Inter Pipeline Announces Corporate Restructuring and Distribution Increase
CALGARY, ALBERTA -- (Marketwired) -- 06/03/13 -- Inter Pipeline Fund
("Inter Pipeline") (TSX:IPL.UN) announced today that it has completed
several internal transactions related to the restructuring of its
current limited partnership structure to position the business for a
planned conversion to a corporate form. Inter Pipeline has indirectly
purchased Pipeline Management Inc, its General Partner, for initial
consideration valued at $170 million, plus adjustments, and a future
second instalment valued at $170 million which is partly contingent
on the outcome of certain organic growth projects currently under
development. These transactions (the "Internalization Transactions")
have been designed to eliminate all future management, acquisition,
divestiture and incentive fees payable to an external manager.
In conjunction with the Internalization Transactions, Inter Pipeline
has announced a distribution increase of $0.03 per unit on an
annualized basis. Unitholders of record as of June 21, 2013 will be
eligible for Inter Pipeline's new, higher level of cash distributions
with initial payment on or about July 15, 2013. This increase will
result in annual distribution payments of $1.14 per unit.
David Fesyk, President and Chief Executive Officer, commented, "The
transactions announced today represent a positive step forward for
our business. They are part of a broader plan to convert to a
corporation and capture related benefits, including broader access to
capital markets and certain changes to current corporate governance
practices. The purchase of Inter Pipeline's General Partner has been
structured on terms that help ensure immediate and long-term
accretion to cash flow, as is evidenced by the board's decision to
increase cash distributions payable to unitholders."
Background Inter Pipeline is structured as a publicly-traded limited
partnership. The business is managed by its General Partner
which is paid certain fees based on operating cash flow
results, acquisition and divestiture activity and incentive
fees. The Internalization Transactions have been designed to
eliminate all fees payable to an external manager. In 2012,
the General Partner was paid combined fees of $18.4 million.
Incentive fees are based on a sliding scale that increasingly
rewards the General Partner for cash distributions paid above
certain thresholds. For example, the General Partner is
entitled to 15% of incremental distributions above $1.01 per
unit, 25% of incremental distributions above $1.10 per unit
and 35% of incremental distributions above $1.19 per unit.
In making its decision to complete the Internalization
Transactions, the board carefully considered Inter Pipeline's
organic growth projects under development, the probability of
future distribution increases and the magnitude of incentive
fees that would become payable to the General Partner. Based
on Inter Pipeline's anticipated growth profile, base
management and incentive fees payable to the General Partner
could reasonably be expected to exceed $50 million annually
within the next 5 years.
Strong Inter Pipeline is currently advancing over $2.7 billion in
Organic large-scale organic development projects within its oil sands
Growth transportation business segment. These projects involve major
Profile capacity expansions and facility enhancements on both the Cold
Lake and Polaris pipeline systems, all of which have been
publicly announced and commercially secured.
As new construction projects are completed over the next 5
years, they are expected to generate over $335 million in
incremental annual long-term EBITDA. For perspective, Inter
Pipeline generated total EBITDA of $573 million in 2012. The
oil sands expansion projects under active development will
significantly increase cash available for distribution,
resulting in expected annual accretion of approximately $0.41
Payment Under the Internalization Transaction agreements, Inter
Structure Pipeline has indirectly purchased all outstanding shares of
Pipeline Assets Corp. ("PAC"), the owner of Inter Pipeline's
General Partner, Pipeline Management Inc. ("PMI"). The initial
consideration is valued at $170 million, plus adjustments of
approximately $8.6 million to reflect the market value of the
279,469 Class B limited partnership units held by the General
Partner, fees earned by PMI prior to closing and working
A second instalment valued at $170 million will be made once
Inter Pipeline becomes entitled to receive revenue from both
the FCCL Foster Creek and FCCL Christina Lake expansion
projects which are currently under construction. These large
scale expansion projects involve the integration of
transportation services on the Cold Lake and Polaris pipeline
systems at an estimated capital cost $2.35 billion. New
diluent delivery services to the Foster Creek and Christina
Lake projects are expected to be operational in mid 2014 and
new bitumen blend facilities in support of the Foster Creek
project are expected to be in service in early 2015. The FCCL
Partnership is a business venture between Cenovus Energy and
In the event that the Foster Creek and Christina Lake projects
are not both generating revenue by January 1, 2017, the value
of the second instalment will be reduced to $70 million.
PAC's shareholders have agreed to accept all consideration in
the form of preferred shares rather than cash. These shares,
issued by a new corporation established for the purpose of the
Internalization Transactions, will carry a value that
parallels the market price of Inter Pipeline's Class A limited
partnership units. It is anticipated that the preferred shares
issued in relation to the initial payment will be exchanged
for common shares of Inter Pipeline's successor upon
unitholder approval of a corporate conversion later in 2013.
Similarly, it is anticipated that the preferred shares issued
in relation to the second instalment will ultimately be
converted into common shares of Inter Pipeline's corporate
successor upon the earlier of revenue commencement from the
two identified oil sands expansion projects or January 1,
Furthermore, PAC shareholders are prevented from selling any
of their equity holdings related to the initial payment within
6 months of exchange into common shares of Inter Pipeline's
Accretion and The elimination of external management fees in exchange for
Fairness the negotiated payment structure results in an immediately
Opinion accretive transaction. Splitting the internalization purchase
price into two instalment payments, the latter tied to the
revenue commencement dates of certain projects under
construction, will help ensure long-term accretion. Inter
Pipeline expects the Internalization Transactions to generate
annual long-term accretion of $0.06 per unit relative to cash
available for distribution. Inter Pipeline's board decision to
increase distributions by $0.03 per unit is fully supported by
the stand-alone economics of the Internalization Transactions.
A Special Committee of the PMI board, chaired by Inter
Pipeline's lead independent director and comprised solely of
independent directors, reviewed and negotiated the transaction
on behalf of Inter Pipeline. The Special Committee determined
that the internalization payment is reasonable in lieu of the
future fees that will no longer be payable to an external
manager under the existing limited partnership agreement.
TD Securities Inc., as financial advisor to the Special
Committee, delivered an opinion which confirmed that the
consideration paid to acquire the General Partner is fair to
Inter Pipeline's unitholders from a financial point of view.
CIBC World Markets acted as financial advisor to PAC.
Improved The Internalization Transactions have been designed to allow
Corporate Inter Pipeline to move forward with a more transparent and
Governance investor-friendly form of corporate governance. Effective
immediately, the composition of the PMI board has changed
through the elimination of two board seats formerly held by
non-independent directors. The board is now comprised of the
five independent directors, Messrs. Shaw, Brown, Keinick,
Robertson, and Sangster, as well as Mr. Fesyk, Inter
Pipeline's President and Chief Executive Officer, and Mr.
Driscoll, PMI's Chairman. In addition, Inter Pipeline intends
to appoint a new independent chairman of the board upon the
retirement of John F. Driscoll expected by year-end 2013.
No immediate changes to Inter Pipeline's management team are
contemplated as a result of the Internalization Transactions.
Bill van Yzerloo, Inter Pipeline's Chief Financial Officer,
has advised Inter Pipeline of his intention to retire in the
first quarter of 2014, following the release of Inter
Pipeline's 2013 financial results.
Upon unitholder approval of a conversion to a corporate form,
Inter Pipeline will begin holding Annual General Meetings
during which directors will be elected by shareholders.
Planned Inter Pipeline intends to seek unitholder approval for its
Corporate planned conversion to a corporation within the next 4 months.
Conversion In addition to unitholder approval, the conversion will be
subject to receipt of all required regulatory, stock exchange
and Court of Queen's Bench of Alberta approvals.
Upon conversion, Inter Pipeline will have access to a much
larger investor base. As a limited partnership, all of Inter
Pipeline's equity investors must currently be Canadian
residents for income tax purposes. This restriction limits
Inter Pipeline's access to foreign sources of capital.
Converting to a Canadian corporation will help support Inter
Pipeline's growth plans by gaining access to a larger and more
competitively priced pool of capital.
Pursuant to the conversion, unitholders will exchange their
limited partnership units, on a one-for-one basis, for common
shares of Inter Pipeline's successor corporation. The exchange
is expected to occur on a tax-deferred basis for Canadian
income tax purposes.
Special William Robertson, PMI's lead independent director and Chair
Committee of the Special Committee, commented, "Inter Pipeline's
Perspectives independent directors felt strongly that this was the right
window to eliminate the external management contract. The
consideration being paid is fair and it represents a highly
accretive transaction. It also allows us to move toward a more
conventional governance model while broadening our investor
base in support of Inter Pipeline's aggressive growth plans."
"The Special Committee is very pleased that PAC shareholders
have accepted a form of equity rather than cash as
consideration. This shows strong endorsement of the business
going forward. We are also pleased with the structuring of
payments which will help ensure the immediate and long-term
accretion of this transaction."
Supplemental Additional information related to the Internalization
Website Transactions is available on Inter Pipeline's website at
Information http://www.interpipelinefund.com/ under the icon titled
"General Partner Internalization". Supplemental materials
include background information on the General Partner,
historical and projected management fees, transaction
benefits, preferred share characteristics and accounting
Material Under securities law, Inter Pipeline is required to file a
Change Material Change Report with respect to the Internalization
Report Transactions. Because the Internalization Transactions were
not subject to any unitholder, regulatory or third party
consent or approval requirements, there was no commercial
reason not to complete the Internalization Transactions as
soon as the agreements giving effect to the transaction were
completed, approved and executed. Accordingly, the Material
Change Report will be filed less than 21 days from the time of
closing of the Internalization Transactions. Inter Pipeline
considers this to be reasonable and necessary in the present
Inter Inter Pipeline is a major petroleum transportation, natural
Pipeline gas liquids extraction, and bulk liquid storage business based
Fund in Calgary, Alberta, Canada. Structured as a publicly traded
limited partnership, Inter Pipeline owns and operates energy
infrastructure assets in western Canada, the United Kingdom,
Denmark, Germany and Ireland. Additional information about
Inter Pipeline can be found at
Inter Pipeline is a member of the S&P/TSX Composite Index.
Class A Units trade on the Toronto Stock Exchange under the
Eligible Pursuant to Inter Pipeline's limited partnership agreement
Investors dated October 9, 1997, as amended, all unitholders are
required to be residents of Canada. A copy of the limited
partnership agreement can be found at
http://www.interpipelinefund.com/ by selecting "Corporate
Governance". If a unitholder is a non-resident of Canada
("Non-Eligible Unitholder"), he will not be considered to be a
member of the partnership effective the date the Class A Units
were acquired. Inter Pipeline requires all Non-Eligible
Unitholders to dispose of their Class A Units in accordance
with the limited partnership agreement.
In most cases, a unitholder with an address outside of Canada
will be a Non-Eligible Unitholder.
Disclaimer Certain information contained herein may constitute forward-
looking statements that involve risks and uncertainties.
Forward-looking statements in this news release include, but
are not limited to, anticipated benefits derived from the
Internalization Transactions, timing for proposed corporate
conversion and anticipated benefits derived therefrom, timing
and cost schedules of expansion capital projects, and forward
EBITDA, accretion and cash available for distribution
estimates. Readers are cautioned not to place undue reliance
on forward-looking statements. Such information, although
considered reasonable by the General Partner of Inter Pipeline
at the time of preparation, may later prove to be incorrect
and actual results may differ materially from those
anticipated in the statements made. For this purpose, any
statements that are not statements of historical fact may be
deemed to be forward-looking statements. Forward-looking
statements often contain terms such as "may", "will",
"should", "anticipate", "expects" and similar expressions.
Such risks and uncertainties include, but are not limited to,
risks associated with operations, such as loss of markets,
regulatory matters, environmental risks, industry competition,
potential delays and cost overruns of construction projects,
the ability to access sufficient capital from internal and
external sources and the ability to complete the conversion to
a corporation in the manner and timeframe expected. You can
find a discussion of those risks and uncertainties in Inter
Pipeline's securities filings at http://www.sedar.com/. The
forward-looking statements contained in this news release are
made as of the date of this document, and, except to the
extent required by applicable securities laws and regulations,
Inter Pipeline assumes no obligation to update or revise
forward-looking statements made herein or otherwise, whether
as a result of new information, future events, or otherwise.
The forward-looking statements contained in this document are
expressly qualified by this cautionary note. This news
release, in particular the information in respect of
anticipated incremental EBITDA and accretion in cash available
for distribution, may contain Future Oriented Financial
Information ("FOFI") within the meaning of applicable
securities laws. The FOFI has been prepared by management to
provide an outlook of Inter Pipeline's activities and results
and may not be appropriate for other purposes. The FOFI has
been prepared based on a number of assumptions including the
assumptions contained herein. The actual results of operations
of Inter Pipeline and the resulting financial results may vary
from the amounts set forth herein, and such variation may be
material. Inter Pipeline and its management believes that the
FOFI has been prepared on a reasonable basis, reflecting
management's best estimates and judgments.
All dollar values are expressed in Canadian dollars unless
Non-GAAP Certain financial measures referred to in this news release,
Financial namely, "EBITDA", "cash flow" and "cash available for
Measures distribution" are not measures recognized by Canadian
generally accepted accounting principles ("GAAP"). These non-
GAAP financial measures do not have standardized meanings
prescribed by GAAP and therefore may not be comparable to
similar measures presented by other entities. Investors are
cautioned that these non-GAAP financial measures should not be
construed as alternatives to other measures of financial
performance calculated in accordance with GAAP. The non-GAAP
financial measures are provided to assist investors with their
evaluation of Inter Pipeline, including their assessment of
its ability to generate cash and fund monthly distributions.
Management considers these non-GAAP financial measures to be
important indicators in assessing its performance.
Inter Pipeline Fund - Investor Relations:
Vice President, Capital Markets
403-290-6015 or 1-866-716-7473
Inter Pipeline Fund - Media Relations:
Director, Corporate and Investor Communications
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