HOUSTON–(BUSINESS WIRE)–USD Partners LP (NYSE: USDP) (the “Partnership”) announced today that it has entered into an agreement to acquire entities holding the assets of the Hardisty South Terminal (“Hardisty South”) from USD Group LLC ( “USDG” or the “General Partner”), exchange the economic interest of the general partner of the limited partnership (“GP interest”) for a non-economic GP interest and eliminate the incentive distribution rights (“IDR”) of the limited partner in the Partnership for a 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 financed by borrowings under the Partnership’s $275 million senior secured credit facility.
Transaction Highlights
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Increases the size, scale and capacity for growth of the Partnership’s asset base
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Expected to deliver a double-digit increase in the Partnership’s distributable cash flow per unit in 2023, enhancing the potential for distribution per unit growth
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Supports management’s focus on providing sustainable, long-term distributable cash flow to LP Unitholders by improving the duration of the contract profile, anchored by a long-term contract with ConocoPhillips
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Maximizes the operational and commercial synergies of the Hardisty Terminal and consolidates the asset growth benefits of the premier Diluent Recovery Unit (“DRU”) at MLP for the benefit of all Partnership Unitholders
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The elimination of IDRs and economic GP interests simplifies the financial structure of the Partnership and better aligns the interests of its Unitholders with our Limited Partner, who will continue to hold a substantial number of Common Units after the 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 interests in GPs. As previously stated, we are very focused on maintaining momentum in 2022 as we continue to see opportunities for our DRUbit™ by Rail™ network to deliver safer and more cost-effective benefits to our customers. said Dan Borgen, Managing Director of the partnership. Officer. “The acquisition of Hardisty South should provide the Partnership with a growth platform from which to achieve the growth and additional long-term commitments that our DRUbit™ by Rail™ network is able to provide. Simplifying the partnership structure is key to our growth strategy, and we look forward to sharing more details about our future growth opportunities.
“We are delighted to announce this set of accretive transactions within the Partnership,” said Adam Altsuler, Chief Financial Officer of the Partnership. “Based on our estimates of future heavy crude oil production in Western Canada and the current availability of venting alternatives, we expect a double-digit increase in distributable cash flow from the partnership from of 2023, following the transaction. This estimated increase is based on an estimated annual contribution from net cash provided by operating activities and adjusted EBITDA of between $14 million and $18 million in 2023.”
Estimated close
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The transaction is expected to close in the second quarter of 2022, subject to receipt of required consents
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Following Closing, USDG will own a non-economic general partnership interest in the Partnership and approximately 17.3 million Common Units, representing approximately 52% of the Partnership’s total outstanding units.
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The transaction has been approved by the board of directors of the general partner of the limited partnership based on the approval and recommendation of its conflicts committee, which is composed entirely of independent directors.
Advisors
The Conflicts Committee engaged Jefferies LLC as financial advisor and Sidley Austin LLP as legal advisor. The Limited Partner has engaged Tudor, Pickering, Holt & Co. as financial advisor and Gibson, Dunn & Crutcher LLP as legal advisor.
About USD Partners LP
USD Partners LP is a fee-based, growth-oriented master limited partnership established in 2014 by USDG to acquire, develop and operate midstream infrastructure and complementary logistics solutions for crude oil, biofuels and other commodities related to energy. The Partnership derives substantially all of its operating cash flow from multi-year take-or-pay contracts with primarily high quality customers, including large 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 major demand centers in North America. The Partnership’s operations include railcar loading and unloading, on-site tank storage and blending, inbound and outbound pipeline connectivity, truck transloading, and other related logistics services. In addition, the Partnership provides railcar and fleet rental services to its customers to facilitate the transportation of liquid hydrocarbons and biofuels by rail. For more information, please visit www.usdp.com.
About USDG
USDG and its affiliates, which own the general partner of USD Partners LP, are engaged in the design, development, ownership and management of large-scale, multi-modal logistics centers and energy-related infrastructure in North America . USDG solutions create flexible market access for customers in major growth areas and key demand centers, including Western Canada, the US Gulf Coast and Mexico. Among other projects, the USDG is currently pursuing the development of a premier energy logistics terminal on the Houston Ship Channel with significant tank storage capacity, multiple docks (including barges and deep water), inbound and outbound pipeline, as well as a rail terminal with unit train capabilities. For more information, please visit www.usdg.com. Information about 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, gains and losses on foreign currency transactions and other items. which do not affect the underlying cash flows generated by the activities of the Partnership. Adjusted EBITDA is a supplemental non-GAAP financial measure used by management and external users of the Partnership’s financial statements, such as investors and commercial banks, to assess:
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the Partnership’s liquidity and the ability of the Partnership’s businesses to generate sufficient cash flows to make distributions to Partnership Unitholders; and
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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 the payment of distributions and for other purposes. . The most directly comparable GAAP measure 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 excludes some, but not all, items that affect net cash provided by operating activities and this measure may vary from company to company. Due to the inherent uncertainty and difficulty in predicting the occurrence and future impact of certain items, which could be material, the Partnership is unable to provide a quantitative reconciliation of the estimated future contribution of EBITDA adjusted 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 supplemental non-GAAP financial measure used by management and external users of the Partnership’s financial statements, such as investors and commercial banks, to assess:
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the amount of cash available to make distributions to Unitholders of the Partnership;
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excess cash flows being retained for use in improving the Partnership’s existing business; and
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the sustainability of the Partnership’s current payout rate per Unit.
Caution Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the federal securities laws, including statements regarding 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”, “intend”, “believe”, “project”, “begin”, “anticipate”, “may”, “subject to and similar expressions are used to identify these -watching 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 regarding the Partnership, its interests, USD projects and the energy industry generally as of the date of this press release. hurry. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from what is expressed or anticipated 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, and the factors set forth under “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 (including many may be amplified by the COVID-19 pandemic and high demand volatility and fluctuating prices for crude oil, natural gas and natural gas liquids). The Partnership is under no obligation (and expressly disclaims any such obligation) to update or change its forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. ‘required.
