Tallgrass Energy Partners LP (NYSE: TEP) said Jan. 4 it will acquire an additional 31.3% interest in Tallgrass Pony Express Pipeline LLC for $743.6 million in cash and stock, based on its Dec. 31 closing price.
The acquisition increases TEP’s membership interest in Pony Express to 98%. TEP expects that Tallgrass Development LP will maintain its minority ownership interest in Pony Express for the foreseeable future, according to the release.
Tallgrass Development is currently developing the Pony Express Pipeline, which, when completed, will transport domestic light crude found in the Bakken Shale production area to Cushing, Okla.
The transaction includes cash consideration of $475 million and 6.518 million TEP common units issued to Tallgrass Development. The total purchase price represents a multiple of about 9x incremental cash flow to TEP, the release said.
TEP said it plans to fund the cash consideration through borrowing under its revolving credit facility, which is increased to $1.5 billion from $1.1 billion in connection with the transaction.
As part of the transaction, Tallgrass Development is granting TEP an 18 month call option to repurchase the newly issued 6.518 million common units at a price of $42.50.
Pro forma for the transaction, TEP’s debt to cash flow ratio is about 3.7x and its available liquidity under its revolving credit facility is about $272 million.
As a result of the acquisition, TEP intends to recommend that its board increase quarterly distribution for the first quarter of 2016 by at least $0.06 per unit over its distribution of $0.64 per unit for the fourth quarter of 2015, said David G. Dehaemers Jr., Tallgrass president and CEO.
TEP continues to affirm its previous distribution growth guidance of about 20% annually from 2015 through 2017, Dehaemers said.
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