Southcross Energy Partners LP and Southcross Holdings LP have secured $175 million in funding. The investors were Charlesbank Capital Partners, EIG Global Energy Partners and Tailwater Capital. Dallas-based Southcross Holdings owns and operates midstream energy assets while Southcross Energy Partners LP is a master limited partnership.
DALLAS–(BUSINESS WIRE)–Southcross Energy Partners, L.P. (NYSE:SXE) (“Southcross”) and Southcross Holdings LP (“Holdings”) today announced a new $175 million equity commitment and provided additional detail into distribution coverage and future drop-down plans.
Significant Sponsor Commitment
Charlesbank Capital Partners, EIG Global Energy Partners and Tailwater Capital (collectively, the “Sponsors”) provided a new $175 million equity commitment to enhance liquidity and support anticipated growth initiatives for Southcross and Holdings.
Of the total, $50 million is committed to Southcross and will be funded as needed to pursue significant growth opportunities that currently exist in the Eagle Ford, including both accretive organic capital projects and strategic acquisitions. The new capital is also available for potential future covenant cures and asset drop-downs from Holdings. The capital is expected to be structured to minimize any potential dilution of existing common unit holders.
The remaining $125 million will be directed to Holdings and utilized to enhance the inventory of drop-down assets available to Southcross. Holdings owns 100% of Southcross Energy Partners GP, LLC, the general partner of Southcross, limited partner interests in Southcross and several key Eagle Ford midstream assets. The capital that is committed to Holdings is also available for direct investment in Southcross for future growth projects.
“This recent capital commitment by the Sponsors reflects our continued belief in the significant growth opportunities at Southcross and our support of the management team,” said Jon Biotti of Charlesbank Capital Partners. While the new commitment is expected to be sufficient to meet forecasted growth capital needs through 2016, the Sponsors have stated a willingness and a desire to provide incremental capital as needed to fund additional growth projects. “The Sponsors are committed to pursuing development projects and acquisitions structured in a way that is accretive to the Southcross unitholders,” stated Wallace Henderson, Managing Director of EIG Global Energy Partners. Jason Downie of Tailwater Capital added, “We will continue to work closely with the Southcross management team to drive growth through the current commodity price environment.”
Path to Sustained Distribution Coverage
Southcross expects to achieve a coverage ratio of greater than 1.0x on current outstanding common units in the fourth quarter of 2015 and throughout fiscal year 2016, assuming the current quarterly distribution of $0.40 per common unit. Southcross does not believe that growth in processed gas volumes is required to generate quarterly adjusted EBITDA sufficient to exceed 1.0x coverage, even without the benefit of potential additional drop-downs. The sustainability of coverage is supported by gross margins that are nearly 90% driven by fixed-fee and fixed-spread agreements and do not have direct commodity exposure.
Further, Southcross expects to exceed 1.0x coverage including outstanding subordinated units (but excluding outstanding Class B PIK units) by the end of 2016. Southcross believes there is a clear path to grow processed gas volumes in the current commodity price environment and in turn deliver distributable cash flow growth and reduce financial leverage. This outlook is grounded on management’s ongoing discussions with current and prospective customers and is further reinforced by Southcross’ fully integrated system of assets and the competitive advantages of its end-market positioning in the Corpus Christi area.
“The strength of the Southcross Advantage and our focus on customer service and relationships drives our ability to add gas to our system from both new and existing customers,” said John Bonn, President and Chief Executive Officer of Southcross’ general partner.
Dedicated Growth Inventory
Holdings maintains a robust inventory of assets that are well-suited to be dropped down to Southcross. These include the Robstown Fractionator, the Lancaster gathering system, a 100 MMcf/d treating facility, and two strategically placed NGL pipelines. The assets are well-situated geographically in the Eagle Ford shale and are interconnected with the existing Southcross system. Several projects are currently underway to further enhance the value of these assets. Train A of the Robstown Fractionator is expected to be operational in September 2015 and will increase the facility’s capacity to 63,000 Bbls/d. Expansion of the Lancaster treating facility, which will double its capacity, is anticipated to be completed in the third quarter of 2016. Based on the treating and fractionation capacity for these assets, the estimated annual adjusted EBITDA potential is in excess of $100 million.
Southcross is targeting to complete a drop-down every four to six months, subject to market conditions and the anticipated ramp in volumes for the Holdings assets. Southcross expects that the drop-down of these assets could be completed as early as mid-2017.
About Southcross Energy Partners, L.P.
Southcross Energy Partners, L.P. is a master limited partnership that provides natural gas gathering, processing, treating, compression and transportation services and NGL fractionation and transportation services. It also sources, purchases, transports and sells natural gas and NGLs. Its assets are located in South Texas, Mississippi and Alabama and include four gas processing plants, two fractionation plants and approximately 3,100 miles of pipeline. The South Texas assets are located in or near the Eagle Ford shale region. Southcross is headquartered in Dallas, Texas. Visit www.southcrossenergy.com for more information.