USD Partners LP has entered into an agreement to acquire entities owning the Hardisty South terminal assets (“Hardisty South”) from USD Group LLC (“USDG” or the “Sponsor”), exchange the Sponsor’s economic general partner interest in the Partnership (“GP Interest”) for a non-economic GP Interest and eliminate the Sponsor’s incentive distribution rights (“IDRs”) in the Partnership for total consideration of $75 million in cash and approximately 5.75 million common units (the “Transaction”). The cash portion of the Transaction is expected to be funded with borrowings under the Partnership’s $275 million senior secured credit facility.
Transaction Highlights
- Increases size, scale and growth capacity of the Partnership’s asset base
- Expected to provide double-digit accretion to the Partnership’s Distributable Cash Flow per Unit in 2023, improving the potential for Distribution Per Unit growth
- Supports Management’s focus on delivering sustainable, long-term Distributable Cash Flow to the Partnership’s unitholders by improving contract profile tenor, anchored by a long-term contract with ConocoPhillips
- Optimizes operational and commercial synergies of Hardisty Terminal and consolidates benefits of blue-chip Diluent Recovery Unit (“DRU”) asset growth at the MLP for the benefit of all Partnership unitholders
- Elimination of IDRs and economic GP Interest simplifies the Partnership’s financial structure and better aligns the interests of its unitholders with our Sponsor, who will continue to own a substantial number of common units post-transaction
“We are pleased to announce that the Partnership is acquiring Hardisty South from USDG and simplifying its financial structure by eliminating its IDRs and economic GP Interest. As we have previously stated, we are very focused on maintaining our momentum in 2022 as we continue to see opportunities for our DRUbit™ by Rail™ network to provide safer and more economic benefits to our customers,” said Dan Borgen, the Partnership’s Chief Executive Officer. “The acquisition of Hardisty South is expected to provide the Partnership with a growth platform by which it can realize the accretion and additional long-term commitments that our DRUbit™ by Rail™ network is able to provide. Simplifying the Partnership’s structure is critical to our growth strategy, and we look forward to sharing more details about our growth opportunities in the future.”
“We are excited to announce this accretive set of transactions at the Partnership,” said Adam Altsuler, the Partnership’s Chief Financial Officer. “Based on our estimates for future heavy crude oil production in Western Canada and the current availability of egress alternatives, we are expecting double digit accretion to the Partnership’s Distributable Cash Flow starting in 2023, as a result of the Transaction. This estimated accretion is based on an estimated annual Net Cash Provided by Operating Activities and Adjusted EBITDA contribution of between $14 and $18 million in 2023.”
Estimated Closing
- The Transaction is expected to close during the second quarter of 2022, subject to receipt of required consents
- Post-closing, USDG will hold a non-economic GP interest in the Partnership and approximately 17.3 million common units, representing approximately 52% of the total outstanding units in the Partnership
- The Transaction was approved by the Board of Directors of the general partner of the Partnership based on the approval and recommendation of its Conflicts Committee, which consists entirely of independent directors
Advisors
The Conflicts Committee engaged Jefferies LLC as its financial advisor and Sidley Austin LLP as its legal advisor. The Sponsor engaged Tudor, Pickering, Holt & Co. as its financial advisor and Gibson, Dunn & Crutcher LLP as its legal advisor.
