Eagle Rock Energy Partners LP said Friday it has agreed to sell its mineral business and take other steps, including a rights offering, to simplify its capital structure.
Eagle Rock Energy Chairman and CEO Joseph A. Mills said the actions will provide near-term liquidity and offer protection against another economic downturn.
Among the provisions in the global transaction and mineral business agreements are:
_ An option that would allow Eagle Rock to capture the value of its controlling interest through acquiring its general partner and the 844,551 general partner units outstanding. It would be exercisable by the issuance of 1,000,000 newly-issued common units.
_ The sale of the minerals business to Black Stone Minerals for $174.5 million in cash.
_ A rights offering in which Natural Gas Partners VII LP will participate with respect to 9.5 million common and general partner units it controls.
_ The simplification of the capital structure through the contribution, and cancellation, of Eagle Rock's existing incentive distribution rights and 20.7 million subordinated units held by NGP.
For up to five months following approval of the global transaction agreement, NGP has committed to backstop up to $41.6 million, at a price of $3.10 per unit, an Eagle Rock equity offering to be undertaken at the option of the partnership's conflicts committee.
Eagle Rock will pay NGP a $29 million transaction fee upon completion of the equity offering or expiration of the backstop commitment.
Completion of an initial restructuring is expected to occur in the first half of 2010 subject to closing conditions, including approval of a majority of the common units held by non-affiliates of NGP.
Eagle Rock said the sale of the minerals business and full exercise of the rights offering would generate about $225 million of potential debt reduction before transaction fees under the partnership's revolving credit facility.
The Eagle Rock board of directors has recommended approval to public unitholders of Eagle Rock.
The announcement came after the markets closed Monday. Shares of Eagle Rock closed up 46 cents, or 10.2 percent, to $4.96 and rose an additional 7 cents in after-hours trading.