USD Partners LP Announces Acquisition of Hardisty South Terminal Assets From USD Group LLC and IDR Elimination
March 28 2022 - 6:44AM
Business Wire
USD Partners LP (NYSE: USDP) (the “Partnership”) today announced
it has entered into an agreement to acquire entities owning the
Hardisty South terminal assets (“Hardisty South”) from USD Group
LLC (“USDG” or the “Sponsor”), exchange the Sponsor’s economic
general partner interest in the Partnership (“GP Interest”) for a
non-economic GP Interest and eliminate the Sponsor’s incentive
distribution rights (“IDRs”) in the Partnership for total
consideration of $75 million in cash and approximately 5.75 million
common units (the “Transaction”). The cash portion of the
Transaction is expected to be funded with borrowings under the
Partnership’s $275 million senior secured credit facility.
Transaction Highlights
- Increases size, scale and growth capacity of the Partnership’s
asset base
- Expected to provide double-digit accretion to the Partnership’s
Distributable Cash Flow per Unit in 2023, improving the potential
for Distribution Per Unit growth
- Supports Management’s focus on delivering sustainable,
long-term Distributable Cash Flow to the Partnership’s unitholders
by improving contract profile tenor, anchored by a long-term
contract with ConocoPhillips
- Optimizes operational and commercial synergies of Hardisty
Terminal and consolidates benefits of blue-chip Diluent Recovery
Unit (“DRU”) asset growth at the MLP for the benefit of all
Partnership unitholders
- Elimination of IDRs and economic GP Interest simplifies the
Partnership’s financial structure and better aligns the interests
of its unitholders with our Sponsor, who will continue to own a
substantial number of common units post-transaction
“We are pleased to announce that the Partnership is acquiring
Hardisty South from USDG and simplifying its financial structure by
eliminating its IDRs and economic GP Interest. As we have
previously stated, we are very focused on maintaining our momentum
in 2022 as we continue to see opportunities for our DRUbit™ by
Rail™ network to provide safer and more economic benefits to our
customers,” said Dan Borgen, the Partnership’s Chief Executive
Officer. “The acquisition of Hardisty South is expected to provide
the Partnership with a growth platform by which it can realize the
accretion and additional long-term commitments that our DRUbit™ by
Rail™ network is able to provide. Simplifying the Partnership’s
structure is critical to our growth strategy, and we look forward
to sharing more details about our growth opportunities in the
future.”
“We are excited to announce this accretive set of transactions
at the Partnership,” said Adam Altsuler, the Partnership’s Chief
Financial Officer. “Based on our estimates for future heavy crude
oil production in Western Canada and the current availability of
egress alternatives, we are expecting double digit accretion to the
Partnership’s Distributable Cash Flow starting in 2023, as a result
of the Transaction. This estimated accretion is based on an
estimated annual Net Cash Provided by Operating Activities and
Adjusted EBITDA contribution of between $14 and $18 million in
2023.”
Estimated Closing
- The Transaction is expected to close during the second quarter
of 2022, subject to receipt of required consents
- Post-closing, USDG will hold a non-economic GP interest in the
Partnership and approximately 17.3 million common units,
representing approximately 52% of the total outstanding units in
the Partnership
- The Transaction was approved by the Board of Directors of the
general partner of the Partnership based on the approval and
recommendation of its Conflicts Committee, which consists entirely
of independent directors
Advisors
The Conflicts Committee engaged Jefferies LLC as its financial
advisor and Sidley Austin LLP as its legal advisor. The Sponsor
engaged Tudor, Pickering, Holt & Co. as its financial advisor
and Gibson, Dunn & Crutcher LLP as its legal advisor.
About USD Partners LP
USD Partners LP is a fee-based, growth-oriented master limited
partnership formed in 2014 by USDG to acquire, develop and operate
midstream infrastructure and complementary logistics solutions for
crude oil, biofuels and other energy-related products. The
Partnership generates substantially all of its operating cash flows
from multi-year, take-or-pay contracts with primarily investment
grade customers, including major integrated oil companies and
refiners. The Partnership’s principal assets include a network of
crude oil terminals that facilitate the transportation of heavy
crude oil from Western Canada to key demand centers across North
America. The Partnership’s operations include railcar loading and
unloading, storage and blending in on-site tanks, inbound and
outbound pipeline connectivity, truck transloading, as well as
other related logistics services. In addition, the Partnership
provides customers with leased railcars and fleet services to
facilitate the transportation of liquid hydrocarbons and biofuels
by rail. For additional information, please visit www.usdp.com.
About USDG
USDG and its affiliates, which own the general partner of USD
Partners LP, are engaged in designing, developing, owning, and
managing large-scale multi-modal logistics centers and
energy-related infrastructure across North America. USDG solutions
create flexible market access for customers in significant growth
areas and key demand centers, including Western Canada, the U.S.
Gulf Coast and Mexico. Among other projects, USDG is currently
pursuing the development of a premier energy logistics terminal on
the Houston Ship Channel with capacity for substantial tank
storage, multiple docks (including barge and deepwater), inbound
and outbound pipeline connectivity, as well as a rail terminal with
unit train capabilities. For additional information, please visit
www.usdg.com. Information on websites referenced in this release is
not part of this release.
Adjusted EBITDA
The Partnership defines Adjusted EBITDA as Net Cash Provided by
Operating Activities adjusted for changes in working capital items,
interest, income taxes, foreign currency transaction gains and
losses, and other items which do not affect the underlying cash
flows produced by the Partnership’s businesses. Adjusted EBITDA is
a non-GAAP, supplemental financial measure used by management and
external users of the Partnership’s financial statements, such as
investors and commercial banks, to assess:
- the Partnership’s liquidity and the ability of the
Partnership’s businesses to produce sufficient cash flows to make
distributions to the Partnership’s unitholders; and
- the Partnership’s ability to incur and service debt and fund
capital expenditures.
The Partnership believes that the presentation of Adjusted
EBITDA in this press release provides information that enhances an
investor's understanding of the Partnership’s ability to generate
cash for payment of distributions and other purposes. The GAAP
measure most directly comparable to Adjusted EBITDA is Net Cash
Provided by Operating Activities. Adjusted EBITDA should not be
considered an alternative to Net Cash Provided by Operating
Activities or any other measure of liquidity presented in
accordance with GAAP. Adjusted EBITDA exclude some, but not all,
items that affect Net Cash Provided by Operating Activities and
this measure may vary among other companies. Due to the uncertainty
and inherent difficulty of predicting the occurrence and future
impact of certain items, which could be significant, the
Partnership is unable to provide a quantitative reconciliation of
the estimated future Adjusted EBITDA contribution from Hardisty
South to Net Cash Provided by Operating Activities.
Distributable Cash Flow
The Partnership defines Distributable Cash Flow, or DCF, as
Adjusted EBITDA less net cash paid for interest, income taxes and
maintenance capital expenditures. DCF does not reflect changes in
working capital balances. DCF is a non-GAAP, supplemental financial
measure used by management and by external users of the
Partnership’s financial statements, such as investors and
commercial banks, to assess:
- the amount of cash available for making distributions to the
Partnership’s unitholders;
- the excess cash flow being retained for use in enhancing the
Partnership’s existing business; and
- the sustainability of the Partnership’s current distribution
rate per unit.
Cautionary Note Regarding Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of U.S. federal securities laws, including statements
with respect to the timing and benefits of the transaction, future
financial results, growth, closing of the transaction, and
performance of assets. Words and phrases such as “expect,” “plan,”
“intent,” “believes,” “projects,” “begin,” “anticipates,” “able,”
“subject to” and similar expressions are used to identify such
forward-looking statements. However, the absence of these words
does not mean that a statement is not forward-looking.
Forward-looking statements relating to the Partnership are based on
management’s expectations, estimates and projections about the
Partnership, its interests, USD’s projects and the energy industry
in general on the date this press release was issued. These
statements are not guarantees of future performance and involve
certain risks, uncertainties and assumptions that are difficult to
predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecast in such
forward-looking statements. Factors that could cause actual results
or events to differ materially from those described in the
forward-looking statements include the impact of the novel
coronavirus (COVID-19) pandemic and related economic impact and
changes in general economic conditions and commodity prices, as
well as those factors set forth under the heading “Risk Factors”
and elsewhere in the Partnership’s most recent Annual Report on
Form 10-K and in the Partnership’s subsequent filings with the
Securities and Exchange Commission (many of which may be amplified
by the COVID-19 pandemic and the significant volatility in demand
for, and fluctuations in the prices of, crude oil, natural gas and
natural gas liquids). The Partnership is under no obligation (and
expressly disclaims any such obligation) to update or alter its
forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by law.
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version on businesswire.com: https://www.businesswire.com/news/home/20220327005129/en/
Adam Altsuler Executive Vice President, Chief Financial Officer
(281) 291-3995 aaltsuler@usdg.com
Jennifer Waller Senior Director, Financial Reporting &
Investor Relations (281) 991-8383 jwaller@usdg.com
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