Exit: Alinda sells Houston Fuel Oil Terminal Co for $2.1bn (corrected)


[Context: On June 6, Alinda Capital announced the sale of its Houston Fuel Oil Terminal Company for an enterprise value of approximately $2.1bn to SemGroup (NYSE:SEMG). The deal consists of a issuance of common shares, debt assumption, cash payment and a follow-on 2018 payment. Advisors and a link to a copy of the deal agreement are below.] (Correction: A previous version stated an enterprise value of $3.2bn.)

SemGroup Announces Agreement to Acquire Houston Fuel Oil Terminal Company

Immediately accretive, transformational acquisition

Acquisition Highlights

>> Premier position on the Houston Ship Channel with connectivity to the local refinery complex and inbound receipt capabilities from all major producing basins
>> Significantly enhances scale and diversifies business with refinery-facing, take-or-pay cash flows
>> Uniquely positioned to capitalize on shifting global commodity market trends
>> Enables SemGroup to capture low-risk growth opportunities
>> Advantageous financing structure aligns consideration with EBITDA growth
>> Highly stable cash flows support raising targeted dividend CAGR from 8% to 10% through 2020

TULSA, Okla., June 06, 2017 (GLOBE NEWSWIRE) — SemGroup® Corporation (NYSE:SEMG) today announced that it has executed a definitive agreement to acquire Houston Fuel Oil Terminal Company (“HFOTCO”), one of the largest oil terminals in the U.S., from investment funds managed by Alinda Capital Partners. This acquisition establishes SemGroup’s position in the premier energy market, the Houston Ship Channel.

The 16.8-million-barrel terminal is strategically located on the U.S. Gulf Coast with pipeline connectivity to the local refining complex, deep water marine access and inbound pipeline, rail and truck receipt capabilities from all major producing basins. The assets are located on 330 acres on the Houston Ship Channel, one of the most active trading centers for residual fuel oil and crude oil in the world. The business is fully supported by take-or-pay contracts with primarily investment-grade counterparties that have been customers for an average of 15 years. HFOTCO is currently executing on contractually supported growth projects, including a new ship dock, a new pipeline and connections, as well as an additional 1.45 million barrels of crude oil storage, expected to be in service mid-2018.

“This is a transformational acquisition that adds tremendous stability to our business and provides a dynamic platform for growth,” said SemGroup President and CEO Carlin Conner. “Consistent with our strategy to diversify our portfolio and become more refinery facing, HFOTCO brings a well-established base of high-quality, long-tenured customers. At the same time, the terminal’s premier location on the Houston Ship Channel provides deep water access and is well positioned to capture increasing export volumes. With the addition of HFOTCO, SemGroup will be uniquely positioned to capture the future trends in exporting crude oil and refined products resulting from the near and long-term anticipated growth in U.S. shale production.”

The total purchase consideration to acquire HFOTCO will consist of two payments. The first payment will be $1.5 billion at closing, including the assumption of an estimated $785 million of existing HFOTCO debt, and issuance of between $300 million to $400 million in common shares, at SemGroup’s election, to Alinda at $32.30 per share. The remainder of the initial payment will be funded in cash from SemGroup’s revolving credit facility. The second payment will consist of an additional $600 million which will be paid in cash before the end of 2018, which aligns consideration with EBITDA growth. SemGroup will have no obligation to make the second payment, which instead will be an obligation of its acquisition subsidiaries and secured by a pledge of the equity interests in such subsidiaries. The purchase price will be subject to customary adjustments.

Chris Beale, Managing Partner of Alinda Capital Partners, commented: “The HFOTCO management team has done an excellent job of growing and diversifying a world-class terminal business. We believe that adding this asset to SemGroup’s portfolio is a great way to leverage customer relationships, strengthen both businesses and create additional shareholder value.”

The acquisition is expected to close in the third quarter of 2017, subject to the receipt of certain governmental approvals and the satisfaction of other customary closing conditions.

SemGroup intends to maintain HFOTCO’s workforce and anticipates that the company’s approximately 125 employees will become members of the SemGroup family upon the transaction’s close.

“A large part of HFOTCO’s success has been its outstanding team,” Conner said. “We’re looking forward to these talented employees becoming part of the SemGroup team.”

Senior management at both SemGroup and HFOTCO have several decades of combined experience managing terminalling and logistics assets in the U.S. and abroad. SemGroup currently operates 7.6 million barrels of crude oil storage in Cushing and another 8.7 million barrels of multi-product storage in Milford Haven, U.K. Prior to SemGroup, CEO Carlin Conner spent more than 20 years in the terminal industry, most recently as managing director of Oiltanking GmbH, an independent worldwide storage provider based in Germany.

Financial Guidance

SemGroup is reaffirming its previously announced 2017 Adjusted EBITDA guidance of between $270 million and $310 million and 4Q 2017 run rate of between $325 million and $340 million on its existing business. Assuming an early third quarter close, management expects HFOTCO to contribute between $60 million and $65 million of additional Adjusted EBITDA during 2017. Including projects scheduled to be placed into service during 2018 and 2019, management anticipates HFOTCO 2018 Adjusted EBITDA of $135 million to $145 million growing to $180 million to $190 million in 2019. SemGroup does not provide guidance for net income, the GAAP financial measure most directly comparable to the non-GAAP financial measure Adjusted EBITDA, because Net Income includes items such as unrealized gains or losses on derivative activities or similar items which, because of their nature, cannot be accurately forecasted. We do not expect that such amounts would be significant to Adjusted EBITDA as they are largely non-cash items.

Management expects to increase capital expenditures from $500 million to $575 million in 2017. Management continues to expect year-end 2017 covenant compliance leverage of 4.5x to 4.75x, assuming no ATM issuance.

In December 2017, management expects to recommend to the Board of Directors a dividend increase of 10 percent on an annualized basis. SemGroup is raising its targeted dividend CAGR from 8 percent to 10 percent through 2020.

Advisors [Link to copy of deal agreement]

Credit Suisse Securities (USA) LLC served as SemGroup’s exclusive financial advisor on the transaction. Vinson & Elkins LLP and Gibson, Dunn & Crutcher LLP served as legal advisors to SemGroup. Simpson Thacher & Bartlett LLP served as legal advisor to Alinda Capital Partners.

Supplemental Slide Presentation

A slide presentation supplementing this press release is posted on SemGroup’s Investor Relations website at www.semgroupcorp.com.

Conference Call Timing

SemGroup will host a conference call for investors at 8:30 a.m. Eastern today, June 6, 2017. The call can be accessed live over the telephone by dialing 855-239-1101, or for international callers, 412-542-4117. Interested parties may also listen to a simultaneous webcast of the conference call by logging onto SemGroup’s Investor Relations website at www.semgroupcorp.com. A replay of the webcast will be available following the call.

About SemGroup

Based in Tulsa, Okla., SemGroup® Corporation is a publicly traded midstream service company providing the energy industry the means to move products from the wellhead to the wholesale marketplace. SemGroup provides diversified services for end users and consumers of crude oil, natural gas, natural gas liquids, refined products and asphalt. Services include purchasing, selling, processing, transporting, terminalling and storing energy.

SemGroup uses its Investor Relations website and social media outlets as channels of distribution of material company information. Such information is routinely posted and accessible on our Investor Relations website at www.semgroupcorp.com, our Twitter account and LinkedIn account.

About Houston Fuel Oil Terminal Company

Houston Fuel Oil Terminal Company stores, blends and transports residual fuel and crude oil via pipeline, ship, barge, rail and truck for major oil companies, refiners, international trading firms and other energy companies. Storage is divided among 144 tanks ranging in size from 10 thousand barrels to 400 thousand barrels. The facility also includes multiple receipt and delivery pipelines, four ship docks with a fifth under construction, as well as seven barge docks able to accommodate 23 barges simultaneously.

About Alinda Capital Partners

Alinda Capital Partners is one of the world’s largest and most experienced infrastructure investment firms. Alinda is a long-term investor in infrastructure assets that provide essential services to communities. Alinda has $10 billion of assets under management and has invested in infrastructure businesses that operate in 33 states in the United States as well as in Canada, the United Kingdom, the Netherlands, Belgium and Poland. These businesses serve over 100 million customers annually in more than 550 cities globally, and are run by a workforce of over 80,000 people.