US barge operator
K-Sea Transportation Partners L.P. has announced that it has entered into a definitive agreement with
KA First Reserve, LLC - a partnership between First Reserve and Kayne Anderson Capital Advisors - whereby KA First Reserve will invest up to $100 million in cash in exchange for approximately 18.4 million convertible preferred units.
All of the proceeds from the sale of the preferred units will be used to reduce outstanding debt and pay fees and expenses related to the transaction.
The investment is expected to close in two steps in September upon completion of all applicable closing conditions. The closing in respect of the first $85 million is expected to occur in early September and the remaining $15 million is expected to close within the thirty days following clearance of the Hart-Scott-Rodino review period.
In conjunction with the preferred unit investment, K-Sea has also executed amendments to its revolving credit facility and term loans. These amendments will become effective upon closing of KA First Reserve's initial $85 million investment.
The amendment to the revolving credit facility reduces the lenders' commitments from $175 million to $115 million; amends the financial covenants; maintains a July 1, 2012 maturity date; and allows the company to pay distributions subject to certain minimum financial ratios.
After applying the expected net proceeds of the $100 million preferred unit investment, the company's total funded debt as of September 1, 2010 was $279.2 million on a pro forma basis, which represents a ratio of funded debt to EBITDA (as defined in the revolving credit agreement) of 4.3 times fiscal year 2010 EBITDA.
The preferred units will have a coupon of 13.5%, with payment-in-kind distributions through the quarter ended June 30, 2012 or, if earlier, when the company resumes cash distributions on its common units.
The preferred units convert on a unit-for-unit basis into common units at KA First Reserve's option. They were were priced at $5.43 per unit, which represents a 10% premium to the 5-day volume weighted average price of K-Sea's common units as of August 26, 2010.
K-Sea will have an option to force conversion after three years if the price of K-Sea's common units is 150% of the conversion price on average for 20 consecutive days on a volume-weighted basis.
In connection with the investment, KA First Reserve will also appoint three directors to the board of K-Sea's general partner and will be granted the right to acquire a 35% interest in the entity that owns the company's incentive distribution rights (IDRs). Upon closing of the first Preferred unit investment, the partnership's board will be expanded from six members to nine members. KA First Reserve's designees to join the board are Gary Reaves of First Reserve and Kevin McCarthy and Jim Baker of Kayne Anderson.
Commenting on the agreement, President and CEO
Timothy J. Casey said, "We are very pleased with our new association with First Reserve and Kayne Anderson. These organizations have a wealth of experience and expertise in the MLP and energy businesses. Their decision to invest in us is a testimony to K-Sea's leading industry position and the strength of our Company. With our balance sheet recapitalization behind us, we will be able to focus on operations, results and new opportunities. We remain convinced the domestic market for marine transportation of refined petroleum products will rebound significantly when demand recovers and single hull vessels leave the market permanently."
"As we stated on our last conference call, we continue to concentrate on cost control and eliminating low-return assets. On the latter point, we have a definitive agreement to sell two tugboats and our two oldest double-hulled barges to an international buyer, and we have a definitive agreement to sell our environment services property in Norfolk, Virginia. Both transactions should close in the September 2010 quarter."
"Even though our practice is not to forecast results, we would like to provide some commentary on the first quarter ending September 30, 2010. Our results will benefit from having eight of our vessels, including five single hull units, working in the U.S. Gulf as part of the oil spill clean-up effort. These vessels will be employed for most of the quarter. We expect that at least one-half of the units will be off charter by the middle of September. Also, we expect to record a modest gain on the aforementioned asset sales."
