UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): June 29, 2006
CROSSTEX ENERGY, L.P.
(Exact name of registrant as specified in its charter)
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| DELAWARE
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000-50067
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16-1616605 |
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| (State or Other Jurisdiction of
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(Commission File
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(I.R.S. Employer Identification No.) |
| Incorporation or Organization)
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Number) |
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| 2501 CEDAR SPRINGS, SUITE 100 |
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| DALLAS, TEXAS
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75201 |
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| (Address of Principal Executive Offices)
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(Zip Code) |
Registrant’s telephone number, including area code: (214) 953-9500
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
TABLE OF CONTENTS
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| Item 1.01. |
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Entry into a Material Definitive Agreement. |
Bank Credit Facility
On June 29, 2006, Crosstex Energy, L.P. (the “Partnership”) entered into a Second Amendment
(the “Credit Agreement Amendment”) to the Fourth Amended and Restated Credit Agreement (as amended,
the “Credit Agreement”) with Bank of America, N.A., as administrative agent, and the banks and
other parties thereto. A copy of the Credit Agreement Amendment is filed as Exhibit 10.1 to this
Current Report on Form 8-K. The Credit Agreement Amendment amended the Credit Agreement to, among
other things, (1) increase the revolving credit facility by $250.0 million, (2) extend the
termination date of the Credit Agreement (and the maturity date of the obligations thereunder) to
June 29, 2011, (3) permit the Partnership to issue an additional $250.0 million of senior secured
notes under the Amended and Restated Master Shelf Agreement with Prudential Investment Management,
Inc. and certain other parties, (4) amend the maximum ratio of total funded debt to consolidated
EBITDA contained in the Credit Agreement, and (5) permit the Partnership and its subsidiaries to
consummate the Chief Acquisition (as defined in Item 2.01 below). Within 90 days after the
execution of the Credit Agreement Amendment, the Partnership and its subsidiaries must grant liens
on substantially all of the assets acquired in connection with the Chief Acquisition to secure the
indebtedness arising under the Credit Agreement. The Credit Agreement now provides for revolving
credit borrowings up to a maximum principal amount of $1.0 billion at any one time outstanding and
the issuance of letters of credit in the aggregate face amount of up to $300 million at any one
time outstanding, which letters of credit reduce the credit available for revolving credit
borrowings. The Credit Agreement includes procedures for additional financial institutions
selected by the Partnership to become lenders under the agreement, or for any existing lender to
increase its commitment in an amount approved by the Partnership and the lender, subject to a
maximum of $300 million for all such increases in commitments of new or existing lenders.
On June 29, 2006, we borrowed approximately $105.0 million under the Credit Agreement to (i)
partially finance the Chief Acquisition (as defined in Item 2.01 below) and (ii) to pay fees, costs
and expenses owed in connection with the Chief Acquisition and the Credit Agreement Amendment. The
bank credit facility will be used for ongoing capital expenditures, working capital needs, letters
of credit, distributions to unitholders and general partnership purposes, including future
acquisitions and expansions. As of June 29, 2006, the Partnership had approximately $487.0 million
in revolving credit borrowings and $59.9 million in letters of credit outstanding under the Credit
Agreement, leaving approximately $453.1 million available for future borrowings and letters of
credit. Amounts borrowed and repaid under the Credit Agreement may be re-borrowed. For a period
of at least 15 consecutive days once each year, the Partnership is required to reduce to zero all
revolving credit borrowings that were used to make distributions to unitholders.
Senior Secured Notes
Also on June 29, 2006, the Partnership entered into Letter Amendment No. 4 (“Letter Amendment
No. 4”) to the Amended and Restated Master Shelf Agreement (as amended, the “Amended and Restated
Master Shelf Agreement”) with Prudential Investment Management, Inc. and other holders of the
Partnership’s senior secured notes. A copy of Letter Amendment
No. 4 is filed as Exhibit 10.2 to this Current Report on Form 8-K. Letter Amendment No. 4
amended the Amended and Restated Master Shelf Agreement to, among other things, (1) permit the
Partnership to incur up to $1.3 billion of indebtedness under the Credit Agreement, (2) amend the
maximum ratio of total funded debt to consolidated EBITDA contained in the Amended and Restated
Master Shelf Agreement, (3) permit the Partnership and its subsidiaries to consummate the Chief
Acquisition, and (4) provide that, for each fiscal quarter ending on or before December 31, 2007,
if the Partnership’s leverage ratio exceeds certain limitations, the Partnership will pay the
holders of the notes an excess leverage fee based on the daily average outstanding principal
balance of the notes during such fiscal quarter. Within 90 days after the execution of Letter
Amendment No. 4, the Partnership and its subsidiaries must grant liens on substantially all of the
assets acquired in connection with the Chief Acquisition to secure the senior secured notes issued
under the Amended and Restated Master Shelf Agreement.
As of June 29, 2006, the Partnership had $260.0 million of senior secured notes issued and
outstanding under the Amended and Restated Master Shelf Agreement.
Registration Rights Agreement
On June 29, 2006, the Partnership entered into a Registration Rights Agreement with Chieftain
Capital Management, Inc. (as agent and attorney-in-fact for the purchasers who are its clients
under separate investment advisor agreements), two closed-end funds sub-advised by Fiduciary Asset
Management, LLC, Kayne Anderson MLP Investment Company, Kayne Anderson Energy Total Return Fund,
Inc., LB I Group Inc., an affiliate of Lehman Brothers Inc., Tortoise Energy Infrastructure
Corporation and Lubar Equity Fund, LLC (in which Sheldon B. Lubar, a member of the Board of
Directors of the general partner of the general partner of the Partnership, owns a portion of the
membership interest and also serves as a director of Lubar Equity Fund, LLC’s sole manager, Lubar &
Co., Incorporated) and Crosstex Energy, Inc., relating to the registered resale of the Senior
Subordinated Series C Units issued pursuant to the private placement described in Item 3.02 of this
Current Report on Form 8-K and the Common Units issuable upon conversion of such Senior
Subordinated Series C Units. Pursuant to the Registration Rights Agreement, the Partnership has
agreed to file a shelf registration statement within 30 days after June 29, 2006 (the date of
issuance of the Senior Subordinated Series C Units) for the resale of the Senior Subordinated
Series C Units and the Common Units into which such Senior Subordinated Series C Units will convert
and to use commercially reasonable efforts to cause the shelf registration statement to be declared
effective by the Securities and Exchange Commission within 120 days after June 29, 2006.
Amendment to Partnership Agreement
In connection with the issuance of the Senior Subordinated Series C Units, Crosstex Energy GP,
LLC, the general partner of Crosstex Energy GP, L.P., the general partner of the Partnership,
entered into the Fifth Amended and Restated Agreement of Limited Partnership of the Partnership,
which provides for the rights and obligations of the Senior Subordinated Series C Units.
The descriptions of the Credit Agreement Amendment, Letter Amendment No. 4 to the Amended and
Restated Master Shelf Agreement, the Registration Rights Agreement and the Fifth Amended and
Restated Agreement of Limited Partnership above do not purport to be complete and are qualified in
their entirety by reference to the complete text of the Credit Agreement, Letter Amendment No. 4 to
the Amended and Restated Master Shelf Agreement, the Registration Rights Agreement and the Fifth
Amended and Restated Agreement of Limited Partnership, copies of which are filed as Exhibits to
this Current Report on Form 8-K and are incorporated herein by reference.
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| Item 2.01. |
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Completion of Acquisition or Disposition of Assets. |
On June 29, 2006, Crosstex Energy Services, L.P., a wholly-owned subsidiary of the Partnership
(the “Operating Partnership”), acquired certain natural gas gathering pipeline systems and related
facilities in the Barnett Shale (the “Midstream Assets”) from Chief Holdings LLC (“Chief”) for a
purchase price of approximately $480 million (the “Chief Acquisition”).
The Midstream Assets include five gathering systems, located in parts of Parker, Tarrant,
Denton, Palo Pinto, Erath, Hood, Somervell, Hill and Johnson counties in Texas. The Midstream
Assets also include a 125 million cubic feet per day carbon dioxide treating plant and compression
facilities with 26,000 horsepower. The Chief subsidiary that previously owned the Midstream Assets
was formed in 2001 to construct gathering facilities for the Chief production. The majority of the
Midstream Assets have been constructed since that time.
The gas gathering systems consist of approximately 250 miles of existing gathering pipelines,
ranging from four inches to twelve inches in diameter. The Partnership plans to build up to an
additional 400 miles of pipelines as production in the area is drilled and developed. The
gathering systems currently have the capacity to deliver approximately 250,000 MMBtu per day, and
the Partnership will expand the capacity as needed to gather the volumes produced as new pipelines
are constructed. As presently operated, the system gathers and delivers approximately 140,000
MMBtu per day, approximately 80% of which is attributable to the Chief production purchased by
Devon Energy Corporation (“Devon”).
Simultaneously with the Chief Acquisition, the Operating Partnership entered into a gas
gathering agreement with Devon whereby the Operating Partnership has agreed to gather, and Devon
has agreed to dedicate and deliver, the production that Devon acquired from Chief (approximately
160,000 net acres). Under the agreement, Devon has committed to deliver all of the production from
the dedicated acreage into the gathering system, including production from current wells and wells
that it drills in the future. The Operating Partnership will expand the gathering system to reach
the new wells as they are drilled. The agreement has a 15-year term
and provides for market based gathering fees over the term. In addition to the Devon
agreement, approximately 60,000 additional net acres are dedicated to the Midstream Assets under
agreements with other producers.
In connection with the Chief Acquisition, the Partnership hired eleven employees from Chief.
The employees consist of one operational engineer, one contract administrator and nine operational
employees. The Partnership did not hire any management or executive personnel from Chief.
The Partnership intends to expand operational staff and sales professionals to focus on
maximizing the efficiency of the Midstream Assets and to increase volumes from third-party
producers. Organizationally, the Partnership will operate the Midstream Assets in conjunction with
its other gathering and processing operations in the area. Chief historically engaged one
commercial manager to promote its midstream operations. The Partnership will initially have four
commercial professionals devoted to the Midstream Assets, with the ability to devote additional
resources as the business grows. The Partnership will focus on expanding the utilization of the
Midstream Assets by other parties, while continuing to serve the production currently dedicated to
the system by Devon and other producers.
The Partnership will account for the acquisition of the Midstream Assets as a business
combination in accordance with the Statement of Financial Accounting Standards No. 141 Business
Combinations. After the acquisition, the Partnership will recognize the gathering fee income
received from Devon and other producers who deliver gas into the Midstream Assets as revenue at the
time the natural gas is delivered.
The Partnership will not use the “Chief” brand name, and began using the Crosstex name as of
the closing. The Partnership will focus on selling the Crosstex brand. The Partnership expects
that the use of the Crosstex brand name will be a benefit in attracting volumes from third-party
producers since Crosstex will not be competing to acquire producing properties.
We financed the Chief Acquisition with borrowings of approximately $105.0 million under the
Credit Agreement, net proceeds of approximately $369.0 million from the private placement of Senior
Subordinated Series C Units discussed in Item 3.02, including approximately $9.0 million of equity
contributions from Crosstex Energy GP, L.P., the general partner of the Partnership and an indirect
subsidiary of Crosstex Energy, Inc., and $6.0 million of cash.
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| Item 2.03. |
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Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet
Arrangement of a Registrant. |
The information provided in Item 1.01 to this Current Report on Form 8-K is incorporated
herein by reference.
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| Item 3.02 |
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Unregistered Sales of Equity Securities. |
On June 29, 2006, to partially fund the Chief Acquisition, the Partnership privately issued
and sold 12,829,650 Senior Subordinated Series C Units representing limited partner interests of
the Partnership (the “Senior Subordinated Series C Units”), to Chieftain Capital Management,
Inc. (as agent and attorney-in-fact for the purchasers who are its clients under separate
investment advisor agreements), two closed-end funds sub-advised by Fiduciary Asset Management,
LLC, Kayne Anderson MLP Investment Company, Kayne Anderson Energy Total Return Fund, Inc., LB I
Group Inc., an affiliate of Lehman Brothers Inc., Tortoise Energy Infrastructure Corporation, Lubar
Equity Fund, LLC and Crosstex Energy, Inc. (collectively, the “Purchasers”) for a purchase price of
$28.06 per unit. The issuance and sale was made pursuant to a Senior Subordinated Series C Unit
Purchase Agreement, dated May 16, 2006, among the Partnership and the Purchasers. The purchase
price was determined by the Partnership and the Purchasers in an arms-length negotiation. Net
proceeds to the Partnership from the private placement, including the general partner’s
proportionate capital contribution and expenses associated with the sale, are expected to be
approximately $369.0 million.
The Senior Subordinated Series C Units will automatically convert into Common Units
representing limited partner interests of the Partnership on the first date on or after February
16, 2008 that conversion is permitted by the Fifth Amended and Restated Agreement of Limited
Partnership at a ratio of one Common Unit for each Senior Subordinated Series C Unit. If not able
to convert on February 16, 2008, then the holders of such units will have the right to receive,
after payment of the minimum quarterly distribution on our common units but prior to any payment on
our subordinated units, distributions equal to 110% of the quarterly cash distribution amount
payable on common units. The Senior Subordinated Series C Units will not be entitled to
distributions of available cash from the Partnership until February 16, 2008. The Senior
Subordinated Series C Units were issued and sold by the Partnership in a private transaction exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended.
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| Item 3.03 |
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Material Modification to Rights of Security Holders. |
On June 29, 2006, the Partnership entered into a Registration Rights Agreement with the
Purchasers relating to the registered resale of the Senior Subordinated Series C Units and the
Common Units issuable upon conversion of such Senior Subordinated Series C Units. For additional
information about the Registration Rights Agreement, see Item 1.01 of this Current Report on Form
8-K.
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| Item 5.03 |
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Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year. |
On June 29, 2006, in connection with the transactions described in Items 1.01, 2.01 and 3.02
above, Crosstex Energy GP, LLC, the general partner of Crosstex Energy GP, L.P., the general
partner of the Partnership, entered into the Fifth Amended and Restated Agreement of Limited
Partnership. For additional information about the Fifth Amended and Restated Agreement of Limited
Partnership, see Item 1.01 of this Current Report on Form 8-K. The Fifth Amended and Restated
Agreement of Limited Partnership is filed as an Exhibit to this Current Report on Form 8-K and is
incorporated herein by reference.
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| Item 7.01 |
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Regulation FD Disclosure. |
On June 29, 2006, the Partnership issued a press release announcing that it had completed the
Chief Acquisition. A copy of the press release is furnished as an Exhibit to this Current Report
on Form 8-K. In accordance with General Instruction B.2. of Form 8-K, the information set forth in
this Item 7.01 and in the attached Exhibit 99.1 are deemed to be furnished and shall not be deemed
to be “filed” for purposes of the Securities Exchange Act of 1934, as amended.
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| Item 9.01. |
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Financial Statements and Exhibits. |
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| EXHIBIT |
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DESCRIPTION |
3.1
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Fifth Amended and Restated Agreement of
Limited Partnership of Crosstex Energy, L.P.,
dated as of June 29, 2006. |
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4.1
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Registration Rights Agreement, dated as of
June 29, 2006, by and among Crosstex Energy,
L.P., Chieftain Capital Management, Inc.,
Energy Income and Growth Fund,
Fiduciary/Claymore MLP Opportunity Fund,
Kayne Anderson MLP Investment Company, Kayne
Anderson Energy Total Return Fund, Inc., LB I
Group Inc., Tortoise Energy Infrastructure
Corporation, Lubar Equity Fund, LLC and
Crosstex Energy, Inc. |
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10.1
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Second Amendment to the Fourth Amended and
Restated Credit Agreement, dated as of June
29, 2006, among Crosstex Energy, L.P., Bank
of America, N.A. and certain other parties. |
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10.2
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Letter Amendment No. 4 to Amended and
Restated Master Shelf Agreement, dated as of
June 29, 2006, among Crosstex Energy, L.P.,
Prudential Investment Management, Inc. and
certain other parties. |
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99.1
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Press Release issued June 29, 2006. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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CROSSTEX ENERGY, L.P. |
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By:
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Crosstex Energy GP, L.P., its General Partner |
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By:
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Crosstex Energy GP, LLC, its General Partner |
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Date: July 5, 2006
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By:
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/s/ William W. Davis |
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William W. Davis |
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Executive Vice President and Chief Financial Officer |
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INDEX TO EXHIBITS
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| EXHIBIT |
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| NUMBER |
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DESCRIPTION |
3.1
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Fifth Amended and Restated Agreement of
Limited Partnership of Crosstex Energy, L.P.,
dated as of June 29, 2006. |
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4.1
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Registration Rights Agreement, dated as of
June 29, 2006, by and among Crosstex Energy,
L.P., Chieftain Capital Management, Inc.,
Energy Income and Growth Fund,
Fiduciary/Claymore MLP Opportunity Fund,
Kayne Anderson MLP Investment Company, Kayne
Anderson Energy Total Return Fund, Inc., LB I
Group Inc., Tortoise Energy Infrastructure
Corporation, Lubar Equity Fund, LLC and
Crosstex Energy, Inc. |
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10.1
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Second Amendment to the Fourth Amended and
Restated Credit Agreement, dated as of June
29, 2006, among Crosstex Energy, L.P., Bank
of America, N.A. and certain other parties. |
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10.2
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Letter Amendment No. 4 to Amended and
Restated Master Shelf Agreement, dated as of
June 29, 2006, among Crosstex Energy, L.P.,
Prudential Investment Management, Inc. and
certain other parties. |
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99.1
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Press Release issued June 29, 2006. |