In a planned move to give more independence to its master limited partnership (MLP), El Paso Corp. on Friday announced it has sold a 9.9% interest in GulfTerra Energy Partners LP to Goldman Sachs & Co.

The sale and related transactions resulted in a gain of $244 million for the Houston company, which will be used to reduce debt.

GulfTerra, formerly El Paso Energy Partners LP, had its name changed a few months ago as part of a planned move of separation (see Daily GPI, May 2). GulfTerra is the third largest MLP in the United States, holding a diversified set of midstream assets located both offshore in the deepwater Gulf of Mexico and onshore.

El Paso will continue to own the remaining 90.1%, as well as nearly 22 million common units. In conjunction with the transaction, GulfTerra, which wants to achieve corporate governance and independence from El Paso, redeemed all of the Series B Preference Units held by El Paso for $156 million. The units, which had a face value of $167 million, “were accruing non-cash distributions, and would not have paid cash…until late 2010,” El Paso said in a statement.

Goldman Sachs also purchased 3 million newly issued common units from GulfTerra. The combined purchase price for the 9.9% general partner interest and common units was $200 million, with $88 million attributed to the general partner interest.

“The monetization of a significant equity stake in GulfTerra is a positive step for El Paso,” said Doug Foshee, El Paso’s CEO. He said the sale “confirms the significant value that resides in the general partner interest of this successful master limited partnership (MLP). This transaction is also consistent with El Paso’s and GulfTerra’s previously announced commitment to take steps that enhance the credit separation of the two companies.”

GulfTerra CEO Robert G. Phillips said the transactions will allow the MLP “to complete important elements of our independence initiatives plan announced earlier this year. Moreover, the significant investment in GulfTerra by Goldman Sachs validates the business strategy and performance of the partnership and highlights our continued efforts to improve our corporate governance model.”

With its interest in the MLP, Goldman Sachs will have protective veto rights on certain transactions and the right to exchange its general partner interest for newly issued common units on a “cash-flow neutral” basis by the fifth anniversary of the transaction.

Phillips said the transaction “enables the partnership to accomplish a number of goals including meeting commitments to our investors and the rating agencies to further our independence initiatives, the elimination of the Series B Preference units, which simplifies our balance sheet, and the continued reduction of related party arrangements with El Paso. Having achieved these important de-linking steps, we look forward to working with our general partner owners to continue providing impressive returns to all of our investors.”

©Copyright 2003 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.