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Plains All American Pipeline: ‘binding commitments’

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World Pipelines,

Plains All American Pipeline, L.P. has announced that it has received binding commitments for the purchase of approximately US$1.5 billion of equity capital.

The purchasers will acquire approximately 56 million units of a newly authorised series of 8% Perpetual Series A Convertible Preferred Units (the preferred units) at a price of US$26.25 per unit. The preferred units will bear an annual distribution of US$2.10 per unit. After two years, the preferred units are convertible at the purchasers’ option into PAA common units on a one for one basis (subject to customary anti-dilution adjustments), and are convertible at PAA’s option in certain circumstances after three years. Closing of the transaction is scheduled to occur prior to the end of January 2016.

The net proceeds

After deducting offering expenses and including the general partner’s proportionate 2% equity contribution, the net proceeds are approximately US$1.5 billion. PAA expects to use the proceeds for capital expenditures, repayment of debt, and general partnership purposes. The primary purchasers include affiliates of EnCap Investments L.P., EnCap Flatrock Midstream, The Energy Minerals Group, Kayne Anderson Capital Advisors, L.P., and First Reserve Advisors, L.L.C.

IDR modifications

In connection with this transaction, PAA’s general partner agreed to modify its incentive distribution rights (IDRs). As a result of this modification, when the preferred units convert into PAA common units, the IDRs associated with the resulting common units will only participate in distribution growth above PAA’s current distribution level of US$2.80 per converted common unit. Assuming all preferred units convert into PAA common units, the modification represents a permanent IDR reduction of approximately US$90 million/y.

“We believe this transaction is extremely positive for PAA and all of its stakeholders,” said Greg Armstrong, Chairman and Chief Executive Officer.

“This ‘one and done’ transaction enables PAA to accomplish a number of objectives, including:

  • Immediately strengthen PAA’s balance sheet and liquidity.
  • Reinforce PAA’s commitment to maintaining mid-to-high BBB and Baa credit ratings and fund its capital program in a very debt friendly manner.
  • Satisfy PAA’s equity financing needs for all of 2016 and, in all material respects, all of 2017.
  • Address concerns about PAA's ability to sustain its distribution.
  • Resolve investor concerns about PAA’s need to routinely access equity capital markets.
  • Substantially insulate PAA from further capital market disruptions.”

PAA conducted the conference call on Tuesday 12 January 2016, which discussed the preferred unit transaction and PAA’s outlook for 2016 and beyond.

Edited from source by Stephanie Roker

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