Eagle Rock To Sell Midstream Unit To Regency Energy Partners For Upto $1.325 Bln

(RTTNews) - Eagle Rock Energy Partners L.P. (EROC) announced Monday that it has entered into a definitive agreement to contribute its midstream business to Regency Energy Partners LP (RGP) for total consideration of up to $1.325 billion.

The transaction has been unanimously approved by the Board of Directors.

Eagle Rock said it will receive total consideration of up to $1.325 billion, subject to certain closing conditions, consisting of $200 million of newly-issued Regency common units and a combination of cash and assumed debt.

According to Eagle Rock Partners, Regency will conduct an offer to exchange Eagle Rock's $550 million of outstanding senior unsecured notes into an equivalent amount of Regency senior unsecured notes with the same tenor, coupon and a comparable covenant package. The cash portion of the purchase price will be reduced by the amount of notes exchanged subject to a 10% adjustment factor such that if all $550 million of bonds are exchanged, the total consideration will equal $1.27 billion ($1.325 billion less $55 million) consisting of $200 million in Regency units, $550 million of assumed debt and $520 million of cash proceeds.

The transaction is expected to close in the first half of 2014.

Eagle Rock Energy Partners noted that it plans to use the cash proceeds from the contribution of its midstream business to pay down borrowings under its revolving credit facility.

In light of the expected cash flow accretion from the Eagle Rock transaction, Regency said it expects to recommend to its board of directors distribution increases that would represent a growth rate of 6-8% for full-year 2014. The recommended increases are subject to board approval based on Regency's future operating results, including the performance of the acquired business.

In a separate press release, Regency Energy Partners LP announced plans to purchase the midstream assets of Hoover Energy Partners LP, valuing the deal at about $290 million.

Hoover's midstream services include crude oil gathering, transportation and terminaling, condensate handling, natural gas gathering, treating, processing, and water gathering and disposal services. The Perry Ranch Station is a major destination for crude gathered by a customer in the region and is backed by a 20-year dedication. In addition, Hoover's Delaware Water System is the only open-access water gathering and disposal system in the Delaware Basin.

Regency Energy Partners noted that it expects the acquisition to be accretive in 2014 and to finance the acquisition by issuing about $98 million of Regency common units to Hoover. The remaining portion of the consideration will be funded from borrowings under Regency's revolving credit facility. The acquisition is expected to close in the first quarter of 2014, and is subject to Hart-Scott-Rodino Antitrust Improvements Act approval and other customary closing conditions.