EQM Midstream Partners LP struck an agreement to buy a 60% stake in Eureka Midstream Holdings LLC and 100% of Hornet Midstream Holdings LLC, both natural gas gathering system operators in the Appalachian Basin, from a fund managed by Morgan Stanley Infrastructure Partners for $1.03 billion in total consideration.
Eureka Midstream is a 190-mile gathering header pipeline system in Ohio and West Virginia, serving production at the Utica and Marcellus shales. Hornet Midstream is a 15-mile, high-pressure gathering system in West Virginia, which has a connection to the Eureka system. The assets are complementary to EQM's gathering and transmission system in the production area, EQM CEO Thomas Karam said in a March 14 news release.
The assets averaged about 1.6 Bcf/d of gathered volume in the fourth quarter of 2018 and are supported by 200,000 acres of dedications and minimum volume commitments of 0.8 Bcf/d, which are set to increase to 1.3 Bcf/d by 2021. The volume commitments represent about 50% of the pipeline systems' current throughput. The systems also have access to EQM's system and downstream pipelines at Clarington, Ohio, and Mobley, W.Va., as well as to a number of interstate pipelines and four major processing plants.
The deal consideration is composed of about $860 million in cash and roughly $170 million of assumed pro-rata debt. The assets are expected to yield EBITDA of about $100 million to EQM in the first 12 months.
To fund the deal, EQM would issue $1.1 billion of series A convertible preferred units, expected to close at the same time as the deal closing, scheduled for or about April 15. The preferred units would be sold to funds managed by BlackRock Inc., GSO Capital Partners LP and Magnetar Capital Partners LP as lead investors; and Carlyle Group LP and Foundation Infrastructure Partners in connection with Neuberger Berman BD LLC Private Credit as supporting investors.
The preferred units would be priced at $48.77 per unit, representing a 20% premium to the 20-day volume weighted average price of EQM common units.
Citi and Guggenheim Securities LLC are financial advisers and Latham & Watkins is the legal adviser to EQM and Equitrans Midstream Corp., which owns the non-economic general partner interest and a 60% limited partner interest in EQM. Citi and Guggenheim Securities are also serving as joint placement agents for the preferred unit issuance.