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SemGroup, KKR create Canadian venture to buy midstream company for C$600M

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SemGroup, KKR create Canadian venture to buy midstream company for C$600M

SemGroup Corp. and KKR & Co. established a Canadian midstream joint venture, SemCAMS Midstream ULC, which would acquire the Riverstone Holdings LLC-backed midstream company Meritage Midstream ULC and all its assets for C$600 million.

Under the joint venture terms, SemGroup would receive a 51% stake in SemCAMS Midstream and cash proceeds of C$615 million by contributing shares and assets of its Canadian gathering and processing unit, SemCAMS ULC, valued at C$1.15 billion, according to a Jan. 10 release.

KKR would own the remaining 49% stake in SemCAMS Midstream by shelling out a total of C$815 million of cash through KKR Global Infrastructure Investors III and its affiliated investment vehicles. Of that amount, C$515 million would be used as cash consideration for the deal, and C$300 million would be used to acquire perpetual preferred stock of SemCAMS Midstream, which will pay quarterly dividends at a rate of 8.75% per year.

SemCAMS Midstream would be based in Calgary, Alberta, and led by SemCAMS ULC Vice President and General Manager David Gosse as its president. The venture's board would comprise seven members, of which four will be nominated by SemGroup and three by KKR, with SemGroup appointing the chair.

Upon deal closing, SemCAMS Midstream would acquire Meritage Midstream, whose assets include about 195 MMcf/d of natural gas processing capacity, 101 miles of gas gathering pipelines and 38 miles of oil gathering pipelines, in the liquids-rich Montney shale play in British Columbia. A 200-MMcf/d gas processing expansion is underway, which is expected to come online by the third quarter.

After the acquisition, SemCAMS Midstream would have a total of 900 MMcf/d of processing capacity, which would increase to about 1.3 Bcf/d after all projects under construction are completed.

SemCAMS Midstream would fund the acquisition by securing an underwritten bank credit facility of C$800 million with a syndicate of lenders led by TD Securities, CIBC Capital Markets and BMO Capital Markets, along with funds from KKR Global Infrastructure Investors III. The facility would also be used to fund growth projects and working capital.

The joint venture deal is expected to help SemGroup expand its presence in the Montney play and deleverage and boost its capital position. The Meritage acquisition would allow the joint venture, SemCAMS Midstream, to further achieve a "more attractive" Canadian growth platform, according to SemGroup President, CEO and Director Carlin Conner.

The deal is scheduled for completion in the first quarter.

CIBC Capital Markets was financial adviser to SemGroup, Evercore was financial adviser to SemGroup's board, and TD Securities was financial adviser to KKR for the transaction. Gibson Dunn & Crutcher LLP and Osler Hoskin & Harcourt LLP acted as legal advisers to SemGroup, while Torys LLP and Simpson Thacher & Bartlett advised KKR.

RBC Capital Markets served as financial adviser to Meritage and Riverstone. Dentons Canada LLP and Vinson & Elkins LLP were their legal advisers.