Image Source: Plains All American
“Quarterly distribution cuts for Plains All American and Plains GP Holdings will be 21% and 11%, respectively, which should come as no surprise to those who have been following our work.” — Kris Rosemann, Valuentum Securities
Plains All American (PAA) had previously hinted at a simplification transaction that will combine the economic interests of varying levels of partnership of its master limited partnership (MLP) business model in its 2016 Investor Day presentation, but the company has now entered into a definitive agreement to simplify its corporate governance. The end result of the deal will be one MLP security and one corporate security with pre-tax economic parity between the two. Plains All American will remain an MLP, while its publicly traded general partner Plains GP Holdings (PAGP) will be treated like a C-Corp with Form 1099 tax reporting structure, which preserves its unique tax attributes. The separate entities will be governed by one single board of directors.
Plains All American will issue 245.5 million new common units in exchange for the incentive distribution rights from Plains AAP LP, a private affiliate of its general partner entity, and the economic rights associated with the 2% interest of Plains GP Holdings in Plains All American. The firm will then use its credit facility to pay transaction costs and assume the $593 million in debt currently held by Plains AAP; Plains All American’s long-term debt will increase by $606 million as a result of the transaction. The deal will be considered a partnership-to-partnership exchange, meaning it is expected to be non-taxable, and the economic interest and incentive distribution rights of the privately-held general partner entity will effectively be cancelled upon closing, which is dependent on a majority vote by Plains GP Holdings Class A and B shareholders. The excerpt below from Plains All American’s presentation of the transaction provides an overview of the post transaction ownership and governance structure.
