El Paso Pipeline Partners, L.P. announced that it has agreed to acquire an additional 30-percent interest in Colorado Interstate Gas Company (CIG) and an additional 15-percent interest in Southern Natural Gas Company (SNG) from El Paso Corporation for $736 million. The acquisition will increase El Paso Pipeline Partners' interest in CIG to 40 percent and its interest in SNG to 25 percent.
"We are delighted to announce the partnership's first acquisition from El Paso Corporation," said Jim Yardley, president and chief executive officer for the general partner of El Paso Pipeline Partners. "The partnership is acquiring additional interests in premier market- and supply-related pipeline assets that generate stable cash flows. This purchase improves an already excellent organic growth platform. Based solely on our current backlog of committed growth projects, we expect to achieve 8- to 10-percent average annual growth in distributable cash flow through 2012."
In conjunction with the acquisition, El Paso Pipeline Partners announced an agreement for $175 million of private placement debt with an average annual rate of 7.6 percent, due 2011 through 2013. At closing, the acquisition will be financed with the private placement, $65 million from the partnership's existing revolving credit facility, a $10 million note to El Paso and 27,761,611 common units, all of which will be issued to El Paso. With the issuance of the additional units, El Paso's ownership of limited partner units will increase from 65 percent to 73 percent. The general partner will acquire 0.6 million general partner units for $10 million, maintaining its 2-percent interest.
"This transaction demonstrates El Paso's alignment with unitholders and our commitment to grow the partnership," said Doug Foshee, president and chief executive officer of El Paso Corporation.
As a result of the increased distributable cash flow expected to result from the acquisition, management intends to recommend to the Board of Directors of the general partner an increase in the quarterly cash distribution to $0.32 per unit, beginning with the distribution to be declared and paid in the first quarter 2009. This represents an 8.5-percent increase from the current quarterly rate of $0.295 per unit and an 11.3-percent increase above the partnership's original minimum quarterly distribution rate.
The transaction is effective July 1, 2008 and will close contemporaneously with the closing of the debt financing, which is expected by September 30, 2008.
The terms of the transaction were unanimously approved by El Paso Pipeline GP Company, L.L.C.'s Board of Directors, based in part on the unanimous approval and recommendation of the Board's conflicts committee, which is comprised entirely of independent directors. The conflicts committee engaged Tudor, Pickering, Holt & Co. to act as its financial advisor and to render a fairness opinion.
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