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Tallgrass mulling simplification deals, completes 2 pipeline stake acquisitions

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Tallgrass mulling simplification deals, completes 2 pipeline stake acquisitions

Tallgrass Energy Partners LP and Tallgrass Energy GP LP began an evaluation of reorganization alternatives aimed at simplifying the partnerships' organizational structure and improving cost of capital.

The reorganization deals are also expected to facilitate financing of planned growth opportunities for the Tallgrass family of companies, according to a Feb. 7 news release. Any deal resulting from the evaluation process may be completed by the end of 2018.

Tallgrass Energy Partners is said to be one of the midstream master limited partnerships with "significant" remaining incentive distribution rights burdens, according to U.S. Capital Advisors.

Tallgrass GP's subsidiary Tallgrass Equity LLC acquired a 25.01% membership stake in Rockies Express Pipeline LLC valued at $400 million, along with 5,619,218 Tallgrass Energy Partners common units worth $256.2 million, from Tallgrass Development LP. The Rockies Express system is a bidirectional natural gas pipeline that serves the Appalachian Basin.

The Tallgrass Equity deal was a result of Tallgrass Development's merger with a subsidiary of Tallgrass Equity on Feb. 7, a move that demonstrated "what could be the first step in a potential reorganization transaction," according to David Dehaemers Jr., president and CEO of Tallgrass. In exchange, Tallgrass Energy GP and Tallgrass Equity issued 27,554,785 unregistered Tallgrass Energy GP class B shares and Tallgrass Equity units worth $644.8 million, based on Tallgrass Energy GP's closing price on Feb. 6.

Tallgrass Energy GP's management also intends to recommend an increase in quarterly distributions of 12 cents for the first and second quarters, or 48 cents in an annual basis, per class A share, representing an increase of roughly 33% compared to 2017's fourth quarter.

Separately, Tallgrass Energy Partners purchased a 2% membership interest in Tallgrass Pony Express Pipeline LLC, as well as other administrative assets, from Tallgrass Development for about $60 million. Tallgrass Energy Partners funded the deal through revolving credit facility borrowings. The 760-mile Pony Express pipeline delivers crude oil from Guernsey, Wyo., to the Cushing, Okla., oil hub.

Tallgrass GP owns a controlling membership interest in Tallgrass Equity, which owns all of Tallgrass Energy Partners' incentive distribution rights, 100% of its general partner interest and 20,000,000 of its common units.