PE-backed Niska completes equity restructuring

Niska Gas Storage Partners LLC, an owner and operator of natural gas storage with offices in Calgary, Alberta and Houston, Texas, recently completed an equity restructuring with private equity backer Carlyle/Riverstone Energy Holdings. As a result of the restructuring, Carlyle/Riverstone’s ownership of the company (excluding previous and new incentive distribution rights) decreased from 74.9% to 50.3%. Carlyle/Riverstone acquired Niska, formerly a division of EnCana Corp., for $1.7 billion in 2006.

PRESS RELEASE:

Niska Gas Storage Partners LLC (NYSE: NKA) (“Niska” or the “Company”) announced today the completion of an equity restructuring with affiliates of Carlyle/Riverstone Energy and Power Fund II and Carlyle/Riverstone Energy and Power Fund III (collectively the “Carlyle/Riverstone Funds”). In the restructuring, Niska’s 33.8 million subordinated units and previous incentive distribution rights (all of which were owned by the Carlyle/Riverstone Funds) were combined into and restructured as a new class of Incentive Distribution Rights (referred to herein as the new IDRs). The equity restructuring, which does not require any further consents or approvals, is effective today. The transaction was unanimously approved by Niska’s Board of Directors, on the unanimous approval and recommendation of its Conflicts Committee, which is composed solely of independent directors.

The restructuring permanently eliminates Niska’s subordinated units and previous incentive distribution rights in return for the new IDRs. Prior to completion of the restructuring, Niska would have been required to pay the full minimum quarterly distribution of $0.35 per unit on the subordinated units (requiring additional distributions of approximately $12 million per quarter) prior to increasing the quarterly distribution on Niska’s common units. Quarterly distributions on the subordinated units had been suspended since November 2011.

The new IDRs entitle the Carlyle/Riverstone Funds to receive 48 percent of any quarterly cash distributions by the Company after Niska’s common unit holders have received the full minimum quarterly distribution (still $0.35 per unit) for each quarter plus any arrearages from prior quarters (of which there are currently none). The prior incentive distribution rights provided for the Carlyle/Riverstone Funds to receive increasing percentages (ranging from 13 percent to 48 percent) of incremental cash distributions after Niska’s unit holders (both common and subordinated) exceeded quarterly distributions ranging from $0.4025 per unit to $0.5250 per unit. In addition, for a period of five years, and provided that the Carlyle/Riverstone Funds continue to own a majority of both Niska’s managing member and the new IDRs, the Carlyle Riverstone Funds will be deemed to own 33.8 million “Notional Subordinated Units” in connection with votes to remove and replace Niska’s managing member. These Notional Subordinated Units are not entitled to distributions, but merely preserve the Carlyle/Riverstone Fund’s voting rights with respect to removal of the managing member. Tables summarizing the changes in incentive distributions are provided below.

After completion of the restructuring, Niska has 34.5 million common units issued and outstanding, of which 17.5 million are owned by the public and 17.0 million are owned by the Carlyle/Riverstone Funds. The Carlyle/Riverstone Funds also own a 1.98 percent managing member interest in the Company. As a result of the restructuring, the percentage ownership in the Company owned by the Carlyle/Riverstone Funds (excluding the previous incentive distribution rights and the new IDRs, which are a variable interest) has decreased from approximately 74.9 percent to approximately 50.3 percent.

“This equity restructuring better positions Niska for distribution growth and is an important step in Niska’s efforts to increase potential returns to its common unit holders,” said Simon Dupéré, President and Chief Executive Officer. Mr. Dupéré continued, “This restructuring eliminates the requirement to pay the subordinated unit distribution prior to increasing distributions on our common units. Niska’s common units, over half of which are held by the public, can now participate in any distribution increases declared by our Board of Directors. Prior to the restructuring, the first $12 million of incremental quarterly cash distributions above the minimum quarterly distribution paid to our common unitholders would have been payable to the subordinated units held by the Carlyle/Riverstone Funds.” Mr. Dupéré stated further, “This restructuring demonstrates continued support from our private equity sponsor and more clearly aligns the interests of the Carlyle/Riverstone Funds with those of our public common unit holders. We believe the elimination of the potential distributions to subordinated units also enhances Niska’s access to the equity capital markets, if required.”

The following table sets forth the quarterly distribution allocations before and after the restructuring:

Previous Structure
Total Quarterly Distribution per Unit Target Amount Marginal Percentage Interest in Cash Distributions
Common Unit holders Managing Member Subordinated Units & IDR’s
Minimum Quarterly Distribution $0.35 49.50% 1.98% 48.52%
First Target Distribution Above $0.35 up to $0.4025 49.50% 1.98% 48.52%
Second Target Distirbution Above $0.4025 up to $0.4375 42.93% 1.98% 55.09%
Third Target Distirbution Above $0.4375 up to $0.5250 37.89% 1.98% 60.13%
Thereafter Above $0.5250 25.26% 1.98% 72.76%

New Structure
Total Quarterly Distribution per Unit Target Amount Marginal Percentage Interest in Cash Distributions
Common Unit Holders Managing Member IDR Holder
Minimum Quarterly Distribution $0.35 98.02% 1.98% –
Thereafter above $0.35 50.02% 1.98% 48.00%

About Niska

Niska is the largest independent owner and operator of natural gas storage in North America, with strategically located assets in key natural gas producing and consuming regions. Niska owns and operates three facilities, including the AECO HubTM in Alberta, Canada; Wild Goose in California; and Salt Plains in Oklahoma. Niska also contracts for gas storage capacity on the Natural Gas Pipeline Company of America system. In total, Niska owns or contracts for approximately 225.5 Bcf of gas storage capacity.

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