Tallgrass Energy Partners LP is acquiring another 31.3% of Tallgrass Pony Express Pipeline LLC for $475 million in cash and 6.518 million Tallgrass Energy common units to be issued to Tallgrass Development.
Based on the units' Dec. 31 closing of $41.21, the deal is worth about $743.6 million in total, an amount that represents about nine times incremental cash flow to Tallgrass Energy, which will now own 98% of Pony Express.
"Consistent with our first two Pony Express acquisitions [see Daily GPI, March 4, 2015], we expect this transaction to be immediately accretive to unitholders and intend to recommend that our board of directors increase our quarterly distribution for the first quarter of 2016 by at least 6 cents per unit over our distribution of 64 cents per unit for the fourth quarter of 2015. We continue to affirm our previous distribution growth guidance of approximately 20% annually from 2015 through 2017," said Tallgrass Energy CEO, David G. Dehaemers Jr.
The cash consideration of $475 million is being funded through borrowings under the Tallgrass Energy revolving credit facility, which has been increased from $1.1 billion to $1.5 billion in connection with the transaction.
Tallgrass Development is granting Tallgrass Energy an 18-month call option to repurchase the newly issued 6.518 million common units at a price of $42.50. Thus, the acquisition could become more accretive to Tallgrass Energy if it issues equity for net cash proceeds in excess of $42.50 per common unit and exercises its option.
Pro forma for the transaction, Tallgrass Energy's debt to cash flow ratio is about 3.7 times and its available liquidity under its revolving credit facility is about $272 million. Tallgrass Energy said it expects that Tallgrass Development will maintain its minority ownership interest in Pony Express for the foreseeable future.
Also, Tallgrass Energy raised its quarterly cash distribution to 64 cents/common unit for the fourth quarter of 2015, a 32% increase from a year ago and a 6.7% increase from the third quarter of 2015. Tallgrass Energy GP LP raised its fourth quarter distribution to 17.3 cents per Class A share, a 20.1% increase from the third quarter and its second increase since the initial public offering in May 2015.