OGE, CenterPoint to fund MLP joint venture with $2.45 billion of loans

By Lisa Kerner and Angela McDaniels

Charlotte, N.C., March 15 - OGE Energy Corp. and CenterPoint Energy, Inc. announced an agreement to form a master limited partnership to compete in the rapidly growing midstream market That joint venture plans to enter into a $1.05 billion three-year term loan and $1.4 billion five-year revolving credit facility, according to an 8-K filing with the Securities and Exchange Commission.

The partnership will include CenterPoint's interstate pipelines and field services businesses and the midstream business of Enogex LLC, owned jointly by subsidiaries of OGE and Arclight.

The new partnership is in the process of syndicating a new $1.4 billion credit facility to support the liquidity needs of the joint venture, said CenterPoint executive vice president and chief financial officer Gary Whitlock.

In addition, the partnership will obtain a three-year $1.05 billion term loan at market rates, which will be used to pay off about $362 million of debt of CenterPoint's subsidiary CenterPoint Energy Resources Corp.

"The MLP will allow access to capital on an attractive basis and consistent with other competitors in this space," said CenterPoint Energy president and chief executive officer David McClanahan.

"We believe this partnership will have the attributes of a strong MLP: scale, diversity and growth, with consistent and predictable cash flows."

McClanahan added: "We plan to capitalize this company on a conservative basis with investment grade credit metrics."

"Our plan is to capitalize the company in a very conservative manner at about 2.5 times debt to EBITDA," Whitlock stated.

"We are committed to taking the necessary steps to execute an initial public offering of the MLP which subject to market conditions and legal requirements, we hope to complete within 6 to 12 months after the transaction is closed," McClanahan said.

Commitment from Citi, UBS

CenterPoint and Enogex LLC have signed commitment letters for the loans with Citigroup Global Markets, Inc., UBS Securities LLC and UBS Loan Finance LLC.

Citigroup and UBS Loan Finance have committed to providing the full amount of the term loan but have the ability to syndicate their commitments to additional lenders to be determined following a syndication process that is currently underway.

Citigroup and UBS Loan Finance will provide $400 million of the revolver.

Citigroup and UBS Securities are the joint lead arrangers and joint bookrunners. A Citigroup affiliate will act as administrative agent.

The interest rate will be based on the joint venture's leverage until it is assigned ratings. The interest rate will be Libor plus 175 basis points to 300 bps based on leverage or Libor plus 125 bps to 200 bps based on ratings. The commitment fee for the revolver will be 25 bps to 50 bps based on leverage or 15 bps to 35 bps based on ratings.

The companies expect the joint venture to be rated investment grade.

CenterPoint Energy Resources Corp., a CenterPoint subsidiary, will provide a guarantee for the term loan but not the revolver.

Up to $400 million of the revolver will be available for letters of credit, and up to $100 million will be available for swingline loans.

The proceeds of the term loan will be used for general corporate purposes and to repay debt owed to CenterPoint Energy Resources.

The revolver will be used for general corporate purposes, to refinance Enogex's credit facility and to refinance obligations owed by Enogex to OGE Energy.

OGE Energy and CenterPoint plan to form the joint venture with Bronco Midstream Holdings, LLC and Bronco Midstream Holdings II, LLC, which are two affiliates of ArcLight Capital Partners, LLC. The joint venture will own and operate the midstream businesses of OGE Energy and CenterPoint Energy Resources.

Transaction details

The proposed transaction has been approved by the board of directors of CenterPoint and OGE, as well as ArcLight.

Formation of the partnership is expected to close in the second or third quarter of 2013.

A general partner will manage the partnership. CenterPoint and OGE will share the governance of the general partner on an equal basis.

CenterPoint Energy, OGE and ArcLight will have 59%, 28% and 13% limited partner interest in the partnership, respectively. CenterPoint and OGE will hold 40% and 60% interests, respectively, in the incentive distribution rights of the general partner.

The new partnership will own and operate 8,400 miles of interstate pipelines with nearly 9 billion cubic feet of transport capacity and nearly 2,300 miles of intrastate pipelines. It will have more than 90 billion cubic feet of natural gas storage capacity and 11 major processing plants with nearly 2 billion cubic feet per day of inlet capacity.

CenterPoint is a Houston-based energy delivery company. OGE, based in Oklahoma City, is the parent company of Oklahoma Gas and Electric Company, a regulated electric utility.

Enogex, an OGE Energy Co., owns and operates nearly 2,300 miles of intrastate natural gas transportation pipelines in Oklahoma.

ArcLight Capital Partners, LLC is an energy-focused private equity investment firm based in Boston.

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