By Shasha Dai
EIG Global Energy Partners agreed to invest $1 billion in
Breitburn Energy Partners LP, a publicly traded oil and gas
exploration and production company, as energy producers turn to
alternative capital sources in an effort to bolster their balance
sheets amid slumping oil prices.
EIG, a Washington, D.C., firm that specializes in energy-related
debt and equity investments, is purchasing $350 million of
convertible preferred equity and $650 million of senior secured
notes issued by Breitburn.
The preferred equity pays monthly dividends that equal 8%
annually and will give EIG a roughly 18% voting interest in
Breitburn. The firm also gets to appoint one director to
Breitburn's board.
The secured notes, meanwhile, are structured much like
second-lien loans, said a person familiar with the matter. The new
notes, which mature in 2020 and pay a 9.25% annual interest rate,
will rank senior to Breitburn's existing debt and any future
unsecured debt, according to Breitburn.
Energy bankers and analysts say other private-equity firms are
working on new second-lien loan deals that would rank the new loans
above the prospective borrowers' existing debt--a potential risk
for current note holders. The deals are possible partly because
many companies negotiated flexible terms to their existing debt
facilities, which don't limit the amount of new debt that the
company can issue.
The capital infusion gives Breitburn additional liquidity and
allows it to "opportunistically pursue strategic acquisitions" made
possible by depressed commodity prices, Breitburn said in a
statement.
The Los Angeles company said it plans to use about $938 million
in net proceeds from the offerings to pay down borrowings under its
credit facility to around $1.24 billion.
Meanwhile, Breitburn added that it is revising its borrowing
base under the credit facility to $1.8 billion through April
2016.
Breitburn is structured as a master limited partnership, a
tax-friendly investment vehicle that typically issues regular cash
distributions to its unit holders, making it popular with public
investors.
The company said it intends to reduce its cash distribution to
50 cents per unit on an annualized basis, as part of its overall
plan to increase its liquidity and flexibility for a "potentially
prolonged market downturn," according to the statement.
Across the U.S., oil and gas producers are meeting their senior
lenders as part of a borrowing base redetermination process, in
which lenders reassess the value of the borrowers' oil and gas
reserves to determine how much those companies can continue to
borrow. Declines by more than 50% in oil prices since last summer
have caused many companies' reserve values to drop, which will
force some companies to restructure their balance sheets.
First Reserve Corp.-backed Sabine Oil & Gas Corp., for
instance, said it has hired restructuring advisers to assist with
strategic options as the company faces fully drawn credit
facilities, demands by certain noteholders to repay bonds, and
downgrades of its credit ratings.
The Breitburn transaction caps two busy months of deal making
for EIG, which closed a $6 billion fund in late 2013 for energy
deals globally. Like many of its private-equity peers, EIG seeks to
capitalize on opportunities brought by lower oil prices.
Over the last 60 days or so, EIG has struck some $3.6 billion of
deals. Earlier this month, EIG bought a 55% interest in certain
power generation and transmission assets in Mexico, Brazil and
Chile from Spanish energy company Abengoa for $1.1 billion. In
January, the firm purchased $1.5 billion of convertible notes
issued by publicly traded Houston company Cheniere Energy Inc.,
which will use the proceeds to fund a portion of the costs
associated with a liquefied natural gas project in Corpus Christi,
Texas.
Write to Shasha Dai at shasha.dai@wsj.com
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