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corporate reorganizations or restructurings. |
Characterization of Cash Distributions. Our
partnership agreement requires that we treat all available cash distributed as coming from operating surplus until the sum of all available cash distributed since the closing of our initial public offering equals the operating surplus as of the most
recent date of determination of available cash. Our partnership agreement requires that we treat any amount distributed in excess of operating surplus, regardless of its source, as capital surplus. This amount does not reflect actual cash on hand
that is available for distribution to our unitholders. Rather, it is a provision that will enable us, if we choose, to distribute as operating surplus up to this amount of cash we receive in the future from interim capital transactions, that would
otherwise be distributed as capital surplus. We do not anticipate that we will make any distributions from capital surplus. The characterization of cash distributions as operating surplus versus capital surplus does not result in a different impact
to unitholders for federal tax purposes. Please read “Material Tax Consequences — Tax Consequences of Unit Ownership — Treatment of Distributions” for a discussion of the tax treatment of cash distributions.
Distributions of Available Cash from Operating Surplus
Our partnership agreement requires that we make distributions of available cash from operating surplus for any quarter in the following manner:
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first, 98% to all unitholders, pro rata, and 2% to the general partner, until we distribute for each outstanding unit an amount equal to the minimum quarterly distribution for that quarter; and |
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thereafter, in the manner described in “General Partner Interest and Incentive Distribution Rights” below. |
The preceding discussion is based on the assumptions that our general partner maintains its 2% general partner interest and that we do not issue additional
classes of equity securities.
General Partner Interest and Incentive Distribution Rights
Our partnership agreement provides that our general partner initially will be entitled to 2% of all distributions that we make prior to our liquidation. Our
general partner has the right, but not the obligation, to contribute a proportionate amount of capital to us to maintain its 2% general partner interest if we issue additional units. Our general partner’s 2% interest, and the percentage of our
cash distributions to which it is entitled, will be proportionately reduced if we issue additional units in the future and our general partner does not contribute a proportionate amount of capital to us in order to maintain its 2% general partner
interest. Our general partner will be entitled to make a capital contribution in order to maintain its 2% general partner interest in the form of the contribution to us of common units based on the current market value of the contributed common
units.
Incentive distribution rights represent the right to receive an increasing percentage (13%, 23% and 48%) of quarterly distributions of available
cash from operating surplus after the minimum quarterly distribution and the target distribution levels have been achieved. Our general partner currently holds the incentive distribution rights, but may transfer these rights separately from its
general partner interest, subject to restrictions in the partnership agreement.
The following discussion assumes that the general partner maintains its
2% general partner interest and continues to own the incentive distribution rights.
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If for any quarter we have distributed available cash from operating surplus to the common unitholders in an
amount equal to the minimum quarterly distribution then, our partnership agreement requires that we distribute any additional available cash from operating surplus for that quarter among the unitholders and the general partner in the following
manner:
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first, 98% to all unitholders, pro rata, and 2% to the general partner, until each unitholder receives a total of $0.345 per unit for that quarter (the “first target distribution”); |
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second, 85% to all unitholders, pro rata, and 15% to the general partner, until each unitholder receives a total of $0.375 per unit for that quarter (the “second target distribution”);
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third, 75% to all unitholders, pro rata, and 25% to the general partner, until each unitholder receives a total of $0.45 per unit for that quarter (the “third target distribution”); and
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thereafter, 50% to all unitholders, pro rata, and 50% to the general partner. |
General Partner’s Right to Reset Incentive Distribution Levels
Our general partner, as the holder of our incentive distribution rights, has
the right under our partnership agreement to elect to relinquish the right to receive incentive distribution payments based on the initial cash target distribution levels and to reset, at higher levels, the minimum quarterly distribution amount and
cash target distribution levels upon which the incentive distribution payments to our general partner would be set. Our general partner’s right to reset the minimum quarterly distribution amount and the target distribution levels upon which the
incentive distributions payable to our general partner are based may be exercised, without approval of our unitholders or the conflicts committee of our general partner, at any time when we have made cash distributions to the holders of the
incentive distribution rights at the highest level of incentive distribution for each of the prior four consecutive fiscal quarters. The reset minimum quarterly distribution amount and target distribution levels will be higher than the minimum
quarterly distribution amount and the target distribution levels prior to the reset such that our general partner will not receive any incentive distributions under the reset target distribution levels until cash distributions per unit following
this event increase as described below. We anticipate that our general partner would exercise this reset right in order to facilitate acquisitions or internal growth projects that would otherwise not be sufficiently accretive to cash distributions
per common unit, taking into account the existing levels of incentive distribution payments being made to our general partner.
In connection with the
resetting of the minimum quarterly distribution amount and the target distribution levels and the corresponding relinquishment by our general partner of incentive distribution payments based on the target cash distributions prior to the reset, our
general partner will be entitled to receive a number of newly issued Class B units based on a predetermined formula described below that takes into account the “cash parity” value of the average cash distributions related to the incentive
distribution rights received by our general partner for the two quarters prior to the reset event as compared to the average cash distributions per common unit during this period. We will also issue an additional amount of general partner units in
order to maintain the general partner’s ownership interest in us relative to the issuance of the Class B units.
The number of Class B units that our
general partner would be entitled to receive from us in connection with a resetting of the minimum quarterly distribution amount and the target distribution levels then in effect would be equal to (x) the average amount of cash distributions
received by our general partner in respect of its incentive distribution rights during the two consecutive fiscal quarters ended immediately prior to the date of such reset election divided by (y) the average of the amount of cash distributed
per common unit during each of these two quarters. Each Class B unit will be convertible into one common unit at the election of the holder of the Class B unit at any time following the first anniversary of the issuance of these Class B units The
issuance of Class B units will be conditioned upon approval of the listing or admission for trading of the common units into which the Class B units are convertible by the national securities exchange on which the common units are then listed or
admitted for trading. Each Class B unit will receive the same level of distribution as a common unit on a pari passu basis with other unitholders.
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Following a reset election by our general partner, the minimum quarterly distribution amount will be reset to an
amount equal to the average cash distribution amount per common unit for the two fiscal quarters immediately preceding the reset election (such amount is referred to as the “reset minimum quarterly distribution”) and the target
distribution levels will be reset to be correspondingly higher such that we would distribute all of our available cash from operating surplus for each quarter thereafter as follows:
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first, 98% to all unitholders, pro rata, and 2% to the general partner, until each unitholder receives an amount equal to 115% of the reset minimum quarter distribution for that quarter; |
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second, 85% to all unitholders, pro rata, and 15% to the general partner, until each unitholder receives an amount per unit equal to 125% of the reset minimum quarterly distribution for that quarter;
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third, 75% to all unitholders, pro rata, and 25% to the general partner, until each unitholder receives an amount per unit equal to 150% of the reset minimum quarterly distribution for that quarter; and
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thereafter, 50% to all unitholders, pro rata, and 50% to the general partner. |
Distributions from Capital Surplus
How Distributions from Capital Surplus Will Be Made. Our partnership agreement requires that we
make distributions of available cash from capital surplus, if any, in the following manner:
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first, 98% to all unitholders, pro rata, and 2% to the general partner, until we distribute for each common unit that was issued in our initial public offering an amount of available cash from capital surplus
equal to the initial public offering price; and |
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thereafter, we will make all distributions of available cash from capital surplus as if they were from operating surplus. |
Effect of a Distribution from Capital Surplus. Our partnership agreement treats a distribution of capital surplus as the repayment of the
initial unit price from this initial public offering, which is a return of capital. The initial public offering price less any distributions of capital surplus per unit is referred to as the “unrecovered initial unit price.” Each time a
distribution of capital surplus is made, the minimum quarterly distribution and the target distribution levels will be reduced in the same proportion as the corresponding reduction in the unrecovered initial unit price. However, any distribution of
capital surplus before the unrecovered initial unit price is reduced to zero cannot be applied to the payment of the minimum quarterly distribution.
Once we distribute capital surplus on a unit issued in our initial public offering in an amount equal to the initial unit price, our partnership agreement
specifies that the minimum quarterly distribution and the target distribution levels will be reduced to zero. Our partnership agreement specifies that we then make all future distributions from operating surplus, with 50% being paid to the holders
of units and 50% to the general partner. The percentage interests shown for our general partner include its 2% general partner interest and assume the general partner has not transferred the incentive distribution rights.
Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels
In addition to adjusting the minimum quarterly distribution and target distribution levels to reflect a distribution of capital surplus, if we combine our
units into fewer units or subdivide our units into a greater number of units, our partnership agreement specifies that the following items will be proportionately adjusted:
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the minimum quarterly distribution; |
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target distribution levels; and |
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the unrecovered initial unit price. |
For example, if a two-for-one split of the common units should occur, the
minimum quarterly distribution, the target distribution levels and the unrecovered initial unit price would each be reduced to 50% of its initial level.
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Our partnership agreement provides that we not make any adjustment by reason of the issuance of additional units for cash or property.
In addition, if legislation is enacted or if existing law is modified or interpreted by a governmental authority, so that we become taxable as a corporation
or otherwise subject to taxation as an entity for federal, state or local income tax purposes, our partnership agreement specifies that the general partner may reduce the minimum quarterly distribution and the target distribution levels for each
quarter by multiplying each distribution level by a fraction, the numerator of which is available cash for that quarter and the denominator of which is the sum of available cash for that quarter plus the general partner’s estimate of our
aggregate liability for the quarter for such income taxes payable by reason of such legislation or interpretation. To the extent that the actual tax liability differs from the estimated tax liability for any quarter, the difference will be accounted
for in subsequent quarters.
Distributions of Cash Upon Liquidation
General. If we dissolve in accordance with the partnership agreement, we will sell or otherwise dispose of our assets in a process called
liquidation. We will first apply the proceeds of liquidation to the payment of our creditors. We will distribute any remaining proceeds to the unitholders and the general partner, in accordance with their capital account balances, as adjusted to
reflect any gain or loss upon the sale or other disposition of our assets in liquidation. Any net gain in excess of unrecovered capital recognized upon liquidation will be allocated in a manner that takes into account the incentive distribution
rights of the general partner.
Manner of Adjustments for Gain. Adjustment for gain is generally allocated in the following
manner:
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first, to the general partner and the holders of units who have negative balances in their capital accounts to the extent of and in proportion to those negative balances; |
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second, 98% to the common unitholders, pro rata, and 2% to the general partner, until the capital account for each common unit is equal to the sum of: (1) the unrecovered initial unit price; and (2) the
amount of the minimum quarterly distribution for the quarter during which our liquidation occurs; |
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third, 98% to the Class B unitholders, pro rata, and 2% to the general partner, until the capital account for each Class B unit is equal to the sum of: (1) the unrecovered initial unit price; and
(2) the amount for the minimum quarterly distribution for the quarter during which our liquidation occurs; |
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fourth, 98% to all unitholders, pro rata, and 2% to the general partner, until we allocate under this paragraph an amount per unit equal to: (1) the sum of the excess of the first target distribution
per unit over the minimum quarterly distribution per unit for each quarter of our existence; less (2) the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the minimum quarterly distribution
per unit that we distributed 98% to the unitholders, pro rata, and 2% to the general partner, for each quarter of our existence; |
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fifth, 85% to all unitholders, pro rata, and 15% to the general partner, until we allocate under this paragraph an amount per unit equal to: (1) the sum of the excess of the second target distribution
per unit over the first target distribution per unit for each quarter of our existence; less (2) the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the first target distribution per unit
that we distributed 85% to the unitholders, pro rata, and 15% to the general partner for each quarter of our existence; |
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sixth, 75% to all unitholders, pro rata, and 25% to the general partner, until we allocate under this paragraph an amount per unit equal to: (1) the sum of the excess of the third target distribution per
unit over the second target distribution per unit for each quarter of our existence; less (2) the cumulative |
amount per
unit of any distributions of available cash from operating surplus in excess of the second target distribution per unit that we distributed 75% to the unitholders, pro rata, and 25% to the general partner for each quarter of our existence; and
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thereafter, 50% to all unitholders, pro rata, and 50% to the general partner. |
The percentage interests
set forth above for our general partner include its 2% general partner interest and assume the general partner has not transferred the incentive distribution rights.
Manner of Adjustments for Losses. Adjustment for loss is generally allocated in the following manner:
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first, 98% to holders of Class B units in proportion to the positive balances in their capital accounts and 2% to the general partner, until the capital accounts of the Class B unitholders have been reduced to
zero; |
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second, 98% to the holders of common units in proportion to the positive balances in their capital accounts and 2% to the general partner, until the capital accounts of the common unitholders have been reduced to
zero; and |
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thereafter, 100% to the general partner. |
Adjustments to Capital Accounts. Our
partnership agreement requires that we make adjustments to capital accounts upon the issuance of additional units. In this regard, our partnership agreement specifies that we allocate any unrealized and, for tax purposes, unrecognized gain or loss
resulting from the adjustments to the unitholders and the general partner in the same manner as we allocate gain or loss upon liquidation. In the event that we make positive adjustments to the capital accounts upon the issuance of additional units,
our partnership agreement requires that we allocate any later negative adjustments to the capital accounts resulting from the issuance of additional units or upon our liquidation in a manner which results, to the extent possible, in the general
partner’s capital account balances equaling the amount which they would have been if no earlier positive adjustments to the capital accounts had been made.
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THE PARTNERSHIP AGREEMENT
The following is a summary of the material provisions of our partnership agreement. Our Second Amended and Restated Partnership Agreement is filed as an
exhibit to our Current Report on Form 8-K, dated November 1, 2013. Please read “Where You Can Find More Information.” We will provide prospective investors with a copy of our partnership agreement upon request at no charge.
We summarize the following provisions of our partnership agreement elsewhere in this prospectus:
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with regard to distributions of available cash, please read “Provisions of Our Partnership Agreement Relating to Cash Distributions;” |
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with regard to the transfer of common units, please read “Description of the Common Units — Transfer of Common Units;” and |
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with regard to allocations of taxable income and taxable loss, please read “Material Tax Consequences.” |
Organization and Duration
Our
partnership was organized March 19, 2007 and will have a perpetual existence.
Purpose
Our purpose under the partnership agreement is limited to any business activity that is approved by our general partner and that lawfully may be conducted by a
limited partnership organized under Delaware law; provided, that our general partner shall not cause us to engage, directly or indirectly, in any business activity that our general partner determines would cause us to be treated as an association
taxable as a corporation or otherwise taxable as an entity for federal income tax purposes.
Although our general partner has the ability to cause us and
our subsidiaries to engage in activities other than the business of transmitting, storing and gathering natural gas, transporting and storing crude oil, and transporting NGLs, our general partner has no current plans to do so and may decline to do
so free of any fiduciary duty or obligation whatsoever to us or the limited partners, including any duty to act in good faith or in the best interests of us or the limited partners. Our general partner is authorized in general to perform all acts it
determines to be necessary or appropriate to carry out our purposes and to conduct our business.
Power of Attorney
Each limited partner, and each person who acquires a unit from a unitholder, by accepting the common unit, automatically grants to our general partner and, if
appointed, a liquidator, a power of attorney to, among other things, execute and file documents required for our qualification, continuance or dissolution. The power of attorney also grants our general partner the authority to amend, and to make
consents and waivers under, our partnership agreement.
Cash Distributions
Our partnership agreement specifies the manner in which we will make cash distributions to holders of our common units and other partnership securities as well
as to our general partner in respect of its general partner interest and its incentive distribution rights. For a description of these cash distribution provisions, please read “Provisions of Our Partnership Agreement Relating to Cash
Distributions.”
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Capital Contributions
Unitholders are not obligated to make additional capital contributions, except as described below under “— Limited Liability.”
For a discussion of our general partner’s right to contribute capital to maintains its 2% general partner interest if we issue additional units, please
read “— Issuance of Additional Securities.”
Voting Rights
The following is a summary of the unitholder vote required for the matters specified below. Matters requiring the approval of a “unit majority”
require the approval of a majority of the common units and Class B units, if any, voting as a single class.
In voting their common or Class B units, our
general partner and its affiliates will have no fiduciary duty or obligation whatsoever to us or the limited partners, including any duty to act in good faith or in the best interests of us or the limited partners.
| Issuance of additional units |
No approval right. |
| Amendment of the partnership agreement |
Certain amendments may be made by the general partner without the approval of the unitholders. Other amendments generally require the approval of a unit majority. Please read “— Amendment of the Partnership Agreement.”
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| Merger of our partnership or the sale of all or substantially all of our assets |
Unit majority in certain circumstances. Please read “— Merger, Consolidation, Conversion, Sale or Other Disposition of Assets.” |
| Dissolution of our partnership |
Unit majority. Please read “— Termination and Dissolution.” |
| Continuation of our business upon dissolution |
Unit majority. Please read “— Termination and Dissolution.” |
| Withdrawal of the general partner |
Under most circumstances, the approval of a majority of the common units, excluding common units held by our general partner and its affiliates, is required for the withdrawal of our general partner prior to June 30, 2017 in a manner that would
cause a dissolution of our partnership. Please read “— Withdrawal or Removal of the General Partner.” |
| Removal of the general partner |
Not less than 66 2⁄3% of the outstanding units, voting as a single class, including units held by our general partner and its affiliates. Please read
“— Withdrawal or Removal of the General Partner.” |
| Transfer of the general partner interest |
Our general partner may transfer all, but not less than all, of its general partner interest in us without a vote of our unitholders to an affiliate or another person in connection with its merger or consolidation with or into, or sale of all or
substantially all of its assets to, such person. The approval of a majority of the common units, excluding common units held by the general partner and its affiliates, is required in other circumstances for a transfer of the general partner interest
to a third party prior to June 30, 2017. See “— Transfer of General Partner Units.” |
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| Transfer of incentive distribution rights |
Our general partner may transfer any or all of the incentive distribution rights without a vote of our unitholders to an affiliate or another person as part of our general partner’s merger or consolidation with or into, or sale of all or
substantially all of its assets or the sale of all of the ownership interests in such holder to, such person. The approval of a majority of the common units, excluding common units held by the general partner and its affiliates, is required in other
circumstances for a transfer of the incentive distribution rights to a third party prior to June 30, 2017. Please read “— Transfer of Incentive Distribution Rights.” |
| Transfer of ownership interests in our general partner |
No approval required at any time. Please read “— Transfer of Ownership Interests in the General Partner.” |
Limited Liability
Assuming that a limited partner does not participate in the control of our business within the meaning of the Delaware Act and
that he otherwise acts in conformity with the provisions of the partnership agreement, his liability under the Delaware Act will be limited, subject to possible exceptions, to the amount of capital he is obligated to contribute to us for his common
units plus his share of any undistributed profits and assets. If it were determined, however, that the right, or exercise of the right, by the limited partners as a group:
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to remove or replace the general partner; |
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to approve some amendments to the partnership agreement; or |
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to take other action under the partnership agreement; |
constituted “participation in the control” of
our business for the purposes of the Delaware Act, then the limited partners could be held personally liable for our obligations under the laws of Delaware, to the same extent as the general partner. This liability would extend to persons who
transact business with us who reasonably believe that the limited partner is a general partner. Neither the partnership agreement nor the Delaware Act specifically provides for legal recourse against the general partner if a limited partner were to
lose limited liability through any fault of the general partner. While this does not mean that a limited partner could not seek legal recourse, we know of no precedent for this type of a claim in Delaware case law.
Under the Delaware Act, a limited partnership may not make a distribution to a partner if, after the distribution, all liabilities of the limited partnership,
other than liabilities to partners on account of their partnership interests and liabilities for which the recourse of creditors is limited to specific property of the partnership, would exceed the fair value of the assets of the limited
partnership. For the purpose of determining the fair value of the assets of a limited partnership, the Delaware Act provides that the fair value of property subject to liability for which recourse of creditors is limited shall be included in the
assets of the limited partnership only to the extent that the fair value of that property exceeds the nonrecourse liability. The Delaware Act provides that a limited partner who receives a distribution and knew at the time of the distribution that
the distribution was in violation of the Delaware Act shall be liable to the limited partnership for the amount of the distribution for three years. Under the Delaware Act, a substituted limited partner of a limited partnership is liable for the
obligations of his assignor to make contributions to the partnership, except that such person is not obligated for liabilities unknown to him at the time he became a limited partner and that could not be ascertained from the partnership agreement.
Our subsidiaries conduct business in numerous states and we may have subsidiaries that conduct business in additional states in the future. Maintenance
of our limited liability as owner of our operating subsidiaries may require compliance with legal requirements in the jurisdictions in which our operating subsidiaries conduct business, including qualifying our subsidiaries to do business there.
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Limitations on the liability of limited partners for the obligations of a limited partner have not been clearly
established in many jurisdictions. If, by virtue of our ownership interest in our operating subsidiaries or otherwise, it were determined that we were conducting business in any state without compliance with the applicable limited partnership or
limited liability company statute, or that the right or exercise of the right by the limited partners as a group to remove or replace the general partner, to approve some amendments to the partnership agreement, or to take other action under the
partnership agreement constituted “participation in the control” of our business for purposes of the statutes of any relevant jurisdiction, then the limited partners could be held personally liable for our obligations under the law of that
jurisdiction to the same extent as the general partner under the circumstances. We will operate in a manner that the general partner considers reasonable and necessary or appropriate to preserve the limited liability of the limited partners.
Issuance of Additional Securities
Our partnership agreement authorizes us to issue an unlimited number of additional partnership securities for the consideration and on the terms and conditions
determined by our general partner without the approval of the unitholders.
It is possible that we will fund acquisitions through the issuance of
additional common units or other partnership securities. Holders of any additional common units we issue will be entitled to share equally with the then-existing holders of common units in our distributions of available cash. In addition, the
issuance of additional common units or other partnership securities may dilute the value of the interests of the then-existing holders of common units in our net assets.
In accordance with Delaware law and the provisions of our partnership agreement, we may also issue additional partnership securities that, as determined by
our general partner, may have special voting rights to which the common units are not entitled. In addition, our partnership agreement does not prohibit the issuance by our subsidiaries of equity securities, which may effectively rank senior to the
common units.
Upon issuance of additional partnership securities (other than the issuance of common units upon exercise by the underwriters of their
option to purchase additional common units, the issuance of Class B units in connection with a reset of the incentive distribution target levels or the issuance of partnership securities upon conversion of outstanding partnership securities), our
general partner will be entitled, but not required, to make additional capital contributions to the extent necessary to maintain its 2% general partner interest in us. Our general partner’s 2% interest in us will be reduced if we issue
additional units in the future and our general partner does not contribute a proportionate amount of capital to us to maintain its 2% general partner interest. Moreover, our general partner will have the right, which it may from time to time assign
in whole or in part to any of its affiliates, to purchase common units or other partnership securities whenever, and on the same terms that, we issue those securities to persons other than our general partner and its affiliates, to the extent
necessary to maintain the percentage interest of the general partner and its affiliates, including such interest represented by common units, that existed immediately prior to each issuance. The holders of common units will not have preemptive
rights to acquire additional common units or other partnership securities.
Amendment of the Partnership Agreement
General. Amendments to our partnership agreement may be proposed only by or with the consent of our general partner. However, our general partner
will have no duty or obligation to propose any amendment and may decline to do so free of any fiduciary duty or obligation whatsoever to us or the limited partners, including any duty to act in good faith or in the best interests of us or the
limited partners. In order to adopt a proposed amendment, other than the amendments discussed below, our general partner is required to seek written approval of the holders of the number of units required to approve the amendment or call a meeting
of the limited partners to consider and vote upon the proposed amendment. Except as described below, an amendment must be approved by a unit majority.
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Prohibited Amendments. No amendment may be made that would:
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enlarge the obligations of any limited partner without its consent, unless approved by at least a majority of the type or class of limited partner interests so affected; or |
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enlarge the obligations of, restrict in any way any action by or rights of, or reduce in any way the amounts distributable, reimbursable or otherwise payable by us to our general partner or any of its affiliates without
the consent of our general partner, which consent may be given or withheld at its option. |
The provision of our partnership agreement
preventing the amendments having the effects described in any of the clauses above can be amended upon the approval of the holders of at least 90% of the outstanding units voting together as a single class (including units owned by our general
partner and its affiliates).
No Unitholder Approval. Our general partner may generally make amendments to our partnership agreement without
the approval of any limited partner to reflect:
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a change in our name, the location of our principal place of our business, our registered agent or our registered office; |
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the admission, substitution, withdrawal or removal of partners in accordance with our partnership agreement; |
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a change that our general partner determines to be necessary or appropriate to qualify or continue our qualification as a limited partnership or a partnership in which the limited partners have limited liability under
the laws of any state or to ensure that neither we nor any of our operating subsidiaries will be treated as an association taxable as a corporation or otherwise taxed as an entity for federal income tax purposes; |
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an amendment that is necessary, in the opinion of our counsel, to prevent us or our general partner or its directors, officers, agents or trustees from in any manner being subjected to the provisions of the Investment
Company Act of 1940, the Investment Advisors Act of 1940, or “plan asset” regulations adopted under the Employee Retirement Income Security Act of 1974, or ERISA, whether or not substantially similar to plan asset regulations currently
applied or proposed; |
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an amendment that our general partner determines to be necessary or appropriate for the authorization of additional partnership securities or rights to acquire partnership securities, including any amendment that our
general partner determines is necessary or appropriate in connection with: |
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the adjustments of the minimum quarterly distribution, first target distribution, second target distribution and third target distribution in connection with the reset of our general partner’s incentive
distribution rights as described under “Provisions of Our Partnership Agreement Relating to Cash Distributions — General Partner’s Right to Reset Incentive Distribution Levels”; or |
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the implementation of the provisions relating to our general partner’s right to reset its incentive distribution rights in exchange for Class B units; and |
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any modification of the incentive distribution rights made in connection with the issuance of additional partnership securities or rights to acquire partnership securities, provided that, any such modifications and
related issuance of partnership securities have received approval by a majority of the members of the conflicts committee of our general partner; |
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any amendment expressly permitted in our partnership agreement to be made by our general partner acting alone; |
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an amendment effected, necessitated or contemplated by a merger agreement that has been approved under the terms of our partnership agreement; |
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any amendment that our general partner determines to be necessary or appropriate for the formation by us of, or our investment in, any corporation, partnership or other entity, as otherwise permitted by our partnership
agreement; |
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a change in our fiscal year or taxable year and related changes; |
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conversions into, mergers with or conveyances to another limited liability entity that is newly formed and has no assets, liabilities or operations at the time of the conversion, merger or conveyance other than those it
receives by way of the conversion, merger or conveyance; or |
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any other amendments substantially similar to any of the matters described in the clauses above. |
In addition,
our general partner may make amendments to our partnership agreement without the approval of any limited partner if our general partner determines that those amendments:
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do not adversely affect in any material respect the limited partners considered as a whole or any particular class of limited partners as compared to other classes of limited partners; |
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are necessary or appropriate to satisfy any requirements, conditions or guidelines contained in any opinion, directive, order, ruling or regulation of any federal or state agency or judicial authority or contained in
any federal or state statute; |
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are necessary or appropriate to facilitate the trading of limited partner interests or to comply with any rule, regulation, guideline or requirement of any securities exchange on which the limited partner interests are
or will be listed for trading; |
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are necessary or appropriate for any action taken by our general partner relating to splits or combinations of units under the provisions of our partnership agreement; or |
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are required to effect the intent expressed in this prospectus or the intent of the provisions of our partnership agreement or are otherwise contemplated by our partnership agreement. |
Opinion of Counsel and Unitholder Approval. For amendments of the type not requiring unitholder approval, our general partner will not be
required to obtain an opinion of counsel that an amendment will not result in a loss of limited liability to the limited partners or result in our being treated as an entity for federal income tax purposes in connection with any of the amendments.
No other amendments to our partnership agreement will become effective without the approval of holders of at least 90% of the outstanding units voting as a single class unless we first obtain an opinion of counsel to the effect that the amendment
will not affect the limited liability under applicable law of any of our limited partners.
In addition to the above restrictions, any
amendment that would have a material adverse effect on the rights or preferences of any type or class of outstanding units in relation to other classes of units will require the approval of at least a majority of the type or class of units so
affected. Any amendment that reduces the voting percentage required to take any action is required to be approved by the affirmative vote of limited partners whose aggregate outstanding units constitute not less than the voting requirement sought to
be reduced.
Merger, Consolidation, Conversion, Sale or Other Disposition of Assets
A merger, consolidation or conversion of us requires the prior consent of our general partner. However, our general partner will have no duty or obligation to
consent to any merger, consolidation or conversion and may decline to do so free of any fiduciary duty or obligation whatsoever to us or the limited partners, including any duty to act in good faith or in the best interest of us or the limited
partners.
In addition, the partnership agreement generally prohibits our general partner without the prior approval of the holders of a unit majority,
from causing us to, among other things, sell, exchange or otherwise dispose of all or substantially all of our assets in a single transaction or a series of related transactions, including by way of
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merger, consolidation or other combination, or approving on our behalf the sale, exchange or other disposition of all or substantially all of the assets of our subsidiaries. Our general partner
may, however, mortgage, pledge, hypothecate or grant a security interest in all or substantially all of our assets without that approval. Our general partner may also sell all or substantially all of our assets under a foreclosure or other
realization upon those encumbrances without that approval. Finally, our general partner may consummate any merger without the prior approval of our unitholders if we are the surviving entity in the transaction, our general partner has received an
opinion of counsel regarding limited liability and tax matters, the transaction would not result in a material amendment to the partnership agreement, each of our units will be an identical unit of our partnership following the transaction, and the
partnership securities to be issued do not exceed 20% of our outstanding partnership securities immediately prior to the transaction.
If the conditions
specified in the partnership agreement are satisfied, our general partner may convert us or any of our subsidiaries into a new limited liability entity or merge us or any of our subsidiaries into, or convey all of our assets to, a newly formed
entity if the sole purpose of that conversion, merger or conveyance is to effect a mere change in our legal form into another limited liability entity, our general partner has received an opinion of counsel regarding limited liability and tax
matters, and the governing instruments of the new entity provide the limited partners and the general partner with the same rights and obligations as contained in the partnership agreement. The unitholders are not entitled to dissenters’ rights
of appraisal under the partnership agreement or applicable Delaware law in the event of a conversion, merger or consolidation, a sale of substantially all of our assets or any other similar transaction or event.
Termination and Dissolution
We
will continue as a limited partnership until terminated under our partnership agreement. We will dissolve upon:
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the election of our general partner to dissolve us, if approved by the holders of units representing a unit majority; |
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there being no limited partners, unless we are continued without dissolution in accordance with applicable Delaware law; |
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the entry of a decree of judicial dissolution of our partnership; or |
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the withdrawal or removal of our general partner or any other event that results in its ceasing to be our general partner other than by reason of a transfer of its general partner interest in accordance with our
partnership agreement or withdrawal or removal following approval and admission of a successor. |
Upon a dissolution under the last clause
above, the holders of a unit majority may also elect, within specific time limitations, to continue our business on the same terms and conditions described in our partnership agreement by appointing as a successor general partner an entity approved
by the holders of units representing a unit majority, subject to our receipt of an opinion of counsel to the effect that:
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the action would not result in the loss of limited liability of any limited partner; and |
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neither our partnership nor any of our subsidiaries would be treated as an association taxable as a corporation or otherwise be taxable as an entity for federal income tax purposes upon the exercise of that right to
continue. |
Liquidation and Distribution of Proceeds
Upon our dissolution, unless we are continued as a new limited partnership, the liquidator authorized to wind up our affairs will, acting with all of the
powers of our general partner that are necessary or appropriate to liquidate our assets and apply the proceeds of the liquidation as described in “Provisions of Our Partnership Agreement Relating to Cash Distributions — Distributions of
Cash Upon Liquidation.” The liquidator may defer liquidation
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or distribution of our assets for a reasonable period of time or distribute assets to partners in kind if it determines that a sale would be impractical or would cause undue loss to our partners.
Withdrawal or Removal of the General Partner
Except as described below, our general partner has agreed not to withdraw voluntarily as our general partner prior to June 30, 2017 without obtaining the
approval of the holders of at least a majority of the outstanding common units, excluding common units held by the general partner and its affiliates, and furnishing an opinion of counsel regarding limited liability and tax matters. On or after
June 30, 2017, our general partner may withdraw as general partner without first obtaining approval of any unitholder by giving 90 days’ written notice, and that withdrawal will not constitute a violation of our partnership agreement.
Notwithstanding the information above, our general partner may withdraw without unitholder approval upon 90 days’ notice to the limited partners if at least 50% of the outstanding common units are held or controlled by one person and its
affiliates other than the general partner and its affiliates. In addition, the partnership agreement permits our general partner in some instances to sell or otherwise transfer all of its general partner interest in us without the approval of the
unitholders. Please read “— Transfer of General Partner Units” and “— Transfer of Incentive Distribution Rights.”
Upon
withdrawal of our general partner under any circumstances, other than as a result of a transfer by our general partner of all or a part of its general partner interest in us, the holders of a unit majority, voting as separate classes, may select a
successor to that withdrawing general partner. If a successor is not elected, or is elected but an opinion of counsel regarding limited liability and tax matters cannot be obtained, we will be dissolved, wound up and liquidated, unless within a
specified period after that withdrawal, the holders of a unit majority agree in writing to continue our business and to appoint a successor general partner. Please read “— Termination and Dissolution.”
Our general partner may not be removed unless that removal is approved by the vote of the holders of not less than
66 2⁄3% of the outstanding units, voting together as a single class, including units held by our general partner and its affiliates, and we receive an opinion
of counsel regarding limited liability and tax matters. Any removal of our general partner is also subject to the approval of a successor general partner by the vote of the holders of a majority of the outstanding common units and Class B units, if
any, voting as a separate class. The ownership of more than 33 1⁄3% of the outstanding units by our general partner and its affiliates would give them the
practical ability to prevent our general partner’s removal.
Our partnership agreement also provides that if our general partner is removed as our
general partner under circumstances where cause does not exist and units held by the general partner and its affiliates are not voted in favor of that removal, our general partner will have the right to convert its general partner interest and its
incentive distribution rights into common units or to receive cash in exchange for those interests based on the fair market value of those interests at that time.
In the event of removal of a general partner under circumstances where cause exists or withdrawal of a general partner where that withdrawal violates our
partnership agreement, a successor general partner will have the option to purchase the general partner interest and incentive distribution rights of the departing general partner for a cash payment equal to the fair market value of those interests.
Under all other circumstances where a general partner withdraws or is removed by the limited partners, the departing general partner will have the option to require the successor general partner to purchase the general partner interest of the
departing general partner and its incentive distribution rights for fair market value. In each case, this fair market value will be determined by agreement between the departing general partner and the successor general partner. If no agreement is
reached, an independent investment banking firm or other independent expert selected by the departing general partner and the successor general partner will determine the fair market value. Or, if the departing general partner and the successor
general partner cannot agree upon an expert, then an expert chosen by agreement of the experts selected by each of them will determine the fair market value.
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If the option described above is not exercised by either the departing general partner or the successor general
partner, the departing general partner’s general partner interest and its incentive distribution rights will automatically convert into common units equal to the fair market value of those interests as determined by an investment banking firm
or other independent expert selected in the manner described in the preceding paragraph.
In addition, we will be required to reimburse the departing
general partner for all amounts due the departing general partner, including, without limitation, all employee-related liabilities, including severance liabilities, incurred for the termination of any employees employed by the departing general
partner or its affiliates for our benefit.
Transfer of General Partner Units
Except for transfer by our general partner of all, but not less than all, of its general partner units to:
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an affiliate of our general partner (other than an individual); or |
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another entity as part of the merger or consolidation of our general partner with or into another entity or the transfer by our general partner of all or substantially all of its assets to another entity,
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our general partner may not transfer all or any of its general partner units to another person prior to June 30, 2017 without the
approval of the holders of at least a majority of the outstanding common units, excluding common units held by our general partner and its affiliates. As a condition of this transfer, the transferee must assume, among other things, the rights and
duties of our general partner, agree to be bound by the provisions of our partnership agreement, and furnish an opinion of counsel regarding limited liability and tax matters.
Our general partner and its affiliates may at any time, transfer units to one or more persons, without unitholder approval.
Transfer of Ownership Interests in the General Partner
At any time, Spectra Energy and its affiliates may sell or transfer all or part of their partnership interests in our general partner, or their membership
interest in Spectra Energy Partners GP, LLC, the general partner of our general partner, to an affiliate or third party without the approval of our unitholders.
Transfer of Incentive Distribution Rights
Our general partner or its affiliates or a subsequent holder may transfer its incentive distribution rights to an affiliate of the holder (other than an
individual) or another entity as part of the merger or consolidation of such holder with or into another entity, the sale of all of the ownership interest in the holder or the sale of all or substantially all of its assets to, that entity without
the prior approval of the unitholders. Prior to June 30, 2017, other transfers of incentive distribution rights will require the affirmative vote of holders of a majority of the outstanding common units, excluding common units held by our
general partner and its affiliates. On or after June
30, 2017, the incentive distribution rights will be freely transferable.
Change of Management Provisions
Our partnership agreement contains specific provisions that are intended to discourage a person or group from attempting to remove Spectra Energy Partners (DE)
GP, LP as our general partner or otherwise change our management. If any person or group other than our general partner and its affiliates acquires beneficial ownership of 20% or more of any class of units, that person or group loses voting rights
on all of its units. This loss of voting rights does not apply to any person or group that acquires the units from our general partner or its
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affiliates and any transferees of that person or group approved by our general partner or to any person or group who acquires the units with the prior approval of the board of directors of our
general partner.
Our partnership agreement also provides that if our general partner is removed as our general partner under circumstances where cause
does not exist and units held by our general partner and its affiliates are not voted in favor of that removal, our general partner will have the right to convert its general partner units and its incentive distribution rights into common units or
to receive cash in exchange for those interests based on the fair market value of those interests at that time.
Limited Call
Right
If at any time our general partner and its affiliates own more than 80% of the then-issued and outstanding limited partner interests of any
class, our general partner will have the right, which it may assign in whole or in part to any of its affiliates or to us, to acquire all, but not less than all, of the limited partner interests of the class held by unaffiliated persons as of a
record date to be selected by our general partner, on at least 10 but not more than 60 days’ notice. The purchase price in the event of this purchase is the greater of:
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the highest cash price paid by either of our general partner or any of its affiliates for any limited partner interests of the class purchased within the 90 days preceding the date on which our general partner first
mails notice of its election to purchase those limited partner interests; and |
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the current market price as of the date three days before the date the notice is mailed. |
As a result of our
general partner’s right to purchase outstanding limited partner interests, a holder of limited partner interests may have his limited partner interests purchased at a price that may be lower than market prices at various times prior to such
purchase or lower than a unitholder may anticipate the market price to be in the future.
The tax consequences to a unitholder of the exercise of this
call right are the same as a sale by that unitholder of his common units in the market. Please read “Material Tax Consequences — Disposition of Common Units.”
Non-Taxpaying Assignees; Redemption
To avoid any adverse effect on the maximum applicable rates chargeable to customers by our subsidiaries that are regulated interstate natural gas and oil
pipelines, or in order to reverse an adverse determination that has occurred regarding such maximum rates, transferees (including purchasers from the underwriters in offerings) are required to furnish a properly completed transfer application
certifying, and our general partner, acting on our behalf, may at any time require each unitholder to re-certify that such transferee is not an Ineligible Holder (as defined in our partnership agreement) as of the date of such transfer application.
If a unitholder fails to furnish:
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a transfer application containing the required certification; |
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a re-certification containing the required certification within 30 days after request; or |
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provides a false certification; then |
we will have the right, which we may assign to any of our affiliates, to
acquire all but not less than all of the units held by such unitholder. Further, the units will not be entitled to any allocations of income or loss, distributions or voting rights while held by such unitholder.
The purchase price in the event of such an acquisition for each unit held by such unitholder will be the current market price determined as of the date fixed
for redemption. The purchase price will be paid in cash or by
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delivery of a promissory note, as determined by our general partner. Any such promissory note will bear interest at the rate of 5% annually and be payable in three equal annual installments of
principal and accrued interest, commencing one year after the redemption date.
Meetings; Voting
Except as described below regarding a person or group owning 20% or more of any class of units then outstanding, record holders of units on the record date
will be entitled to notice of, and to vote at, meetings of our limited partners and to act upon matters for which approvals may be solicited.
Our general
partner does not anticipate that any meeting of unitholders will be called in the foreseeable future. Any action that is required or permitted to be taken by the unitholders may be taken either at a meeting of the unitholders or without a meeting if
consents in writing describing the action so taken are signed by holders of the number of units necessary to authorize or take that action at a meeting. Meetings of the unitholders may be called by our general partner or by unitholders owning at
least 20% of the outstanding units of the class for which a meeting is proposed. Unitholders may vote either in person or by proxy at meetings. The holders of a majority of the outstanding units of the class or classes for which a meeting has been
called represented in person or by proxy will constitute a quorum unless any action by the unitholders requires approval by holders of a greater percentage of the units, in which case the quorum will be the greater percentage.
Each record holder of a unit has a vote according to his percentage interest in us, although additional limited partner interests having special voting rights
could be issued. However, if at any time any person or group acquires, in the aggregate, beneficial ownership of 20% or more of any class of units then outstanding, other than our general partner, its affiliates, their transferees and persons who
acquired such units with the prior approval of the board of directors of our general partner, that person or group will lose voting rights on all of its units and the units may not be voted on any matter and will not be considered to be outstanding
when sending notices of a meeting of unitholders, calculating required votes, determining the presence of a quorum or for other similar purposes. Common units held in nominee or street name account will be voted by the broker or other nominee in
accordance with the instruction of the beneficial owner unless the arrangement between the beneficial owner and his nominee provides otherwise.
Any
notice, demand, request, report or proxy material required or permitted to be given or made to record holders of common units under our partnership agreement will be delivered to the record holder by us or by the transfer agent.
Status as Limited Partner
By
transfer of common units in accordance with our partnership agreement, each transferee of common units shall be admitted as a limited partner with respect to the common units transferred when such transfer and admission is reflected in our books and
records. Except as described under “— Limited Liability,” the common units will be fully paid, and unitholders will not be required to make additional contributions.
Non-Citizen Assignees; Redemption
If we are or become subject to federal, state or local laws or regulations that, in the reasonable determination of our general partner, create a substantial
risk of cancellation or forfeiture of any property that we have an interest in because of the nationality, citizenship or other related status of any limited partner, we may redeem the units held by the limited partner at their current market price
on the redemption date. In order to avoid any cancellation or forfeiture, our general partner may require each limited partner to furnish information about his nationality, citizenship or related status. If a limited partner fails to furnish
information about his nationality, citizenship or other related status within 30 days after a request for the information or our general partner determines after receipt of the information that the limited partner is not an eligible citizen, the
limited partner may be treated as a
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non-citizen assignee. A non-citizen assignee is entitled to an interest equivalent to that of a limited partner for the right to share in allocations and distributions from us, including
liquidating distributions. A non-citizen assignee does not have the right to direct the voting of his units and may not receive distributions in-kind upon our liquidation.
Indemnification
Under our
partnership agreement, in most circumstances, we will indemnify the following persons, to the fullest extent permitted by law, from and against all losses, claims, damages or similar events:
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any departing general partner; |
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any person who is or was an affiliate of a general partner or any departing general partner; |
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any person who is or was a director, officer, member, partner, fiduciary or trustee of any entity set forth in the preceding three bullet points; |
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any person who is or was serving as director, officer, member, partner, fiduciary or trustee of another person at the request of our general partner or any departing general partner; and |
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any person designated by our general partner. |
Any indemnification under these provisions will only be out of
our assets. Unless it otherwise agrees, our general partner will not be personally liable for, or have any obligation to contribute or lend funds or assets to us to enable us to effectuate, indemnification. We may purchase insurance against
liabilities asserted against and expenses incurred by persons for our activities, regardless of whether we would have the power to indemnify the person against liabilities under our partnership agreement.
Reimbursement of Expenses
Our
partnership agreement requires us to reimburse our general partner for all direct and indirect expenses it incurs or payments it makes on our behalf and all other expenses allocable to us or otherwise incurred by our general partner in connection
with operating our business. These expenses include salary, bonus, incentive compensation and other amounts paid to persons who perform services for us or on our behalf and expenses allocated to our general partner by its affiliates. The general
partner is entitled to determine in good faith the expenses that are allocable to us.
Books and Reports
Our general partner is required to keep appropriate books of our business at our principal offices. The books will be maintained for both tax and financial
reporting purposes on an accrual basis. For tax and fiscal reporting purposes, our fiscal year is the calendar year.
We will furnish or make available to
record holders of common units, within 120 days after the close of each fiscal year, an annual report containing audited financial statements and a report on those financial statements by our independent public accountants. Except for our fourth
quarter, we will also furnish or make available summary financial information within 90 days after the close of each quarter.
We will furnish each record
holder of a unit with information reasonably required for tax reporting purposes within 90 days after the close of each calendar year. This information is expected to be furnished in summary form so that some complex calculations normally required
of partners can be avoided. Our ability to furnish this summary information to unitholders will depend on the cooperation of unitholders in supplying us with specific
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information. Every unitholder will receive information to assist him in determining his federal and state tax liability and filing his federal and state income tax returns, regardless of whether
he supplies us with information.
Right to Inspect Our Books and Records
Our partnership agreement provides that a limited partner can, for a purpose reasonably related to his interest as a limited partner, upon reasonable written
demand stating the purpose of such demand and at his own expense, have furnished to him:
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a current list of the name and last known address of each partner; |
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a copy of our tax returns; |
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information as to the amount of cash, and a description and statement of the agreed value of any other property or services, contributed or to be contributed by each partner and the date on which each partner became a
partner; |
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copies of our partnership agreement, our certificate of limited partnership, related amendments and powers of attorney under which they have been executed; |
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information regarding the status of our business and financial condition; and |
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any other information regarding our affairs as is just and reasonable. |
Our general partner may, and intends
to, keep confidential from the limited partners, trade secrets or other information the disclosure of which our general partner believes in good faith is not in our best interests or that we are required by law or by agreements with third parties to
keep confidential.
Registration Rights
Under our partnership agreement, we have agreed to register for resale under the Securities Act of 1933, as amended (the “Securities Act”), and
applicable state securities laws any common units or other partnership securities proposed to be sold by our general partner or any of its affiliates or their assignees if an exemption from the registration requirements is not otherwise available.
These registration rights continue for two years following any withdrawal or removal of Spectra Energy Partners (DE) GP, LP as general partner. We are obligated to pay all expenses incidental to the registration, excluding underwriting discounts and
commissions.
Conflicts of Interest
Conflicts of interest exist and may arise in the future as a result of the relationships between our general partner and its affiliates (including Spectra
Energy) on the one hand, and our partnership and our limited partners, on the other hand. The directors and officers of Spectra Energy Partners GP, LLC have fiduciary duties to manage Spectra Energy Partners GP, LLC and our general partner in a
manner beneficial to its owners. At the same time, our general partner has a fiduciary duty to manage our partnership in a manner beneficial to us and our unitholders, subject to certain limitations in our partnership agreement.
Whenever a conflict arises between our general partner or its affiliates, on the one hand, and us or any other partner, on the other hand, our general partner
will resolve that conflict. Our partnership agreement contains provisions that modify and limit our general partner’s fiduciary duties to our unitholders. Our partnership agreement also restricts the remedies available to unitholders for
actions taken that, without those limitations, might constitute breaches of fiduciary duty.
Our general partner will not be in breach of its obligations
under the partnership agreement or its duties to us or our unitholders if the resolution of the conflict is:
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approved by the conflicts committee in good faith, although our general partner is not obligated to seek such approval; |
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approved by the vote of a majority of the outstanding common units, excluding any common units owned by our general partner or any of its affiliates; |
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on terms no less favorable to us than those generally being provided to or available from unrelated third parties; or |
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fair and reasonable to us, taking into account the totality of the relationships among the parties involved, including other transactions that may be particularly favorable or advantageous to us. |
Our general partner may, but is not required to, seek the approval of such resolution from the conflicts committee of the board of directors of Spectra Energy
Partners GP, LLC. If our general partner does not seek approval from the conflicts committee and the board of directors of Spectra Energy Partners GP, LLC determines that the resolution or course of action taken with respect to the conflict of
interest satisfies either of the standards set forth in the third and fourth bullet points above, then it will be presumed that, in making its decision, the board of directors acted in good faith, and in any proceeding brought by or on behalf of any
limited partner or the partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. Unless the resolution of a conflict is specifically provided for in our partnership agreement, our general
partner or the conflicts committee may consider any factors it determines in good faith to consider when resolving a conflict. When our partnership agreement provides that someone act in good faith, it requires that person to believe he is acting in
the best interests of the partnership.
Fiduciary Duties
Our general partner is accountable to us and our unitholders as a fiduciary. Fiduciary duties owed to unitholders by our general partner are prescribed by law
and the partnership agreement. The Delaware Revised Uniform Limited Partnership Act, which we refer to in this prospectus as the Delaware Act, provides that Delaware limited partnerships may, in their partnership agreements, modify, restrict or
expand the fiduciary duties otherwise owed by a general partner to limited partners and the partnership.
Our partnership agreement contains various
provisions modifying and restricting the fiduciary duties that might otherwise be owed by our general partner. We have adopted these restrictions to allow our general partner or its affiliates to engage in transactions with us that would otherwise
be prohibited by state-law fiduciary duty standards and to take into account the interests of other parties in addition to our interests when resolving conflicts of interest. We believe this is appropriate and necessary because our general
partner’s board of directors will have fiduciary duties to manage our general partner in a manner beneficial to its owners, as well as to you. Without these modifications, the general partner’s ability to make decisions involving conflicts
of interest would be restricted. The modifications to the fiduciary standards enable the general partner to take into consideration all parties involved in the proposed action, so long as the resolution is fair and reasonable to us. These
modifications also enable our general partner to attract and retain experienced and capable directors. These modifications are detrimental to our common unitholders because they restrict the remedies available to unitholders for actions that,
without those limitations, might constitute breaches of fiduciary duty, as described below, and permit our general partner to take into account the interests of third parties in addition to our interests when resolving conflicts of interest. The
following is a summary of the material restrictions of the fiduciary duties owed by our general partner to the limited partners:
| State-law fiduciary duty standards |
Fiduciary duties are generally considered to include an obligation to act in good faith and with due care and loyalty. The duty of care, in the absence of a provision in a partnership
agreement providing otherwise, would generally require a general partner to act for the partnership in the same manner as a prudent person would act on his own behalf. The duty of loyalty, in the absence of a provision in a partnership agreement
providing otherwise, would generally prohibit |
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a general partner of a Delaware limited partnership from taking any action or engaging in any transaction where a conflict of interest is present. |
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The Delaware Act generally provides that a limited partner may institute legal action on behalf of the partnership to recover damages from a third party where a general partner has refused to institute the action or
where an effort to cause a general partner to do so is not likely to succeed. In addition, the statutory or case law of some jurisdictions may permit a limited partner to institute legal action on behalf of himself and all other similarly situated
limited partners to recover damages from a general partner for violations of its duties to the limited partners. |
| Partnership agreement modified standards |
Our partnership agreement contains provisions that waive or consent to conduct by our general partner and its affiliates that might otherwise raise issues about compliance with duties or applicable law. For example, our partnership agreement
provides that when our general partner is acting in its capacity as our general partner, as opposed to in its individual capacity, it must act in “good faith” and will not be subject to any other standard under applicable law. In addition,
when our general partner is acting in its individual capacity, as opposed to in its capacity as our general partner, it may act without any fiduciary obligation to us or the unitholders whatsoever. These standards reduce the obligations to which our
general partner would otherwise be held. |
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In addition to the other more specific provisions limiting the obligations of our general partner, our partnership agreement further provides that our general partner and its officers and directors will not be liable
for monetary damages to us, our limited partners or assignees for errors of judgment or for any acts or omissions unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that the general partner or
its officers and directors acted in bad faith or engaged in fraud or willful misconduct or in the case of a criminal matter, acted with knowledge that the conduct was criminal. |
| Special provisions regarding affiliated transactions |
Our partnership agreement generally provides that affiliated transactions and resolutions of conflicts of interest not involving a vote of unitholders and that are not approved by the conflicts committee of the board of directors of our general
partner must be: |
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on terms no less favorable to us than those generally being provided to or available from unrelated third parties; or |
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“fair and reasonable” to us, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to us).
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If our general partner does not seek approval from the conflicts committee and its board of directors determines that the resolution or
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course of action taken with respect to the conflict of interest satisfies either of the standards set forth in the bullet points above, then it will be presumed that, in making its decision, the
board of directors, which may include board members affected by the conflict of interest, acted in good faith and in any proceeding brought by or on behalf of any limited partner or the partnership, the person bringing or prosecuting such proceeding
will have the burden of overcoming such presumption. These standards reduce the obligations to which our general partner would otherwise be held. |
By purchasing our common units, each common unitholder automatically agrees to be bound by the provisions in the partnership agreement, including the
provisions discussed above. Please read “Description of the Common Units — Transfer of Common Units.” This is in accordance with the policy of the Delaware Act favoring the principle of freedom of contract and the enforceability of
partnership agreements. The failure of a limited partner or assignee to sign a partnership agreement does not render the partnership agreement unenforceable against that person.
Under our partnership agreement, we must indemnify our general partner and its officers, directors, managers and certain other specified persons, to the
fullest extent permitted by law, against liabilities, costs and expenses incurred by our general partner or these other persons. We must provide this indemnification unless there has been a final and non-appealable judgment by a court of competent
jurisdiction determining that these persons acted in bad faith or engaged in fraud or willful misconduct. We must also provide this indemnification for criminal proceedings unless our general partner or these other persons acted with knowledge that
their conduct was unlawful. Thus, our general partner could be indemnified for its negligent acts if it meets the requirements set forth above. To the extent these provisions purport to include indemnification for liabilities arising under the
Securities Act, in the opinion of the SEC, such indemnification is contrary to public policy and, therefore, unenforceable. Please read “— Indemnification.”
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
This section summarizes the material U.S. federal income tax consequences that may be relevant to prospective unitholders and is based upon current provisions
of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), existing and proposed U.S. Treasury regulations thereunder (the “Treasury Regulations”), and current administrative rulings and court decisions, all of which are
subject to change (possibly with retroactive effect). Changes in these authorities may cause the federal income tax consequences to a prospective unitholder to vary substantially from those described below. Unless the context otherwise requires,
references in this section to “we” or “us” are references to Spectra Energy Partners and its subsidiaries.
Legal conclusions
contained in this section, unless otherwise noted, are the opinion of Gibson, Dunn & Crutcher LLP insofar as they relate to matters of U.S. federal income tax law and are based on the accuracy of representations made by us to them for this
purpose. However, this section does not address all federal income tax matters that affect us or our unitholders and does not describe the application of the alternative minimum tax that may be applicable to certain unitholders. Furthermore, this
section focuses on unitholders who are individuals who are citizens or residents of the United States (for federal income tax purposes), who have the U.S. dollar as their functional currency, who use the calendar year as their taxable year, who
purchase units subject to this registration statement, who do not materially participate in the conduct of our business activities and who hold units as capital assets (typically, property that is held for investment). This section has limited
applicability to corporations, partnerships, (including other entities treated as partnerships for federal income tax purposes), estates, trusts, non-resident aliens or other unitholders subject to specialized tax treatment, such as tax-exempt
entities, non-U.S. persons, individual retirement accounts (“IRAs”), employee benefit plans, real estate investment trusts or mutual funds. Accordingly, we encourage each unitholder to consult the unitholder’s own tax advisor in
analyzing the federal, state, local and non-U.S. tax consequences particular to that unitholder resulting from ownership or disposition of units and potential changes in applicable tax laws.
We are relying on opinions and advice of Gibson, Dunn & Crutcher LLP with respect to the matters described herein. Unlike a ruling from the Internal
Revenue Service (the “IRS”), an opinion of counsel represents only that counsel’s best legal judgment and does not bind the IRS or a court. Accordingly, the opinions and statements made herein may not be sustained by a court if
contested by the IRS. Any such contest of the matters described herein may materially and adversely impact the market for our units and the prices at which our units trade. In addition, our costs of any contest with the IRS will be borne indirectly
by our unitholders and our general partner because the costs will reduce our cash available for distribution. Furthermore, the tax consequences of an investment in us, may be significantly modified by future legislative or administrative changes or
court decisions, which may be retroactively applied.
For the reasons described below, Gibson, Dunn & Crutcher LLP has not rendered an opinion
with respect to the following federal income tax issues: (1) the treatment of a unitholder whose units are the subject of a securities loan (e.g., a loan to a short seller to cover a short sale of units) (please read “— Tax
Consequences of Unit Ownership — Treatment of Securities Loans”); (2) whether our monthly convention for allocating taxable income and losses is permitted by existing Treasury Regulations (please read “— Disposition of Units
— Allocations Between Transferors and Transferees”); and (3) whether our method for taking into account Section 743 adjustments is sustainable in certain cases (please read “— Tax Consequences of Unit Ownership —
Section 754 Election” and “— Uniformity of Units”).
Taxation of the Partnership
Partnership Status
We expect to be treated as a
partnership for U.S. federal income tax purposes and, therefore, will generally not be liable for entity-level federal income taxes. Instead, as described below, each of our unitholders will take into account its respective share of our items of
income, gain, loss and deduction in computing its federal income tax
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liability as if the unitholder had earned such income directly, even if we make no cash distributions to the unitholder. Distributions we make to a unitholder will not give rise to income or gain
taxable to such unitholder, unless the amount of cash distributed exceeds the unitholder’s adjusted tax basis in its units.
Section 7704 of the
Code provides that publicly-traded partnerships will be treated as corporations for federal income tax purposes. However, if 90% or more of a partnership’s gross income for every taxable year it is publicly-traded consists of “qualifying
income,” the partnership may continue to be treated as a partnership for federal income tax purposes (the “Qualifying Income Exception”). Qualifying income includes income and gains derived from the transportation, storage and
processing of crude oil, natural gas and products thereof as well as other types of qualifying income such as interest (other than from a financial business), dividends, gains from the sale of real property and gains from the sale or other
disposition of capital assets held for the production of income that otherwise constitutes qualifying income. We estimate that less than 5% of our current gross income is not qualifying income; however, this estimate could change from time to time.
Based upon factual representations made by us and our general partner regarding the composition of our income and the other representations set forth
below, Gibson, Dunn & Crutcher LLP is of the opinion that we will be treated as a partnership for federal income tax purposes. In rendering its opinion, Gibson, Dunn & Crutcher LLP has relied on factual representations made by us
and our general partner. The representations made by us and our general partner upon which Gibson, Dunn & Crutcher LLP has relied include, without limitation:
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(a) |
Neither we nor any of our partnership or limited liability company subsidiaries has elected to be treated as a corporation for federal income tax purposes; |
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(b) |
For each taxable year since the year of our initial public offering, more than 90% of our gross income has been income of a character that Gibson, Dunn & Crutcher LLP has opined is “qualifying income”
within the meaning of Section 7704(d) of the Code; and |
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(c) |
Each hedging transaction that we treat as resulting in qualifying income has been appropriately identified as a hedging transaction pursuant to applicable Treasury Regulations, and has been associated with crude oil,
natural gas, or products thereof that are held or to be held by us in activities that Gibson, Dunn & Crutcher LLP has opined generate qualifying income. |
We believe that these representations are true and will be true in the future.
If we fail to meet the Qualifying Income Exception, other than a failure that is determined by the IRS to be inadvertent and that is cured within a reasonable
time after discovery (in which case the IRS may also require us to make adjustments with respect to our unitholders or pay other amounts), we will be treated as transferring all of our assets, subject to all of our liabilities, to a newly formed
corporation, on the first day of the year in which we fail to meet the Qualifying Income Exception, in return for stock in that corporation and then as distributing that stock to our unitholders in liquidation. This deemed contribution and
liquidation should not result in the recognition of taxable income by our unitholders or us so long as the aggregate amount of our liabilities does not exceed the adjusted tax basis of our assets. Thereafter, we would be treated as an association
taxable as a corporation for federal income tax purposes.
The present federal income tax treatment of publicly traded partnerships, including us, or an
investment in our common units may be modified by administrative or legislative action or judicial interpretation at any time. For example, from time to time, members of the U.S. Congress propose and consider substantive changes to the existing
federal income tax laws that affect publicly traded partnerships. These changes could eliminate the Qualifying Income Exception upon which we rely for our treatment as a partnership for U.S. federal income tax purposes or otherwise make it difficult
or impossible to be treated as a partnership for U.S. federal income tax purposes. Further, the Treasury Department and the IRS issued proposed regulations interpreting the scope of the Qualifying Income Exception on May 5, 2015 (the
“Proposed Regulations”). We believe the income that we treat as qualifying income satisfies the requirements for qualifying income under the Proposed Regulations. However, the Proposed Regulations could be changed before they are finalized
and could take a position that is contrary to
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our interpretation of Section 7704 of the Code. We are unable to predict whether any such legislative or regulatory changes or other proposals will ultimately be enacted or adopted. However,
it is possible that a change in law could affect us and may be applied retroactively. Any such changes could negatively impact the value of an investment in our units.
If for any reason we are taxable as a corporation in any taxable year, our items of income, gain, loss and deduction would be taken into account by us in
determining the amount of our liability for federal income tax, rather than being passed through to our unitholders. Our taxation as a corporation would materially reduce the cash available for distribution to unitholders and thus would likely
substantially reduce the value of our units. Any distribution made to a unitholder at a time we are treated as a corporation would be (i) a taxable dividend to the extent of our current or accumulated earnings and profits, then (ii) a
nontaxable return of capital to the extent of the unitholder’s adjusted tax basis in its units (determined separately for each unit), and thereafter (iii) taxable capital gain.
The remainder of this discussion is based on the opinion of Gibson, Dunn & Crutcher LLP that we will be treated as a partnership for federal income
tax purposes.
Tax Consequences of Unit Ownership
Limited Partner Status
Unitholders who have been
admitted as limited partners of Spectra Energy Partners will be treated as partners of Spectra Energy Partners for federal income tax purposes. Also:
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(a) |
assignees who have executed and delivered transfer applications, and are awaiting admission as limited partners, and |
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(b) |
unitholders whose common units are held in street name or by a nominee and who have the right to direct the nominee in the exercise of all substantive rights attendant to the ownership of their common units, will be
treated as partners of Spectra Energy Partners for federal income tax purposes. |
As there is no direct or indirect controlling authority
addressing the federal tax treatment of assignees of common units who are entitled to execute and deliver transfer applications and thereby become entitled to direct the exercise of attendant rights, but who fail to execute and deliver transfer
applications, the opinion of Gibson, Dunn & Crutcher LLP does not extend to these persons. Furthermore, a purchaser or other transferee of common units who does not execute and deliver a transfer application may not receive some federal
income tax information or reports furnished to record holders of common units unless the common units are held in a nominee or street name account and the nominee or broker has executed and delivered a transfer application for those common units.
For a discussion related to the risks of losing partner status as a result of securities loans, please read “— Tax Consequences of Unit
Ownership — Treatment of Securities Loans.” Unitholders who are not treated as partners in us as described above are urged to consult their own tax advisors with respect to the tax consequences applicable to them under their particular
circumstances.
Flow-Through of Taxable Income
Subject to the discussion below under “— Entity-Level Collections of Unitholder Taxes” with respect to payments we may be required to make on
behalf of our unitholders and the discussion below under “Administrative Matters,” we will not pay any federal income tax. Rather, each unitholder will be required to report on its federal income tax return each year its share of our
income, gains, losses and deductions for our taxable year or years ending with or within its taxable year. Consequently, we may allocate income to a unitholder even if that unitholder has not received a cash distribution.
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Basis of Units
A unitholder’s tax basis in its units initially will be the amount paid for those units, increased by the unitholder’s initial allocable share (as
measured for federal income tax purposes) of our “nonrecourse liabilities” (liabilities for which no partner bears the economic risk of loss). That basis will be (i) increased by the unitholder’s share of our income and any
increases in such unitholder’s share of our nonrecourse liabilities, and (ii) decreased, but not below zero, by the amount of all distributions to the unitholder, the unitholder’s share of our losses, and any decreases in the
unitholder’s share of our nonrecourse liabilities and its share of our expenditures that are neither deductible nor required to be capitalized. The IRS has ruled that a partner who acquires interests in a partnership in separate transactions
must combine those interests and maintain a single adjusted tax basis for all of those interests.
Treatment of Distributions
Distributions by us to a unitholder will not be taxable to the unitholder unless such distributions exceed the unitholder’s adjusted tax basis in its
units, in which case the unitholder will recognize gain taxable in the manner described below under “— Disposition of Units.”
Any
reduction in a unitholder’s share of our “nonrecourse liabilities” will be treated as a distribution by us of cash to that unitholder. A decrease in a unitholder’s percentage interest in us because of our issuance of additional
units may decrease the unitholder’s share of our nonrecourse liabilities. For purposes of the foregoing, a unitholder’s share of our nonrecourse liabilities will be based upon that unitholder’s share of the unrealized appreciation (or
depreciation) in our assets, to the extent thereof, with any excess liabilities allocated based on the unitholder’s share of our profits. Please read “— Disposition of Units.”
A non-pro rata distribution of money or property (including a deemed distribution as a result of the reallocation of our nonrecourse liabilities described
above) may cause a unitholder to recognize ordinary income, if the distribution reduces the unitholder’s share of our “unrealized receivables,” including depreciation and depletion recapture and substantially appreciated
“inventory items,” both as defined in Section 751 of the Code (“Section 751 Assets”). To the extent of such reduction, the unitholder would be deemed to receive its proportionate share of the Section 751 Assets and
exchange such assets with us in return for a portion of the non-pro rata distribution. This deemed exchange will result in the unitholder’s recognition of ordinary income in an amount equal to the excess of (1) the non-pro rata portion of
that distribution over (2) the unitholder’s tax basis (typically zero) in the Section 751 Assets deemed to be relinquished in the exchange.
Limitations on Deductibility of Losses
A
unitholder may not be entitled to deduct the full amount of loss we allocate to it because its share of our losses will be limited to the lesser of (i) the unitholder’s adjusted tax basis in its units, and (ii) in the case of a
unitholder that is an individual, estate, trust or certain types of closely-held corporations, the amount for which the unitholder is considered to be “at risk” with respect to our activities. A unitholder will be at risk to the extent of
its adjusted tax basis in its units, reduced by (1) any portion of that basis attributable to the unitholder’s share of our nonrecourse liabilities, (2) any portion of that basis representing amounts otherwise protected against loss
because of a guarantee, stop loss agreement or similar arrangement and (3) any amount of money the unitholder borrows to acquire or hold its units, if the lender of those borrowed funds owns an interest in us, is related to another unitholder
or can look only to the units for repayment.
A unitholder subject to the at risk limitation must recapture losses deducted in previous years to the
extent that distributions (including distributions deemed to result from a reduction in a unitholder’s share of nonrecourse liabilities) cause the unitholder’s at risk amount to be less than zero at the end of any taxable year. Losses
disallowed to a unitholder or recaptured as a result of the basis or at risk limitations will carry forward and will be allowable as a deduction in a later year to the extent that the unitholder’s adjusted tax basis or at risk amount,
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whichever is the limiting factor, is subsequently increased. Upon a taxable disposition of units, any gain recognized by a unitholder can be offset by losses that were previously suspended by the
at risk limitation but not losses suspended by the basis limitation. Any loss previously suspended by the at risk limitation in excess of that gain can no longer be used, and will not be available to offset a unitholder’s salary or active
business income.
In addition to the basis and at risk limitations, a passive activity loss limitation limits the deductibility of losses incurred by
individuals, estates, trusts, some closely-held corporations and personal service corporations from “passive activities” (such as trade or business activities in which the taxpayer does not materially participate). The passive loss
limitations are applied separately with respect to each publicly-traded partnership. Consequently, any passive losses we generate will be available to offset only passive income generated by us. Passive losses that exceed a unitholder’s share
of passive income we generate may be deducted in full when the unitholder disposes of all of its units in a fully taxable transaction with an unrelated party. The passive loss rules are applied after other applicable limitations on deductions,
including the at risk and basis limitations.
Limitations on Interest Deductions
The deductibility of a non-corporate taxpayer’s “investment interest expense” is limited to the amount of that taxpayer’s “net
investment income.” Investment interest expense includes:
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our interest expense attributed to portfolio income; and |
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The computation of a unitholder’s investment interest expense will take into account interest on any margin account borrowing or other loan incurred to
purchase or carry a unit. Net investment income includes gross income from property held for investment and amounts treated as portfolio income under the passive loss rules, less deductible expenses other than interest directly connected with the
production of investment income. Net investment income does not include qualified dividend income or gains attributable to the disposition of property held for investment. A unitholder’s share of a publicly-traded partnership’s portfolio
income and, according to the IRS, net passive income will be treated as investment income for purposes of the investment interest expense limitation.
Entity-Level Collections of Unitholder Taxes
If
we are required or elect under applicable law to pay any federal, state, local or non-U.S. tax on behalf of any current or former unitholder or our general partner, we are authorized to treat the payment as a distribution of cash to the relevant
unitholder or general partner. Where the tax is payable on behalf of all unitholders or we cannot determine the specific unitholder on whose behalf the tax is payable, we are authorized to treat the payment as a distribution to all current
unitholders. Payments by us as described above could give rise to an overpayment of tax on behalf of a unitholder, in which event the unitholder may be entitled to claim a refund of the overpayment amount. Unitholders are urged to consult their tax
advisors to determine the consequences to them of any tax payment we make on their behalf.
Allocation of Income, Gain, Loss and Deduction
Our items of income, gain, loss and deduction will be allocated among the general partner and our unitholders in accordance with their percentage
interests in us. At any time that incentive distributions are made to the general partner, gross income will be allocated to the general partner to the extent of such distributions.
Specified items of our income, gain, loss and deduction will be allocated under Section 704(c) of the Code (or the principles of Section 704(c) of
the Code) to account for any difference between the adjusted tax basis and fair
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market value of our assets at the time such assets are contributed to us and at the time of any subsequent offering of our units (a “Book-Tax Disparity”). As a result, the federal
income tax burden associated with any Book-Tax Disparity immediately prior to an offering will be borne by our partners holding interests in us prior to such offering. In addition, items of recapture income will be specially allocated to the extent
possible (subject to the limitations described above) to the unitholder who was allocated the deduction giving rise to that recapture income in order to minimize the recognition of ordinary income by other unitholders.
An allocation of items of our income, gain, loss or deduction, other than an allocation required by the Code to eliminate a Book-Tax Disparity, will be given
effect for federal income tax purposes in determining a partner’s share of an item of income, gain, loss or deduction only if the allocation has “substantial economic effect.” In any other case, a partner’s share of an item will
be determined on the basis of the partner’s interest in us, which will be determined by taking into account all the facts and circumstances, including (i) the partner’s relative contributions to us, (ii) the interests of all the
partners in profits and losses, (iii) the interest of all the partners in cash flow and (iv) the rights of all the partners to distributions of capital upon liquidation. Gibson, Dunn & Crutcher LLP is of the opinion that, with the
exception of the issues described in “— Section 754 Election” and “— Disposition of Units — Allocations Between Transferors and Transferees,” allocations under our partnership agreement will be given effect
for federal income tax purposes in determining a partner’s share of an item of income, gain, loss or deduction.
Treatment of Securities Loans
A unitholder whose units are loaned (for example, a loan to “short seller” to cover a short sale of units) may be treated as having
disposed of those units. If so, such unitholder would no longer be treated for tax purposes as a partner with respect to those units during the period of the loan and may recognize gain or loss from the disposition. As a result, during this period
(i) any of our income, gain, loss or deduction allocated to those units would not be reportable by the lending unitholder, and (ii) any cash distributions received by the unitholder as to those units may be treated as ordinary taxable
income.
Due to a lack of controlling authority, Gibson, Dunn & Crutcher LLP has not rendered an opinion regarding the tax treatment of a
unitholder that enters into a securities loan with respect to its units. Unitholders desiring to assure their status as partners and avoid the risk of income recognition from a loan of their units are urged to modify any applicable brokerage account
agreements to prohibit their brokers from borrowing and lending their units. The IRS has announced that it is studying issues relating to the tax treatment of short sales of partnership interests. Please read “— Disposition of Units —
Recognition of Gain or Loss.”
Tax Rates
Under current law, the highest marginal U.S. federal income tax rates for individuals applicable to ordinary income and long-term capital gains (generally,
gains from the sale or exchange of certain investment assets held for more than one year) are 39.6% and (subject to certain exceptions) 20%, respectively. These rates are subject to change by new legislation at any time.
In addition, a 3.8% net investment income tax applies to certain net investment income earned by individuals, estates, and trusts. For these purposes, net
investment income includes a unitholder’s allocable share of our income and gain, as well as any gain realized by a unitholder from a sale of units. In the case of an individual, the tax will be imposed on the lesser of (i) the
unitholder’s net investment income from all investments, or (ii) the amount by which the unitholder’s modified adjusted gross income exceeds $250,000 (if the unitholder is married and filing jointly or a surviving spouse), $125,000
(if married filing separately) or $200,000 (if the unitholder is unmarried or in any other case). In the case of an estate or trust, the tax will be imposed on the lesser of (i) undistributed net investment income, or (ii) the excess
adjusted gross income over the dollar amount at which the highest U.S. federal income tax bracket applicable to an estate or trust begins.
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Section 754 Election
We have made the election permitted by Section 754 of the Code that permits us to adjust the tax bases in our assets as to specific purchasers of our
units under Section 743(b) of the Code. That election is irrevocable without the consent of the IRS. The Section 743(b) adjustment separately applies to each purchaser of units based upon the values and adjusted tax bases of our assets at
the time of the relevant purchase, and the adjustment will reflect the purchase price paid. The Section 743(b) adjustment does not apply to a person who purchases units directly from us.
Under our partnership agreement, we are authorized to take a position to preserve the uniformity of units even if that position is not consistent with
applicable Treasury Regulations. A literal application of Treasury Regulations governing a Section 743(b) adjustment attributable to properties depreciable under Section 167 of the Code may give rise to differences in the taxation of
unitholders purchasing units from us and unitholders purchasing from other unitholders. If we have any such properties, we intend to adopt methods employed by other publicly traded partnerships to preserve the uniformity of units, even if
inconsistent with existing Treasury Regulations, and Gibson, Dunn & Crutcher LLP has not opined on the validity of this approach. Please read “— Uniformity of Units.”
The IRS may challenge the positions we adopt with respect to depreciating or amortizing the Section 743(b) adjustment we take to preserve the uniformity
of units due to lack of controlling authority. Because a unitholder’s adjusted tax basis for its units is reduced by its share of our items of deduction or loss, any position we take that understates deductions will overstate a
unitholder’s basis in its units, and may cause the unitholder to understate gain or overstate loss on any sale of such units. Please read “— Disposition of Units — Recognition of Gain or Loss.” If a challenge to such
treatment were sustained, the gain from the sale of units may be increased without the benefit of additional deductions.
The calculations involved in the
Section 754 election are complex and are made on the basis of assumptions as to the value of our assets and other matters. The IRS could seek to reallocate some or all of any Section 743(b) adjustment we allocated to our assets subject to
depreciation to goodwill or nondepreciable assets. Goodwill, as an intangible asset, is amortizable over a longer period of time or under a less accelerated method than certain of our tangible assets. We cannot assure any unitholder that the
determinations we make will not be successfully challenged by the IRS or that the resulting deductions will not be reduced or disallowed altogether. Should the IRS require a different tax basis adjustment to be made, and should, in our opinion, the
expense of compliance exceed the benefit of the election, we may seek permission from the IRS to revoke our Section 754 election. If permission is granted, a subsequent purchaser of units may be allocated more income than it would have been
allocated had the election not been revoked.
Tax Treatment of Operations
Accounting Method and Taxable Year
We use the year
ending December 31 as our taxable year and the accrual method of accounting for federal income tax purposes. Each unitholder will be required to include in its tax return its share of our income, gain, loss and deduction for each taxable year
ending within or with its taxable year. In addition, a unitholder who has a taxable year ending on a date other than December 31 and who disposes of all of its units following the close of our taxable year but before the close of its taxable
year must include its share of our income, gain, loss and deduction in income for its taxable year, with the result that it will be required to include in income for its taxable year its share of more than twelve months of our income, gain, loss and
deduction. Please read “— Disposition of Units — Allocations Between Transferors and Transferees.”
Tax Basis, Depreciation and
Amortization
The tax basis of our assets will be used for purposes of computing depreciation and cost recovery deductions and, ultimately, gain or
loss on the disposition of these assets. If we dispose of depreciable property by sale,
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foreclosure or otherwise, all or a portion of any gain, determined by reference to the amount of depreciation and depletion deductions previously taken, may be subject to the recapture rules and
taxed as ordinary income rather than capital gain. Similarly, a unitholder who has taken cost recovery or depreciation deductions with respect to property we own will likely be required to recapture some or all of those deductions as ordinary income
upon a sale of its interest in us. Please read “— Tax Consequences of Unit Ownership — Allocation of Income, Gain, Loss and Deduction.”
The costs we incur in offering and selling our units (called “syndication expenses”) must be capitalized and cannot be deducted currently, ratably
or upon our termination. While there are uncertainties regarding the classification of costs as organization expenses, which may be amortized by us, and as syndication expenses, which may not be amortized by us, the underwriting discounts and
commissions we incur will be treated as syndication expenses.
Valuation and Tax Basis of Our Properties
The federal income tax consequences of the ownership and disposition of units will depend in part on our estimates of the relative fair market values and the
tax bases of our assets. Although we may from time to time consult with professional appraisers regarding valuation matters, we will make many of the relative fair market value estimates ourselves. These estimates and determinations of tax basis are
subject to challenge and will not be binding on the IRS or the courts. If the estimates of fair market value or basis are later found to be incorrect, the character and amount of items of income, gain, loss or deduction previously reported by
unitholders could change, and unitholders could be required to adjust their tax liability for prior years and incur interest and penalties with respect to those adjustments.
Disposition of Units
Recognition of Gain or Loss
A unitholder will be
required to recognize gain or loss on a sale of units equal to the difference, if any, between the unitholder’s amount realized and the adjusted tax basis in the units sold. A unitholder’s amount realized will equal the sum of the cash and
the fair market value of other property it receives plus its share of our nonrecourse liabilities with respect to the units sold. Because the amount realized includes a unitholder’s share of our nonrecourse liabilities, the gain recognized on
the sale of units could result in a tax liability in excess of any cash received from the sale.
Except as noted below, gain or loss recognized by a
unitholder on the sale or exchange of a unit held for more than one year will be taxable as long-term capital gain or loss. However, gain or loss recognized on the disposition of units will be separately computed and taxed as ordinary income or loss
under Section 751 of the Code to the extent attributable to Section 751 Assets, such as depreciation or depletion recapture and our “inventory items,” regardless of whether such inventory item is substantially appreciated in
value. Ordinary income attributable to Section 751 Assets may exceed net taxable gain realized on the sale of a unit and may be recognized even if there is a net taxable loss realized on the sale of a unit. Thus, a unitholder may recognize both
ordinary income and capital gain or loss upon a sale of units. Net capital loss may offset capital gains and, in the case of individuals, up to $3,000 of ordinary income per year.
For purposes of calculating gain or loss on the sale of units, the unitholder’s adjusted tax basis will be adjusted by its allocable share of our income
or loss in respect of its units for the year of the sale. Furthermore, as described above, the IRS has ruled that a partner who acquires interests in a partnership in separate transactions must combine those interests and maintain a single adjusted
tax basis for all of those interests. Upon a sale or other disposition of less than all of those interests, a portion of that adjusted tax basis must be allocated to the interests sold using an “equitable apportionment” method, which means
that the adjusted tax basis allocated to the interest sold equals an amount that bears the same relation to the partner’s tax basis in its entire interest in the partnership as the value of the interest sold bears to the value of the
partner’s entire interest in the partnership.
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Treasury Regulations under Section 1223 of the Code allow a selling unitholder who can identify units
transferred with an ascertainable holding period to elect to use the actual holding period of the units transferred. Thus, according to the ruling discussed in the paragraph above, a unitholder will be unable to select high or low basis units to
sell as would be the case with corporate stock, but, according to the Treasury Regulations, it may designate specific units sold for purposes of determining the holding period of units transferred. A unitholder electing to use the actual holding
period of units transferred must consistently use that identification method for all subsequent sales or exchanges of our units. A unitholder considering the purchase of additional units or a sale of units purchased in separate transactions is urged
to consult its tax advisor as to the possible consequences of this ruling and application of the Treasury Regulations.
Specific provisions of the Code
affect the taxation of some financial products and securities, including partnership interests, by treating a taxpayer as having sold an “appreciated” financial position, including a partnership interest with respect to which gain would be
recognized if it were sold, assigned or terminated at its fair market value, in the event the taxpayer or a related person enters into:
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Moreover, if a taxpayer has previously entered into a short sale, an offsetting notional principal contract or a futures or forward contract with respect to
the partnership interest, the taxpayer will be treated as having sold that position if the taxpayer or a related person then acquires the partnership interest or substantially identical property. The Secretary of the Treasury is authorized to issue
Treasury Regulations that treat a taxpayer that enters into transactions or positions that have substantially the same effect as the preceding transactions as having constructively sold the financial position.
Allocations Between Transferors and Transferees
In general, our taxable income or loss will be determined annually, will be prorated on a monthly basis and will be subsequently apportioned among the
unitholders in proportion to the number of units owned by each of them as of the opening of the applicable exchange on the first business day of the month (the “Allocation Date”). However, gain or loss realized on a sale or other
disposition of our assets or, in the discretion of the general partner, any other extraordinary item of income, gain, loss or deduction will be allocated among the unitholders on the Allocation Date in the month in which such income, gain, loss or
deduction is recognized. As a result, a unitholder transferring units may be allocated income, gain, loss and deduction realized after the date of transfer.
Although simplifying conventions are contemplated by the Code and most publicly traded partnerships use similar simplifying conventions, the use of this
method may not be permitted under existing Treasury Regulations. The Department of the Treasury and the IRS previously issued proposed Treasury Regulations which were adopted with certain modifications as final Treasury Regulations on August 3,
2015. The final Treasury Regulations provide a safe harbor pursuant to which a publicly traded partnership may use a similar monthly simplifying convention to allocate tax items among transferor and transferee unitholders; however, the final
Treasury Regulations do not specifically authorize the use of the proration method we have adopted. Accordingly, Gibson, Dunn & Crutcher LLP is unable to opine on the validity of this method of allocating income and deductions between
transferee and transferor unitholders. If the IRS were to challenge our proration method or new Treasury Regulations were issued, our taxable income or losses could be reallocated among our unitholders. We are authorized to revise our method of
allocation between transferee and transferor unitholders, as well as among unitholders whose interests vary during a taxable year, to conform to a method permitted under future Treasury Regulations.
A unitholder who disposes of units prior to the record date set for a cash distribution for that quarter will be allocated items of our income, gain, loss and
deduction attributable to the month of disposition but will not be entitled to receive a cash distribution for that period.
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Notification Requirements
A unitholder who sells or purchases any of its units is required to notify us in writing of that transaction within 30 days after the transaction (or, if
earlier, January 15 of the year following the transaction in the case of a seller). Upon receiving such notifications, we are required to notify the IRS of that transaction and to furnish specified information to the transferor and transferee.
Failure to notify us of a transfer of units may, in some cases, lead to the imposition of penalties. However, these reporting requirements do not apply to a sale by an individual who is a citizen of the United States and who effects the sale through
a broker who will satisfy such requirements.
Constructive Termination
We will be considered to have “constructively” terminated as a partnership for federal income tax purposes upon the sale or exchange of 50% or more
of the total interests in our capital and profits within a twelve-month period. For purposes of measuring whether the 50% threshold is reached, multiple sales of the same unit are counted only once. A constructive termination results in the closing
of our taxable year for all unitholders. In the case of a unitholder reporting on a taxable year other than the calendar year, the closing of our taxable year may result in more than twelve months of our taxable income or loss being includable in
such unitholder’s taxable income for the year of termination.
A constructive termination occurring on a date other than December 31 would
require that we file two tax returns for one fiscal year thereby increasing our administration and tax preparation costs. However, pursuant to an IRS relief procedure the IRS may allow a constructively terminated partnership to provide a single
Schedule K-1 for the calendar year in which a termination occurs. Following a constructive termination, we would be required to make new tax elections, including a new election under Section 754 of the Code, and the termination would result in
a deferral of our deductions for depreciation. A termination could also result in penalties if we were unable to determine that the termination had occurred. Moreover, a termination may either accelerate the application of, or subject us to, any tax
legislation enacted before the termination that would not otherwise have been applied to us as a continuing as opposed to a terminating partnership.
Uniformity of Units
Because we cannot match transferors and transferees of units and for other reasons, we must maintain uniformity of the
economic and tax characteristics of the units to a purchaser of these units. As a result of the need to preserve uniformity, we may be unable to completely comply with a number of federal income tax requirements. Any non-uniformity could have a
negative impact on the value of the units. Please read “— Tax Consequences of Unit Ownership — Section 754 Election.”
Our
partnership agreement permits our general partner to take positions in filing our tax returns that preserve the uniformity of our units. These positions may include reducing the depreciation, amortization or loss deductions to which a unitholder
would otherwise be entitled or reporting a slower amortization of Section 743(b) adjustments for some unitholders than that to which they would otherwise be entitled. Gibson, Dunn & Crutcher LLP is unable to opine as to the validity of
such filing positions.
A unitholder’s adjusted tax basis in units is reduced by its share of our deductions (whether or not such deductions were
claimed on an individual income tax return) so that any position that we take that understates deductions will overstate the unitholder’s basis in its units, and may cause the unitholder to understate gain or overstate loss on any sale of such
units. Please read “— Disposition of Units — Recognition of Gain or Loss” and “— Tax Consequences of Unit Ownership — Section 754 Election” above. The IRS may challenge one or more of any positions we
take to preserve the uniformity of units. If such a challenge were sustained, the uniformity of units might be affected, and, under some circumstances, the gain from the sale of units might be increased without the benefit of additional deductions.
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Tax-Exempt Organizations and Other Investors
Ownership of units by employee benefit plans and other tax-exempt entities, as well as by non-resident alien individuals, non-U.S. corporations and other
non-U.S. persons (collectively, “Non-U.S. Unitholders”) raises issues unique to those investors and, as described below, may have substantially adverse tax consequences to them. Prospective unitholders that are tax-exempt entities or
non-U.S. persons should consult their tax advisors before investing in our units. Employee benefit plans and most other tax-exempt organizations, including IRAs and other retirement plans, are subject to federal income tax on unrelated business
taxable income. Virtually all of our income will be unrelated business taxable income and will be taxable to a tax-exempt unitholder.
Non-U.S.
Unitholders are taxed by the United States on income effectively connected with the conduct of a U.S. trade or business (“effectively connected income”) and on certain types of U.S.-source non-effectively connected income (such as
dividends), unless exempted or further limited by an income tax treaty. Non-U.S. Unitholders will be considered to be engaged in business in the United States because of their ownership of our units. Furthermore, it is probable that they will be
deemed to conduct such activities through permanent establishments in the United States within the meaning of applicable tax treaties. Consequently, they will be required to file U.S. federal tax returns to report their share of our income, gain,
loss or deduction and pay federal income tax on their share of our net income or gain in a manner similar to a taxable U.S. unitholder. Moreover, under rules applicable to publicly traded partnerships, distributions to Non-U.S. Unitholders are
subject to withholding at the highest applicable U.S. federal effective tax rate. Each Non-U.S. Unitholder must obtain a taxpayer identification number from the IRS and submit that number to our transfer agent on a Form W-8BEN, W-8BENE or applicable
substitute form in order to obtain credit for these withholding taxes.
In addition, because a Non-U.S. Unitholder classified as a corporation will be
treated as engaged in a United States trade or business, that corporation may be subject to the U.S. branch profits tax at a rate of 30%, in addition to regular federal income tax, on its share of our income and gain as adjusted for changes in the
foreign corporation’s “U.S. net equity,” to the extent reflected in the corporation’s effectively connected earnings and profits. That tax may be reduced or eliminated by an income tax treaty between the United States and the
country in which the foreign corporate unitholder is a “qualified resident.” In addition, this type of unitholder is subject to special information reporting requirements under Section 6038C of the Code.
A Non-U.S. Unitholder who sells or otherwise disposes of a unit will be subject to federal income tax on any gain realized from the sale or disposition of
that unit to the extent the gain is effectively connected with a U.S. trade or business of the Non-U.S. Unitholder. Under a ruling published by the IRS interpreting the scope of “effectively connected income,” gain recognized by a non-U.S.
person from the sale of its interest in a partnership that is engaged in a trade or business in the United States will be considered to be effectively connected with a U.S. trade or business. Thus, part or all of a Non-U.S. Unitholder’s gain
from the sale or other disposition of its units may be treated as effectively connected with a unitholder’s indirect U.S. trade or business constituted by its investment in us. Moreover, under the Foreign Investment in Real Property Tax Act, a
Non-U.S. Unitholder will be subject to federal income tax upon the sale or disposition of a unit if (i) it owned (directly or constructively applying certain attribution rules) more than 5% of our units at any time during the five-year period
ending on the date of such disposition and (ii) 50% or more of the fair market value of our worldwide real property interests and our other assets used or held for use in a trade or business consisted of U.S. real property interests (which
include U.S. real estate (including land, improvements, and certain associated personal property) and interests in certain entities holding U.S. real estate) at any time during the shorter of the period during which such unitholder held the units or
the 5-year period ending on the date of disposition. More than 50% of our assets may consist of U.S. real property interests. Therefore, Non-U.S. Unitholders may be subject to federal income tax (and in the case of a Non-U.S. Unitholder that is
classified as a corporation, possible branch profits tax) on gain from the sale or disposition of their units.
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Administrative Matters
Information Returns and Audit Procedures
We intend
to furnish to each unitholder, within 90 days after the close of each taxable year, specific tax information, including a Schedule K-1, which describes its share of our income, gain, loss and deduction for our preceding taxable year. In preparing
this information, which will not be reviewed by counsel, we will take various accounting and reporting positions, some of which have been mentioned earlier, to determine each unitholder’s share of income, gain, loss and deduction. We cannot
assure our unitholders that those positions will yield a result that conforms to all of the requirements of the Code, Treasury Regulations or administrative interpretations of the IRS.
The IRS may audit our federal income tax information returns. Neither we nor Gibson, Dunn & Crutcher LLP can assure prospective unitholders that the
IRS will not successfully challenge the positions we adopt, and such a challenge could adversely affect the value of the units. Recently, on November 2, 2015, the Bipartisan Budget Act of 2015 (the Budget Act) was enacted. The Budget Act adopts new
partnership audit rules and procedures effective for partnership taxable years beginning after December 31, 2017. Below, we briefly describe both the currently-applicable rules and the Budget Act rules that will be effective beginning in 2018.
Current Rules
Publicly traded partnerships are treated
as entities separate from their owners for purposes of federal income tax audits, judicial review of administrative adjustments by the IRS and tax settlement proceedings. The tax treatment of partnership items of income, gain, loss and deduction are
determined in a partnership proceeding rather than in separate proceedings of the partners. The Code requires that one partner be designated as the “Tax Matters Partner” for these purposes, and our partnership agreement designates our
general partner.
The Tax Matters Partner can extend the statute of limitations for assessment of tax deficiencies against unitholders for items in our
returns. The Tax Matters Partner may bind a unitholder with less than a 1% profits interest in us to a settlement with the IRS unless that unitholder elects, by filing a statement with the IRS, not to give that authority to the Tax Matters Partner.
The Tax Matters Partner may seek judicial review, by which all the unitholders are bound, of a final partnership administrative adjustment and, if the Tax Matters Partner fails to seek judicial review, judicial review may be sought by any unitholder
having at least a 1% interest in profits or by any group of unitholders having in the aggregate at least a 5% interest in profits. However, only one action for judicial review may go forward, and each unitholder with an interest in the outcome may
participate in that action.
Adjustments resulting from an IRS audit may require each unitholder to adjust a prior year’s tax liability and may
result in an audit of the unitholder’s own return. Any audit of a unitholder’s return could result in adjustments unrelated to our returns.
A
unitholder must file a statement with the IRS identifying the treatment of any item on its federal income tax return that is not consistent with the treatment of the item on our return. Intentional or negligent disregard of this consistency
requirement may subject a unitholder to substantial penalties.
Budget Act Rules
Under the new Budget Act rules, which will become effective for partnership years beginning after December 31, 2017, any assessment for an underpayment of tax
that results from an audit of a partnership like ours with more than 100 partners will be determined and assessed at the partnership level. Although the general rule is that the publicly traded partnership (and not its partners) will generally be
required to pay any such tax that is assessed notwithstanding that the partnership’s partners at the time of the payment are different than the partners during the tax year under audit, there is an elective alternative mechanism that permits
the partnership to shift the burden
44
of the tax back to the audit year partners, as an additional tax imposed in the year the audit is completed. Whether we will be able to utilize this alternative mechanism, and exactly how it will
work, is not yet clear. Finally, the Budget Act prescribes that any tax that is assessed will be computed using a number of assumptions, including generally using the highest marginal tax rates unless certain exceptions apply, that could result in a
higher aggregate tax burden than might be the case under prior law.
Nominee Reporting
Persons who hold an interest in us as a nominee for another person are required to furnish to us:
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(a) |
the name, address and taxpayer identification number of the beneficial owner and the nominee; |
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(b) |
a statement regarding whether the beneficial owner is: |
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(2) |
a non-U.S. government, an international organization or any wholly owned agency or instrumentality of either of the foregoing, or |
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(c) |
the amount and description of units held, acquired or transferred for the beneficial owner; and |
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(d) |
specific information including the dates of acquisitions and transfers, means of acquisitions and transfers, and acquisition cost for purchases, as well as the amount of net proceeds from sales. |
Brokers and financial institutions are required to furnish additional information, including whether they are U.S. persons and specific information on units
they acquire, hold or transfer for their own account. A penalty of $100 per failure, up to a maximum of $1.5 million per calendar year, is imposed by the Code for failure to report that information to us. The nominee is required to supply the
beneficial owner of the units with the information furnished to us.
Accuracy-Related Penalties
Certain penalties may be imposed as a result of an underpayment of tax that is attributable to one or more specified causes, including negligence or disregard
of rules or regulations, substantial understatements of income tax and substantial valuation misstatements. No penalty will be imposed, however, for any portion of an underpayment if it is shown that there was a reasonable cause for the underpayment
of that portion and that the taxpayer acted in good faith regarding the underpayment of that portion. We do not anticipate that any accuracy-related penalties will be assessed against us.
State, Local, Non-U.S. and Other Tax Considerations
In addition to federal income taxes, unitholders may be subject to other taxes, including state and local income taxes, unincorporated business taxes, and
estate, inheritance or intangibles taxes that may be imposed by the various jurisdictions in which we conduct business or own property now or in the future or in which the unitholder is a resident. We currently conduct business in many states. Most
of these states currently impose a personal income tax on individuals. A majority of these states also impose an income or other entity-level tax on corporations and other entities. In addition, in the future we may also own property or conduct
business in other jurisdictions that impose or will impose an income or other similar taxes on nonresident individuals. Although an analysis of those various taxes is not presented here, each prospective unitholder should consider their potential
impact on its investment in us.
Although a unitholder may not be required to file a return and pay taxes in a jurisdiction because its income from such
jurisdiction falls below the filing and payment requirements, a unitholder will be required to file income tax
45
returns and to pay income taxes in many of the jurisdictions in which we do business or own property and may be subject to penalties for failure to comply with those requirements. Some of the
jurisdictions may require us, or we may elect, to withhold a percentage of income from amounts to be distributed to a unitholder who is not a resident of the jurisdiction. Withholding, the amount of which may be greater or less than a particular
unitholder’s income tax liability to the jurisdiction, does not relieve a nonresident unitholder from the obligation to file an income tax return.
It is the responsibility of each unitholder to investigate the legal and tax consequences, under the laws of pertinent states and localities, of its
investment in us. Gibson, Dunn & Crutcher LLP has not rendered an opinion on the state, local or non-U.S. tax consequences of an investment in us. We strongly recommend that each prospective unitholder consult, and depend upon, its own tax
counsel or other advisor with regard to those matters. It is the responsibility of each unitholder to file all state, local, and non-U.S. as well as U.S. federal tax returns that may be required of the unitholder.
46
PLAN OF DISTRIBUTION
We may sell securities described in this prospectus and any accompanying prospectus supplement to one or more underwriters for public offering and sale, and
we also may sell securities to investors directly or through one or more broker-dealers or agents.
We will prepare a prospectus supplement for each
offering that will disclose the terms of the offering, including the name or names of any underwriters, dealers or agents, the purchase price of the securities and the proceeds to us from the sale, any underwriting discounts and other items
constituting compensation to underwriters, dealers or agents.
We will fix a price or prices of our securities at:
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• |
|
market prices prevailing at the time of any sale under this registration statement; |
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• |
|
prices related to market prices; or |
We may change the price of the securities offered from time to time.
If we use underwriters or dealers in the sale, they will acquire the securities for their own account and they may resell these securities from time to time
in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale. The securities may be offered to the public either through underwriting syndicates represented by
one or more managing underwriters or directly by one or more of such firms. Unless otherwise disclosed in the prospectus supplement, the obligations of the underwriters to purchase securities will be subject to certain conditions precedent, and the
underwriters will be obligated to purchase all of the securities offered by the prospectus supplement if any are purchased. Any initial public offering price and any discounts or concessions allowed or reallowed or paid to dealers may be changed
from time to time.
If a prospectus supplement so indicates, the underwriters may, pursuant to Regulation M under the Securities Exchange Act, engage in
transactions, including stabilization bids or the imposition of penalty bids, that may have the effect of stabilizing or maintaining the market price of the securities at a level above that which might otherwise prevail in the open market.
We may sell the securities directly or through agents designated by us from time to time. We will name any agent involved in the offering and sale of the
securities for which this prospectus is delivered, and disclose any commissions payable by us to the agent or the method by which the commissions can be determined, in the prospectus supplement. Unless otherwise indicated in the prospectus
supplement, any agent will be acting on a best efforts basis for the period of its appointment.
We may agree to indemnify underwriters, dealers and
agents who participate in the distribution of securities against certain liabilities to which they may become subject in connection with the sale of the securities, including liabilities arising under the Securities Act.
Certain of the underwriters and their affiliates may be customers of, may engage in transactions with and may perform services for us or our affiliates in the
ordinary course of business.
A prospectus and accompanying prospectus supplement in electronic form may be made available on the web sites maintained by
the underwriters. The underwriters may agree to allocate a number of securities for sale to their online brokerage account holders. Such allocations of securities for internet distributions will be made on the same basis as other allocations. In
addition, securities may be sold by the underwriters to securities dealers who resell securities to online brokerage account holders.
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LEGAL MATTERS
Gibson, Dunn & Crutcher LLP will pass upon the validity of the securities offered in this registration statement, unless otherwise indicated in the
applicable prospectus supplement. If certain legal matters in connection with an offering of the securities made by this prospectus and a related prospectus supplement are passed on by counsel for the underwriters of such offering, that counsel will
be named in the applicable prospectus supplement related to that offering.
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EXPERTS
The consolidated financial statements, and the related financial statement schedule, incorporated in this prospectus by reference from Spectra Energy
Partners, LP’s Annual Report on Form 10-K, and the effectiveness of Spectra Energy Partners, LP’s internal control over financial reporting have been audited by Deloitte & Touche LLP, an independent registered public accounting
firm, as stated in their report, which is incorporated herein by reference. Such consolidated financial statements and financial statement schedule have been so incorporated in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
49
Common Units
Representing Limited Partner Interests
Having an Aggregate Offering Price of Up to
$1,000,000,000
PROSPECTUS SUPPLEMENT
December 8, 2015
Citigroup
Credit Suisse
Deutsche Bank Securities
J.P. Morgan
MUFG
Mizuho Securities
RBC Capital Markets
SMBC Nikko
SunTrust Robinson Humphrey
UBS Investment Bank
Wells Fargo Securities
Spectra Energy Partners, LP Common Units Representing Limited Partner Interests (delisted) (NYSE:SEP)
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Spectra Energy Partners, LP Common Units Representing Limited Partner Interests (delisted) (NYSE:SEP)
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