The announced $1.725 billion dropdown of Questar Pipeline LLC to Dominion Midstream Partners LP (NYSE: DM) on Oct. 31 will shore up finances for the MLP and Dominion Resources Inc. (NYSE: D), its general partner.

The transaction will more than double 2016 adjusted EBITDA for parent company Dominion Midstream, relieving it of additional asset dropdowns or equity financing until second-half 2018, the company said in a statement. Dominion Midstream ranked No. 31 on The Midstream 50 with 2015 EBITDA of $240 million, a 22% increase over the previous year.

However, EBITDA for Dominion Midstream in 2016 as forecast by Bloomberg prior to the announcement was only $107.1 million. The forecast for 2017 was $216.1 million.

Financing of the deal involves:

  • Dominion Midstream absorbing $435 million of debt from Questar;
  • Opening an underwritten public offering of Dominion Midstream common units;
  • Funding from a group of institutional investors, led by Stonepeak Infrastructure Partners, of $137.5 million of common limited partner units and up to $600 million of convertible preferred units;
  • Issuing to Dominion both common and preferred units; and
  • A group of banks providing a $300 million term loan.

The term loan will allow the MLP to repay a loan made by Dominion.

Announced in February, the dropdown and finance structure will let Dominion pay down debt and support earnings and dividends, said Thomas F. Farrell II, chairman, president and CEO of Dominion and chairman and CEO of Dominion Midstream, in a statement.

“This successful financing also validates our business plan for Dominion Midstream, which involves accessing the capital markets to fund the acquisition of midstream assets to support the partnership’s stated intention to grow distributions by 22% per year.”

Questar operates more than 2,500 miles of natural gas pipelines and underground storage in Utah, Wyoming and Colorado. It operates in six major producing areas, including the Greater Green River, Uinta and Piceance basins.

Dominion operates 14,400 miles of natural gas transmission, gathering and storage pipelines, and storage capacity of about 1 trillion cubic feet.

Joseph Markman can be reached at jmarkman@hartenergy.com or @JHMarkman.

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