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TABLE OF CONTENTS
TABLE OF CONTENTS
Table of Contents
SUBJECT TO COMPLETION, DATED March 24, 2015
The information in this prospectus supplement and the accompanying prospectus is not complete and may be changed. This
prospectus supplement and the accompanying prospectus are not an offer to sell these securities and are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is
not permitted.
Filed Pursuant to Rule 424(b)(7)
Registration No. 333-194465
PRELIMINARY PROSPECTUS SUPPLEMENT
(To Prospectus dated March 10, 2014)
EnLink Midstream Partners, LP
22,800,000 Common Units
Representing Limited Partner Interests
All of the common units representing limited partner interests in EnLink Midstream Partners, LP being offered by this prospectus
supplement are being sold by the Selling Unitholder identified in this prospectus supplement. We will not receive any of the proceeds from this offering.
Our common units trade on the New York Stock Exchange under the symbol "ENLK." The last reported trading price of our common units on the New York Stock
Exchange on March 23, 2015 was $27.36 per common unit.
Limited partnerships are inherently different from corporations. Investing in our common units involves risks. You should consider
carefully each of the factors described under "Risk Factors" beginning on page S-12 of this prospectus supplement and page 1 of the accompanying base prospectus before you make an
investment in our securities.
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The Selling Unitholder has granted the underwriters a 30-day option to purchase up to an additional 3,420,000 common units on the same terms and
conditions as set forth above if the underwriters sell more than 22,800,000 common units in this offering.
None of the Securities and Exchange Commission, any state securities commission, nor any other regulatory body has approved or disapproved of these
securities or determined if this prospectus supplement or the accompanying base prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The common units will be ready for delivery on or about , 2015.
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Prospectus Supplement
dated
, 2015.
Table of Contents
TABLE OF CONTENTS
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IMPORTANT INFORMATION IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS
This document is in two parts. The first part is this prospectus supplement, which describes the specific terms of this offering of
common units. The second part is the accompanying base prospectus, which gives more general information, some of which may not apply to this offering of common units. Generally, when we refer only to
the "prospectus," we are referring to both parts combined. If the information about the common unit offering varies between this prospectus supplement and the accompanying base prospectus, you should
rely on the information in this prospectus supplement.
Any
statement made in this prospectus or in a document incorporated or deemed to be incorporated by reference into this prospectus will be deemed to be modified or superseded for
purposes of this prospectus to the extent that a statement contained in this prospectus or in any other subsequently filed document that is also incorporated by reference into this prospectus modifies
or supersedes that statement. Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this prospectus. Please read "Information
Incorporated by Reference" on page S-21 of this prospectus supplement.
You
should rely only on the information contained in or incorporated by reference into this prospectus supplement, the accompanying base prospectus and any free writing prospectus
prepared by or on behalf of us relating to this offering of common units. Neither we, the Selling Unitholder, nor the underwriters have authorized anyone to provide you with additional, different or
inconsistent information. If anyone provides you with additional, different or inconsistent information, you should not rely on it. The Selling Unitholder and the underwriters are offering to sell the
common units, and seeking offers to buy the common units, only in jurisdictions where offers and sales are permitted. You should not assume that the information contained in this prospectus
supplement, the accompanying base prospectus or any free writing prospectus is accurate as of any date other than the dates shown in these documents or that any information we have incorporated by
reference herein is accurate as of any date other than the date of the document incorporated by reference. Our business, financial condition, results of operations and prospects may have changed since
such dates.
Neither
we, the Selling Unitholder, the underwriters nor any of our respective representatives is making any representation to you regarding the legality of an investment in our common
units by you under applicable laws. You should consult your own legal, tax and business advisors regarding an investment in our common units. Information in this prospectus supplement and the
accompanying base prospectus is not legal, tax or business advice to any prospective investor.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Some of the information included in this prospectus supplement and the documents we incorporate by reference herein contain
"forward-looking" statements. All statements that are not statements of historical facts, including statements regarding our future financial position, business strategy, budgets, projected costs and
plans and objectives of management for future operations, are forward-looking statements. You can typically identify forward-looking statements by the use of forward-looking words, such as "forecast,"
"may," "believe," "will," "should," "plan," "predict," "anticipate," "intend," "estimate," "expect" and other similar words. When considering forward-looking statements, you should keep in mind the
risk factors and other cautionary statements in this prospectus supplement, the accompanying base prospectus and the documents we have incorporated by reference.
These
forward-looking statements are made based upon management's current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us and therefore
involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the
forward-looking statements. Known material risks and uncertainties include the risks set forth under the heading "Risk Factors" in our Annual
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Report
on Form 10-K for the year ended December 31, 2014, as well as the following risks and uncertainties:
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- we are dependent on Devon Energy Corporation ("Devon") for a substantial portion of the natural gas that we gather, process and
transport;
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- because we are substantially dependent on Devon as our primary customer and because of Devon's indirect control of our general
partner, any development that materially and adversely affects Devon's operations, financial condition or market reputation could have a material and adverse impact on us;
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- due to our lack of asset diversification, adverse developments in our gathering, transmission, processing, crude oil, condensate,
natural gas and NGLs services businesses would adversely affect our financial health;
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- a significant portion of our operations are located in the Barnett Shale, making us vulnerable to risks associated with having
revenue-producing operations concentrated in a limited number of geographic areas;
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- the amount of hydrocarbons transported in our gathering and transmission lines or those that we otherwise service may decline as a
result of reduced drilling by producers, competition for supplies, reserve declines and reduction in demand from key customers and markets;
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- the level of our processing and fractionation operations, fractionation, crude oil handling and brine disposal operations may decline
as a result of reduced drilling by producers, competition for supplies, reserve declines and reduction in demand from key customers and markets;
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- our profitability is dependent upon prices and market demand for natural gas, NGLs, condensate and crude oil;
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- we may experience construction risks in our major development projects, including significant delays, a lack of oil, natural gas or
NGL supplies and cost over-runs;
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- we may not be able to obtain new capital to fund our acquisition and growth strategies, which could impair our ability to fund future
capital needs and to grow;
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- the availability of, and our ability to consummate, acquisition or combination opportunities;
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- operational, regulatory, environmental and other asset-related risks, including weather conditions; and
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- the risks described elsewhere in this prospectus supplement and in the documents incorporated by reference herein.
Before
you invest, you should be aware that the occurrence of any of the events described under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended
December 31, 2014 could substantially harm our business, results of operations and financial condition. In light of these risks, uncertainties and assumptions, the events described in the
forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise.
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As
generally used in the energy industry and in this prospectus supplement, the following terms have the following meanings:
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- Bbl = Barrels (equal to 42 gallons)
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- Bcf = billion cubic feet
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- /d = per day
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- MBbls = thousand barrels
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- MMBtu = million British thermal units
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- MMcf = million cubic feet
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- NGL(s) = natural gas liquid(s)
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SUMMARY
This summary highlights information contained elsewhere in this prospectus supplement and the accompanying base
prospectus. It does not contain all of the information that you should consider before making an investment decision. You should read this entire prospectus supplement, the accompanying base
prospectus and the documents incorporated herein by reference for a more complete understanding of this offering of common units. Please read "Risk Factors" beginning on page S-12 of this
prospectus supplement and page 1 of the accompanying base prospectus for information regarding risks you should consider before investing in our common units.
Throughout this prospectus supplement, when we use the terms "we," "us," "our" or the "Partnership," we are referring either to EnLink Midstream
Partners, LP in its individual capacity or to EnLink Midstream Partners, LP and its operating subsidiaries collectively, as the context requires. Our business activities are conducted
through our subsidiary, EnLink Midstream Operating, LP, and its subsidiaries. References in this prospectus supplement to our "general partner" refer to EnLink Midstream GP, LLC,
an indirect wholly owned subsidiary of EnLink Midstream, LLC ("ENLC"). ENLC's managing member is an indirect wholly owned subsidiary of Devon Energy Corporation
("Devon").
Overview
EnLink Midstream Partners, LP is a publicly traded Delaware limited partnership formed in 2002. Our common units are traded on
the New York Stock Exchange under the symbol "ENLK." We primarily focus on providing midstream energy services, including gathering, transmission, processing, fractionation, brine services and
marketing, to producers of natural gas, NGLs, crude oil and condensate. Our midstream energy asset network includes approximately 8,800 miles of pipelines, 13 natural gas processing plants, seven
fractionators, 3.1 million barrels of NGL cavern storage, 11.0 Bcf of natural gas storage, rail terminals, barge terminals, truck terminals and a fleet of approximately 100 trucks. Our
operations are based in the United States and our sales are derived from external domestic customers.
We
connect the wells of natural gas producers in our market areas to our gathering systems, process natural gas for the removal of NGLs, fractionate NGLs into purity products and market
those products for a fee, transport natural gas and ultimately provide natural gas to a variety of markets. We purchase natural gas from natural gas producers and other supply sources and sell that
natural gas to utilities, industrial consumers, other marketers and pipelines. We operate processing plants that process gas transported to the plants by major interstate pipelines or from our own
gathering systems under a variety of fee-based arrangements. We provide a variety of crude oil and condensate services, which include crude oil and condensate gathering via pipelines, barges, rail and
trucks, condensate stabilization and brine disposal. We also have crude oil and condensate terminal facilities in south
Louisiana that provide access for crude oil and condensate producers to the premium markets in this area. Our gas gathering systems consist of networks of pipelines that collect natural gas from
points near producing wells and transport it to larger pipelines for further transmission. Our transmission pipelines primarily receive natural gas from our gathering systems and from third party
gathering and transmission systems and deliver natural gas to industrial end-users, utilities and other pipelines. We also have transmission lines that transport NGLs from east Texas and from our
south Louisiana processing plants to our fractionators in south Louisiana. Additionally, we own an economic interest in an NGL fractionator located at Mont Belvieu, Texas that receives raw mix NGLs
from customers, fractionates such raw mix and redelivers the finished products to the customers for a fee. Devon is one of the largest customers of this fractionator. Our crude oil and condensate
gathering and transmission systems consist of trucking facilities, pipelines and rail and barge facilities that, in exchange for a fee, transport oil from a producer site to an end user. Our
processing plants remove NGLs and carbon dioxide from a natural gas stream and our fractionators separate the NGLs into separate NGL products, including ethane, propane, iso-butane, normal butane and
natural gasoline.
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Our
assets are comprised of systems and other assets in which our interest is held through our wholly owned subsidiaries as well as systems and other assets owned by EnLink Midstream
Holdings, LP ("Midstream Holdings"), in which we hold a 75% interest, and are located in four primary regions:
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- Texas. Our Texas assets consist of transmission pipelines
with a capacity of approximately 1.3 Bcf/d, processing facilities with a total processing capacity of approximately 1.2 Bcf/d and gathering systems with total capacity of approximately 2.8 Bcf/d. Some
of the primary assets comprising our Texas assets are as follows:
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- North Texas Pipeline and Acacia transmission system. Our
North Texas Pipeline, or NTPL, is a 140-mile pipeline that connects production from the Barnett Shale to markets in north Texas with approximately 375 MMcf/d of capacity. Average throughput on the
NTPL was approximately 338,000 MMBtu/d for the period March 7, 2014 (the date on which we first acquired an ownership position in Midstream Holdings) through December 31, 2014. The
Acacia transmission system, which is owned by Midstream Holdings, consists of approximately 120 miles of pipeline with approximately 920 MMcf/d of capacity. Average throughput on the Acacia
transmission system was approximately 733,900 MMBtu/d for the year ended December 31, 2014.
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- Bridgeport processing facility. The Bridgeport
processing facility, which is owned by Midstream Holdings, is one of the largest processing plants in the U.S. with 790 MMcf/d of processing capacity and 15 MBbls/d of NGL fractionation capacity.
Average throughput on the Bridgeport processing facility was 788,700 MMBtu/d for the year ended December 31, 2014.
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- Silver Creek processing complex. Our Silver Creek
processing complex includes three processing plants with an aggregate of 280 MMcf/d of processing capacity. Average throughput on the Silver Creek processing complex was 283,600 MMBtu/d for the period
March 7, 2014 (the date on which we first acquired an ownership position in Midstream Holdings) through December 31, 2014.
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- Permian Basin Assets. Our Permian Basin assets include
our Deadwood natural gas processing plant, which has a total processing capacity of 58 MMcf/d and in which we have a 50% undivided working interest, and our Mesquite Terminal fractionator, which has
15,000 Bbls/d of NGL fractionation capacity. Average throughput on the Deadwood natural gas processing plant was 71,000 MMBtu/d for the period March 7, 2014 (the date on which we first acquired
an ownership position in Midstream Holdings) through December 31, 2014.
In
September 2014, we completed construction of a new natural gas processing complex and rich gas gathering pipeline system in the Permian Basin called Bearkat. Bearkat is strategically located near
our existing Deadwood natural gas processing plant. The Bearkat processing plant has an initial capacity of 60 MMcf/d, increasing our total operated processing capacity in the Permian Basin to
approximately 115 MMcf/d. The Bearkat plant averaged 3,000 MMBtu/d for December 2014, which was the first full month of operations. We also completed construction on a 30-mile high-pressure gathering
system upstream of the Bearkat complex to provide additional gathering capacity for producers in Glasscock and Reagan counties.
During
2014, we constructed an additional 35-mile gathering system for the Bearkat complex which has an initial capacity of approximately 100 MMcf/d and provides takeaway solutions for constrained
producer customers in Howard, Martin and Glasscock counties. The pipeline commenced operation in the fourth quarter of 2014.
We
will expand our natural gas gathering and processing system in the Permian Basin by constructing a new natural gas processing plant and expanding our rich gas gathering system. The new 120 MMcf/d
gas processing plant will be strategically located on the north end of our existing midstream assets and will offer additional gas processing capabilities to producer
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customers
in the region, including Devon. Due to the impact from the current commodity environment and a shift in producers' drilling expectations, we are delaying construction on the processing plant
until late 2015. Upon completion, our total operated processing capacity in the Permian Basin will be approximately 240 MMcf/d.
In the first quarter of 2015, we acquired additional assets in the Permian Basin by completing the acquisitions of LPC and Coronado. Please see "Recent Developments."
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- Gulf Coast Fractionators. Midstream Holdings is entitled
to receive the economic benefits and burdens of the 38.75% interest in Gulf Coast Fractionators held by Devon. Gulf Coast Fractionators owns an NGL fractionator located on the Gulf Coast at Mont
Belvieu, Texas. The facility has a capacity of approximately 145 MBbls/d. The plant fractionated 44,000 Bbls/d of liquids during 2014.
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- Bridgeport and East Johnson County gathering systems. The
Bridgeport and East Johnson County gathering systems, which are owned by Midstream Holdings, are comprised of three natural gas gathering systems in the Barnett Shale, consisting of an aggregate of
approximately 3,147 miles of gathering lines with an aggregate capacity of approximately 1.4 Bcf/d. These gathering systems had an aggregate average throughput of approximately 1,265,700 MMBtu/d for
the year ended December 31, 2014.
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- Silver Creek gathering systems. Our Silver Creek
gathering systems consists of approximately 725 miles of gathering lines that have a total capacity of approximately 1.1 Bcf/d, with average throughput of approximately 620,300 MMBtu/d for the period
March 7, 2014 (the date on which we first acquired an ownership position in Midstream Holdings) through December 31, 2014.
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- Howard Energy Partners. Howard Energy Partners, or HEP,
owns and operates over 500 miles of pipeline and a 200 MMcf/d processing plant, serving production from the Eagle Ford, Escondido, Olmos, Pearsall and other formations in south Texas. HEP's system has
145 MMcf/d of amine treating capacity and more than 9,000 horsepower of compression. As of December 31, 2014, we owned a 30.6% interest in HEP.
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- Oklahoma. Our Oklahoma assets consist of processing
facilities with a total processing capacity of approximately 550 MMcf/d and gathering systems with total capacity of approximately 605 MMcf/d. All of our Oklahoma assets are owned by Midstream
Holdings and are comprised of the following:
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- Cana System. The Cana system is a natural gas gathering
and processing system located in the Cana-Woodford Shale in West Central Oklahoma. The Cana system includes a 350 MMcf/d processing facility. For the year ended December 31, 2014, throughput
volumes at the Cana processing facility averaged 368,400 MMBtu/d. The Cana system also consists of approximately 340 miles of gathering lines that have a total capacity of approximately 530 MMcf/d and
had an average throughput of approximately 413,900 MMBtu/d for the year ended December 31, 2014.
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- Northridge System. The Northridge system is a natural gas
gathering and processing system located in the Arkoma-Woodford Shale in Southeastern Oklahoma. The Northridge system includes a 200 MMcf/d processing facility. For the year ended December 31,
2014, throughput volumes at the Northridge processing facility averaged 73,400 MMBtu/d. The Northridge system also consists of approximately 140 miles of gathering lines that have a total capacity of
approximately 75 MMcf/d and had an average throughput of approximately 56,900 MMBtu/d for the year ended December 31, 2014.
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- Louisiana. Our Louisiana assets consist of transmission
pipelines with a capacity of approximately 3.5 Bcf/d, processing facilities with a total processing capacity of approximately 1.7 Bcf/d and
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- Napoleonville Storage Facility. The Napoleonville NGL
storage facility is connected to our Riverside facility and has a total capacity of 3.2 million barrels of underground storage comprised of two existing caverns.
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- Marathon Petroleum Joint Venture. We have entered into a
series of agreements with a subsidiary of Marathon Petroleum Corporation to create a 50/50 joint venture named Ascension Pipeline Company, LLC. This joint venture will build a new 30-mile NGL
pipeline connecting our existing Riverside fractionation and terminal complex to Marathon Petroleum's Garyville refinery located on the Mississippi River. This bolt-on project to our Cajun-Sibon NGL
system is supported by long-term, fee-based contracts with Marathon Petroleum. Under the arrangement, we will serve as the construction manager and operator of the pipeline project, which is expected
to be operational in the first half of 2017.
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- Ohio River Valley. Our Ohio River Valley operations
include an integrated network of assets comprised of a 5,000-barrel-per-hour crude oil and condensate barge loading terminal on the Ohio River, a 20-spot operation crude oil and condensate rail
loading terminal on the Ohio Central Railroad network and approximately 200 miles of crude oil and condensate pipelines in Ohio and West Virginia. The assets also include 500,000 barrels of above
ground storage and a trucking fleet of approximately 100 vehicles comprised of both semi and straight trucks. We have eight existing brine disposal wells with an injection capacity of approximately
5,000 Bbls/d. Additionally, our Ohio River Valley operations include five condensate stabilization and natural gas compression stations, including two stations under construction, with combined
capacities of 19,000 Bbls/d of condensate stabilization and 580 MMcf/d of natural gas compression.
We
will construct a new 45-mile, eight inch condensate pipeline and six natural gas compression and condensate stabilization facilities that will service major producer customers in the Utica Shale.
The new-build stabilized condensate pipeline will connect to our existing 200-mile pipeline in eastern Ohio, providing producer customers in the region access to premium market outlets through our
barge facility on the Ohio River and rail terminal in Ohio. The pipeline, which is expected to be complete in the second half of 2015, is expected to have an initial capacity of approximately
50,000 Bbls/d with potential to expand.
We
will also build and operate six natural gas compression and condensate stabilization facilities in Noble, Belmont, and Guernsey counties in Ohio. Upon completion, the facilities will have a
combined capacity of approximately 560 MMcf/d of natural gas compression and approximately 41,500 Bbls/d of condensate stabilization. The first two compression and condensate stabilization facilities
began operations during the fourth quarter of 2014 and the remaining four facilities are expected to be operational by the end of 2015.
Our Business Strategies
Our primary business objectives are to have sustained growth in partnership distributions and to maintain a strong balance sheet. We
intend to accomplish these objectives by executing the following strategies:
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- Organic Growth: pursue opportunities around our existing
footprint. We expect to grow certain of our systems organically over time by meeting Devon's and our other customers' midstream service
needs that result from their drilling activity in our areas of operation. We continually evaluate whether to pursue economically attractive organic expansion opportunities in existing or new areas of
operation that allow us to leverage our existing infrastructure, operating expertise and customer relationships by constructing and expanding systems to meet new or increased demand for our services.
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- Growing with Devon. We expect our relationship with Devon
will continue to provide us with significant business opportunities. Devon is a leading North American exploration and production company with a focus on five core growth areas: Eagle Ford, Permian
Basin, Anadarko Basin, Canadian oil sands and the Barnett Shale.
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- Dropdowns: maximize opportunities provided by Devon's sponsorship and assets held by
ENLC. We plan to execute our growth in part through pursuing accretive dropdown opportunities from Devon and ENLC. As described under
"Recent Developments" below, on February 17, 2015, we purchased a 25% interest in Midstream Holdings from ENLC increasing our ownership in Midstream Holdings to 75% and expect to be given the
opportunity over time to purchase the remaining 25% interest in Midstream Holdings held by Acacia (as defined below). ENLC and Devon are parties to a first offer agreement pursuant to which ENLC has a
right of first offer with respect to Devon's 50% interest in the Access Pipeline (the "First Offer Agreement"). We are party to a preferential rights agreement with ENLC pursuant to which ENLC granted
us a right of first refusal, for a period of 10 years, with respect to Devon's 50% interest in the Access Pipeline transportation system, to the extent ENLC in the future obtains such interest
pursuant to the First Offer Agreement. In addition, if ENLC has the opportunity to exercise its right of first offer for Devon's interest in the Access Pipeline pursuant to the First Offer Agreement,
but determines not to exercise such right, ENLC is required to assign such right to us. We also believe there will continue to be significant opportunities as Devon continues to develop its oil and
gas production. However, we cannot be certain that these opportunities will be made available to us, or that we will choose to pursue any such opportunity.
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- Acquisitions: pursue strategic and accretive
acquisitions. We pursue strategic and accretive acquisition opportunities within the midstream energy industry, both in new and existing
lines of business and geographic areas of operation.
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- Strong Balance Sheet: maintain an investment grade quality financial
profile. We intend to maintain appropriate leverage and other key financial metrics in line with other partnerships in our sector that
have received investment grade credit ratings. By maintaining an investment grade quality financial profile, we believe that we will be able to pursue strategic acquisitions and large growth projects
at a lower cost of capital, which enhances our competitiveness.
Our Competitive Strengths
We believe that we are well-positioned to execute our business strategies and to achieve our business objectives due to the following
competitive strengths:
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- Devon's sponsorship. We expect our relationship with
Devon will continue to provide us with significant business opportunities. Devon is one of the largest independent oil and gas producers in North America. Devon has a significant interest in promoting
the success of our business, due to its approximate 70% ownership interest in ENLC and, after giving effect to this offering, approximate 34% ownership of our common units (including 6,704,285
Class C common units and 31,618,311 Class D common units) (or, 32% if the underwriters exercise in full their option to purchase additional common units from the Selling Unitholder).
Devon has informed us that it has no plans to sell additional common units in us for the foreseeable future.
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- Strategically-located assets. Our assets are located in
strategic producing regions with the potential for increasing throughput volume and cash flow generation. Our assets are in areas consistent with Devon's strategic focus. Our asset portfolio includes
gathering, transmission, fractionation, processing and stabilization systems that are located in areas in which producer activity is focused on crude oil, condensate and NGLs as well as natural gas.
We have developed or are in the process of developing platforms in these areas through organic development and acquisitions.
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- Stable cash flows. Approximately 95% of our cash flows
were derived from fee-based services with no direct commodity exposure during 2014. In 2014, Midstream Holdings entered into 10-year fixed-fee gathering and processing agreements with a subsidiary of
Devon pursuant to which Midstream Holdings or its subsidiary provide gathering, treating, compression, dehydration, stabilization, processing and fractionation services, as applicable, for natural gas
delivered by Devon to Midstream Holdings' gathering and processing systems in the Barnett and Cana-Woodford Shales. These agreements provide Midstream Holdings with dedication of all of the natural
gas owned or controlled by Devon and produced from or attributable to existing and future wells located on certain oil, natural gas and mineral leases covering lands within the acreage dedications,
excluding properties previously dedicated to other natural gas gathering systems not owned and operated by Devon. These agreements also include minimum volume commitments and annual rate escalators.
We will continue to focus on contract structures that reduce volatility and support long-term stability of cash flows.
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- Integrated midstream services. We span the energy value
chain by providing natural gas, NGL, crude oil, condensate and water services across a diverse customer base. These services include gathering, compressing, treating, processing, transporting, storing
and selling natural gas, producing, fractionating, transporting, storing and selling NGLs, and gathering, transporting, storing and trans-loading crude oil and condensate. We believe our ability to
provide all of these services gives us an advantage in competing for new opportunities because we can provide substantially all services that producers, marketers and others require to move natural
gas, NGLs, crude oil and condensate from the wellhead to the market on a cost-effective basis.
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- Financial flexibility to pursue expansion and acquisition
opportunities. We believe our stable cash flows, strong balance sheet and access to debt and equity capital markets provide us with the
financial flexibility to competitively pursue acquisition and expansion opportunities and to execute our strategy across capital market cycles.
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- Experienced management team. We believe our management
team has a proven track record of creating value through the development, acquisition, optimization and integration of midstream assets. Our management team has an average of over 20 years of
experience in the energy industry. We believe this team provides us with a strong foundation for evaluating growth opportunities and operating our assets in a safe, reliable and efficient manner.
Recent Developments
LPC Crude Oil Marketing. On January 31, 2015, we, through one of our wholly owned subsidiaries, acquired LPC Crude Oil
Marketing LLC ("LPC"), which has crude oil gathering, transportation and marketing operations in the Permian Basin, for approximately $100.0 million. LPC is an integrated crude
oil logistics service provider with operations throughout the Permian Basin. LPC's integrated logistics services are supported by approximately 41 tractor trailers, 13 pipeline injection
stations and 67 miles of crude oil gathering pipeline.
Drop-down of Midstream Holdings. On February 17, 2015, we acquired a 25% limited partner interest in Midstream Holdings from Acacia
Natural
Gas Corp I, Inc. ("Acacia"), a wholly owned subsidiary of ENLC, in a drop-down transaction (the "EMH Drop-Down"). As consideration, we issued 31.6 million Class D common units to
Acacia. After giving effect to the EMH Drop-Down, we indirectly own a 75% limited partner interest in Midstream Holdings, with Acacia owning the remaining 25% limited partner interest in Midstream
Holdings.
Coronado Midstream. On March 16, 2015, we acquired all of the equity interests in Coronado Midstream Holdings LLC, the parent
company
of Coronado Midstream LLC ("Coronado"), which owns natural gas gathering and processing facilities in the Permian Basin, for approximately $600.0 million in cash and equity, subject to
certain adjustments. Coronado operates three cryogenic gas processing plants
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and
a gas gathering system in the North Midland Basin including approximately 270 miles of gathering pipelines, 175 MMcf/d of processing capacity and 35,000 horsepower of compression. The Coronado
system is underpinned by long-term contracts, which include the dedication of production from over 190,000 acres.
Drop-down of Victoria Express Pipeline. On March 23, 2015, we signed a definitive agreement to acquire from Devon Gas Services,
L.P., a
subsidiary of Devon, (i) all of the equity interests in Victoria Express Pipeline, L.L.C., which operates a 56-mile petroleum condensate pipeline extending from the Eagle Ford Shale to the Port
of Victoria in South Texas and (ii) certain related truck, terminal and storage assets in the Eagle Ford Shale for total consideration of approximately $210-220 million in cash, equity
and the assumption of certain construction costs, subject to certain adjustments (the "VEX Acquisition"). The VEX Acquisition is expected to close on or about April 1, 2015, subject to certain
closing conditions.
Principal Executive Offices and Internet Address
Our principal executive offices are located at 2501 Cedar Springs, Dallas, Texas 75201 and our telephone number is
(214) 953-9500. Our website is located at www.enlink.com. We make available our periodic reports and other information filed with or furnished to
the Securities and Exchange Commission, the "SEC" or the "Commission," free of charge, through our website, as soon as reasonably practicable after those reports and other information are
electronically filed with or furnished to the Commission. The information on our website is not part of this prospectus, and you should rely only on information contained or incorporated by reference
in this prospectus supplement or the accompanying base prospectus when making a decision as to whether or not to invest in our common units.
S-8
Table of Contents
The
diagram below depicts our organization and approximate ownership prior to this offering:
Organizational Structure
of EnLink Midstream Partners, LP
S-9
Table of Contents
The Offering
|
|
|
Common units offered by the Selling Unitholder |
|
22,800,000 common units. |
|
|
26,220,000 common units if the underwriters exercise in full their option to purchase an additional 3,420,000 common units. |
Common units outstanding before and after this offering |
|
252,373,411 common units, 6,704,285 Class C common units and 31,618,311 Class D common units. |
Common units to be owned by the Selling Unitholder |
|
Immediately following the completion of this offering, the Selling Unitholder will beneficially own approximately 3.8% of our outstanding common units (including 6,704,285 Class C common units and 31,618,311 Class D common units) (or 2.6%
if the underwriters exercise in full their option to purchase additional common units). |
Use of proceeds |
|
We will not receive any of the proceeds from the sale of common units by the Selling Unitholder. Please read "Use of Proceeds." |
Cash distributions |
|
Within 45 days after the end of each quarter, we distribute our available cash to unitholders of record on the applicable record date. The first quarterly cash distribution the purchasers of common units in this offering will receive is for the
first quarter of 2015. |
|
|
If cash distributions to our unitholders exceed $0.25 per common unit in any quarter, our general partner will receive, in addition to distributions on its general partner interest, increasing percentages, up to 48%, of the cash we distribute in
excess of that amount. We refer to these distributions as "incentive distributions." Because our cash distributions currently exceed $0.25 per common unit, our general partner is currently receiving incentive distributions. Please read "Cash
Distribution Policy" included in the accompanying base prospectus. |
Issuance of additional common units |
|
We can issue an unlimited number of common units without the consent of our unitholders. |
Voting rights |
|
Our general partner manages and operates us. Unlike the holders of common stock in a corporation, you will have only limited voting rights on matters affecting our business. You will have no right to elect our general partner or its directors on an
annual or other continuing basis. Our general partner may not be removed except by a vote of the holders of at least 662/3% of all outstanding units, including any units owned by our general partner and its affiliates,
voting together as a single class. Affiliates of our general partner controlled approximately 58.3% of our outstanding units as of March 18, 2015. Please read "Description of Our Partnership AgreementVoting Rights" included in the
accompanying base prospectus. |
S-10
Table of Contents
|
|
|
Estimated ratio of taxable income to distributions |
|
We estimate that if you own the common units you purchase in this offering through the record date for distributions for the period ending December 31, 2017, you will be allocated, on a cumulative basis, an amount of federal taxable income for
that period that will be 20% or less of the cash distributed to you with respect to that period. Please read "Material Income Tax Considerations." |
Material income tax considerations |
|
For a discussion of other material federal income tax consequences that may be relevant to prospective unitholders who are individual citizens or residents of the United States, please read "Material Income Tax Considerations" in this prospectus
supplement and "Material Income Tax Considerations" in the accompanying base prospectus. |
New York Stock Exchange symbol |
|
ENLK. |
Risk factors |
|
You should read the risk factors found in the documents incorporated herein by reference, as well as the other cautionary statements throughout this prospectus supplement, to ensure you understand the risks associated with an investment in our
common units. Please read "Risk Factors." |
S-11
Table of Contents
RISK FACTORS
Before making an investment in the common units offered hereby, you should carefully consider the risk factors
under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2014, together with all of the other information included or incorporated by reference
in this prospectus. If any of these risks were to occur, our business, financial condition or results of operations could be materially adversely affected. In such case, the value of the common units
could decline, and you could lose all or part of your investment.
S-12
Table of Contents
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the common units by the Selling Unitholder. The Selling Unitholder will pay
all underwriting discounts and commissions and offering expenses in connection with this offering. See "Underwriting".
S-13
Table of Contents
PRICE RANGE OF COMMON UNITS AND DISTRIBUTIONS
Our common units trade on the New York Stock Exchange under the symbol "ENLK." Prior to March 10, 2014, our common units traded
on the Nasdaq Global Select Market LLC under the symbol "XTEX." The following table shows the high and low sales prices per common unit, as reported by the New York Stock Exchange or the Nasdaq
Global Select Market LLC, as applicable, and cash distributions declared per common unit for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
High |
|
Low |
|
Distribution Declared
Per Common Unit(1) |
|
March 31, 2015(2) |
|
$ |
30.31 |
|
$ |
25.88 |
|
|
|
(3) |
December 31, 2014 |
|
$ |
32.11 |
|
$ |
24.71 |
|
$ |
0.375 |
|
September 30, 2014 |
|
$ |
32.77 |
|
$ |
27.05 |
|
$ |
0.37 |
|
June 30, 2014 |
|
$ |
32.87 |
|
$ |
28.49 |
|
$ |
0.365 |
|
March 31, 2014 |
|
$ |
35.54 |
|
$ |
26.44 |
|
$ |
0.36 |
|
December 31, 2013 |
|
$ |
29.50 |
|
$ |
19.29 |
|
$ |
0.36 |
|
September 30, 2013 |
|
$ |
22.05 |
|
$ |
18.22 |
|
$ |
0.34 |
|
June 30, 2013 |
|
$ |
21.89 |
|
$ |
17.63 |
|
$ |
0.33 |
|
March 31, 2013 |
|
$ |
18.58 |
|
$ |
14.70 |
|
$ |
0.33 |
|
- (1)
- Cash
distributions declared in respect of a calendar quarter are paid in the following calendar quarter.
- (2)
- The
high and low sales prices per common unit are through March 23, 2015.
- (3)
- The
distribution attributable to the quarter ending March 31, 2015 has not yet been declared or paid. We expect to declare and pay a cash
distribution within 45 days following the end of each quarter.
The
last reported sales price of our common units on the New York Stock Exchange on March 23, 2015 was $27.36 per unit. As of [February 11], 2015,
there were [35,926] record holders of our common units.
S-14
Table of Contents
SELLING UNITHOLDER
This prospectus supplement covers the offering for resale of an aggregate 22,800,000 common units owned by the Selling Unitholder. The
Selling Unitholder will pay all expenses of the registration of the common units offered hereby, including SEC filing fees, and all underwriting discounts and selling commissions, if any.
In
October 2013, we entered into a privately negotiated Contribution Agreement (the "Contribution Agreement") with, among other parties, Devon and certain of Devon's wholly owned
subsidiaries. Upon consummation of the transactions contemplated by the Contribution Agreement in March 2014, we issued and sold to Devon Gas Services, L.P. and Southwestern Gas Pipeline,
L.L.C. (the "Selling Unitholder") certain Class B common units representing limited partner interests in us (the "Class B Units"). The Class B Units automatically converted to
common units on May 6, 2014. Pursuant to the Unitholder Agreement we entered into with the Selling Unitholder, Devon Gas Services, L.P. and certain other parties, we agreed to prepare
and file a shelf registration statement as soon as reasonably practicable following the written request of the Selling Unitholder with respect to the common units to be issued upon conversion
of the Class B Units.
The
following table sets forth certain information regarding beneficial ownership of our common units by the Selling Unitholder, both immediately prior to and immediately after giving
effect to this offering. The percentages of common units outstanding have been calculated based on 290,696,007 common units outstanding as of March 18, 2015 (including 6,704,285 Class C
common units and 31,618,311 Class D common units). Beneficial ownership has been determined in accordance with the applicable rules and regulations promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Except as indicated in the footnotes to the table below, to our knowledge, the Selling Unitholder has sole voting and investment power with respect to all
common units beneficially owned by it. The business address for the Selling Unitholder is 333 W. Sheridan Avenue, Oklahoma City, Oklahoma 73102.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Units
Beneficially
Owned Prior to
the Offering |
|
|
|
Common Units
Beneficially
Owned After the
Offering(1) |
|
|
|
Number of
Common Units
Offered(1) |
|
Name of Beneficial Owner
|
|
Number |
|
Percent |
|
Number |
|
Percent |
|
Southwestern Gas Pipeline, L.L.C.(2) |
|
|
33,751,883 |
|
|
11.6 |
|
|
22,800,000 |
|
|
10,951,883 |
|
|
3.8 |
% |
- (1)
- Assumes
that the underwriters do not exercise their option to purchase additional common units. If the underwriters exercise in full their option to
purchase additional common units, the Selling Unitholder will own 7,531,883 of our common units after giving effect to this offering, representing 2.6% of our outstanding common units.
- (2)
- The
Selling Unitholder is a Texas limited liability company that is a wholly owned subsidiary of Devon. Devon indirectly owns 70% of the common units and
all of the limited liability company interests of the managing member of EnLink Midstream, LLC, which is the indirect parent company of our general partner. The board of directors of Devon has
voting and dispositive power over these units. The board of directors of Devon consists of John Richels, Larry Nichols, Barbara Baumann, John Bethancourt, Robert Henry, John Hill, Michael Kanovsky,
Robert Mosbacher, Jr., Duane Radtke and Mary Ricciardello, none of whom individually have voting and dispositive power over these units. Each such person expressly disclaims beneficial ownership over
these units, except to the extent of any pecuniary interest therein.
The
Selling Unitholder, as an affiliate of EnLink Midstream Partners, LP, is an "underwriter" within the meaning of the Securities Act of 1933, as amended, and, as a result, is
deemed to be making a primary offering of securities, indirectly, on our behalf.
S-15
Table of Contents
MATERIAL INCOME TAX CONSIDERATIONS
The tax consequences to you of an investment in our common units will depend in part on your own tax circumstances. For a discussion of
the principal federal income tax considerations associated with our operations and the purchase, ownership and disposition of our common units, please read "Material Income Tax Considerations" in the
accompanying base prospectus. Please also read under the heading "Risk FactorsTax Risks to Our Unitholders" in our Annual Report on Form 10-K for the year ended December 31,
2014, for a discussion of the tax risks related to purchasing and owning our common units. You are urged to consult with your own tax advisor about the federal, state, local and foreign tax
consequences peculiar to your circumstances.
We estimate that if you purchase common units in this offering and own them through December 31, 2017, then you will be
allocated, on a cumulative basis, an amount of federal taxable income for that period that will be 20% or less of the cash distributed with respect to that period. Thereafter, we anticipate that the
ratio of allocable taxable income to cash distributions to the unitholders will increase. These estimates are based upon the assumption that gross income from operations will approximate the amount
required to make the current quarterly distribution amount on all units and other assumptions with respect to capital expenditures, cash flow, net working capital and anticipated cash distributions.
These estimates and assumptions are subject to, among other things, numerous business, economic, regulatory, competitive and political uncertainties beyond our control. Further, the estimates are
based on current tax law and tax reporting positions that we will adopt and with which the IRS could disagree. Accordingly, we cannot assure you that these estimates will prove to be correct. The
actual ratio of taxable income to distributions could be higher or lower than expected, and any differences could be material and could materially affect the value of the common units. For example,
the ratio of allocable taxable income to cash distributions to a purchaser of common units in this offering will be higher, and perhaps substantially higher, than our estimate with respect to the
period described above if:
-
- gross income from operations exceeds the amount required to make the current quarterly distribution amount on all units, yet we only
distribute the current quarterly distribution amount on all units; or
-
- we make a future offering of common units and use the proceeds of the offering in a manner that does not produce substantial
additional deductions during the period described above, such as to repay indebtedness outstanding at the time of this offering or to acquire property that is not eligible for depreciation or
amortization for federal income tax purposes or that is depreciable or amortizable at a rate significantly slower than the rate applicable to our assets at the time of this offering.
Ownership of common units by tax-exempt entities, regulated investment companies and non-U.S. investors raises issues unique to such
persons. Please read "Material Income Tax ConsiderationsTax-Exempt Organizations and Other Investors" in the accompanying base prospectus.
S-16
Table of Contents
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement, the Selling Unitholder has agreed to sell to the underwriters
named below, and the underwriters, for whom Morgan Stanley & Co. LLC is acting as representative, have severally (and not jointly) agreed to purchase from the Selling Unitholder,
the respective number of common units appearing opposite their names below:
|
|
|
|
|
Name
|
|
Number of
Common Units |
|
Morgan Stanley & Co. LLC |
|
|
|
|
Merrill Lynch, Pierce, Fenner & Smith
Incorporated |
|
|
|
|
Barclays Capital Inc. |
|
|
|
|
Wells Fargo Securities, LLC |
|
|
|
|
J.P. Morgan Securities LLC |
|
|
|
|
UBS Securities LLC |
|
|
|
|
Citigroup Global Markets Inc. |
|
|
|
|
Credit Suisse Securities (USA) LLC |
|
|
|
|
Deutsche Bank Securities Inc. |
|
|
|
|
Goldman, Sachs & Co. |
|
|
|
|
RBC Capital Markets, LLC |
|
|
|
|
Jefferies LLC |
|
|
|
|
Raymond James & Associates, Inc. |
|
|
|
|
Robert W. Baird & Co. Incorporated |
|
|
|
|
Oppenheimer & Co. Inc. |
|
|
|
|
|
|
|
|
|
Total: |
|
|
22,800,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
underwriting agreement provides that the obligations of the several underwriters are subject to various conditions, including approval of legal matters by counsel. The underwriters
are obligated, severally and not jointly, to purchase all of the common units (other than those covered by the option to purchase additional common units described below) if they purchase any of the
common units. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or, under certain limited circumstances,
the underwriting agreement may be terminated.
Option to Purchase Additional Common Units
The Selling Unitholder has granted the underwriters a 30-day option, exercisable from the date of this prospectus supplement, to
purchase up to an additional 3,420,000 common units at the public offering price less the underwriting discounts and commissions to cover over-allotments. This option may be exercised if the
underwriters sell more than 22,800,000 common units in connection with this offering. To the extent the option is exercised, each underwriter must, subject to the terms and conditions contained in the
underwriting agreement, purchase a number of additional common units approximately proportionate to that underwriters' initial purchase commitment.
Underwriting Discounts and Expenses
The underwriters propose to offer some of the common units directly to the public at the public offering price set forth on the cover
page of this prospectus supplement and some of the common units to dealers at the public offering price less a concession not to exceed $ per common unit. After the offering, the
underwriters may change the public offering price and the other selling terms. The offering of
S-17
Table of Contents
the
common units by the underwriters is subject to receipt and acceptance and subject to the underwriters' right to reject any order in whole or in part.
The
following table shows the per common unit and total public offering price, underwriting discounts and commissions, and proceeds before expenses to us. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to purchase up to an additional 3,420,000 common units.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Per
Common
Unit |
|
No
Exercise |
|
Full
Exercise |
|
Public offering price |
|
$ |
|
|
$ |
|
|
$ |
|
|
Underwriting discounts and commissions to be paid by the Selling Unitholder |
|
$ |
|
|
$ |
|
|
$ |
|
|
Proceeds, before expenses, to the Selling Unitholder |
|
$ |
|
|
$ |
|
|
$ |
|
|
The
Selling Unitholder is paying the underwriting discounts and commissions relating to the common units it is selling. In addition, the estimated offering expenses payable by the
Selling Unitholder are approximately $400,000.
Our
common units are listed on the New York Stock Exchange under the trading symbol "ENLK".
Lock-Up Agreements
We, our general partner, certain of our affiliates, certain officers and directors of our general partner and the Selling Unitholder
have agreed that, without the prior written consent of Morgan Stanley & Co. LLC on behalf of the underwriters, we and they will not, during the period ending 30 days after
the date of this prospectus, (i) issue, offer to sell, sell, pledge or otherwise transfer or dispose of (or enter into any transaction or device that is designed to, or could be expected to,
result in the transfer or disposition by any person at any time in the future of) any of our common units or securities convertible into or exchangeable or exercisable for our common units,
(ii) enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of our common units or any
securities convertible into or exchangeable or exercisable for our common units, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of our
common units or such other securities, in cash or otherwise, (iii) file or cause to be filed a registration statement under the Securities Act of 1933, as amended, with respect to the
registration of our common units or securities convertible, exercisable or exchangeable into our common units or any other securities of the Partnership or (iv) publicly announce an intention
to effect any transaction specified in clause (i), (ii) or (iii). These restrictions do not apply to, among other things, (a) bona fide gifts approved by Morgan
Stanley & Co. LLC, (b) dispositions to any trust for the direct or indirect benefit of the executive officers and directors and/or the immediate family of such executive
officers and directors, provided that such trust agrees in writing with Morgan Stanley & Co. LLC to be bound by the terms described in the preceding sentence and provided,
further, that no filing by any party under the Exchange Act shall be required or shall be made voluntarily in connection with such transfer or distribution (other than a filing on a Form 5 made
after the expiration of the 30-day period referred to above), (c) the sale of common units pursuant to the underwriting agreement, (d) issuances of common units by us pursuant to any
employee benefit plan in effect as of the date of the underwriting agreement, (e) dispositions to satisfy any tax or other governmental withholding obligation with respect to any award of
equity-based compensation under a compensation arrangement in effect as of the date of the underwriting agreement, (f) issuances of common units by us or securities convertible into or
exchangeable for common units in connection with an acquisition, including the VEX Acquisition, subject to certain restrictions, and (g) issuances of common units by us pursuant our existing
at-the-market offering program.
S-18
Table of Contents
Price Stabilization, Short Positions and Penalty Bids
In connection with the offering, the underwriters may purchase and sell common units in the open market. These transactions may include
short sales, covering transactions and stabilizing transactions. Short sales involve sales of common units in excess of the number of common units to be purchased by the underwriters in the offering,
which creates a short position. "Covered" short sales are sales of common units made in an amount up to the number of common units represented by the underwriters' over-allotment option. In
determining the source of common units to close out the covered short position, the underwriters will consider, among other things, the price of common units available for purchase in the open market
as compared to the price at which they may purchase units through the over-allotment option. Transactions to close out the covered short position involve either purchases of the common units in the
open market after the distribution has been completed or the exercise of the over-allotment option. The underwriters may also make "naked" short sales of common units in excess of the over-allotment
option. The underwriters must close out any naked short position by purchasing common units in the open market. A naked short position is more likely to be created if the underwriters are concerned
that there may be downward pressure on the price of the common units in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions
consist of bids for or purchases of common units in the open market while the offering is in progress.
The
underwriters also may impose a penalty bid. Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when it repurchases common units originally
sold by that syndicate member in order to cover syndicate short positions or make stabilizing purchases.
Any
of these activities may have the effect of preventing or retarding a decline in the market price of the common units. They may also cause the price of the common units to be higher
than the price that would otherwise exist in the open market in the absence of these transactions. The underwriters may conduct these transactions on the New York Stock Exchange or in the
over-the-counter market, or otherwise. If the underwriters commence any of these transactions, they may discontinue them at any time. Neither we nor the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the common units.
Conflicts of Interest/FINRA Rules
The underwriters are full service financial institutions engaged in various activities, which may include securities trading,
commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. The
underwriters and their respective affiliates have in the past performed commercial banking, investment banking and advisory services for us from time to time for which they have received customary
fees and reimbursement of expenses and may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business for which they may receive customary
fees and reimbursement of expenses. In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and
actively trade debt and equity securities (or related derivative securities) and financial instruments (which may include bank loans and/or credit default swaps) for their own account and for the
accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investments and securities activities may involve securities and/or instruments
of ours or our affiliates.
In
addition, affiliates of certain of the underwriters are lenders, and in some cases agents or managers for the lenders, under our and our affiliates' revolving credit facilities.
Certain of the underwriters or their affiliates that have a lending relationship with us and our affiliates' routinely hedge their credit exposure to us consistent with their customary risk management
policies. A typical hedging strategy would include these underwriters or their affiliates hedging such exposure by entering into transactions which consist of either the purchase of credit default
swaps or the creation of short positions in our and our affiliates'
S-19
Table of Contents
securities.
Any such credit default swaps or short positions could adversely affect future trading prices of our and our affiliates' securities. The underwriters and their affiliates may also make
investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long
and/or short positions in such securities and instruments.
Because
the Financial Industry Regulatory Authority, or FINRA, views our common units as interests in a direct participation program, the offering is being made in compliance with
Rule 2310 of the FINRA Rules. Investor suitability with respect to the common units will be judged similarly to the suitability with respect to other securities that are listed for trading on a
national securities exchange.
Electronic Distribution
This prospectus supplement and the accompanying base prospectus in electronic format may be made available on the websites maintained
by the underwriters. The underwriters may agree to allocate a number of common units for sale to their online brokerage
account holders. The common units will be allocated to the underwriters, which may make Internet distributions on the same basis as other allocations. In addition, common units may be sold by the
underwriters to securities dealers who resell common units to online brokerage account holders.
Other
than this prospectus supplement and the accompanying base prospectus in electronic format, information contained in any websites maintained by the underwriters is not part of this
prospectus supplement or the accompanying base prospectus or registration statement of which the accompanying base prospectus forms a part, has not been endorsed by us and should not be relied
on by investors in deciding whether to purchase common units. The underwriters are not responsible for information contained in websites that they do not maintain.
Indemnification
We and the Selling Unitholder have agreed to indemnify the underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the underwriters may be required to make because of any of those liabilities.
S-20
Table of Contents
LEGAL MATTERS
The validity of the common units will be passed upon for us by Baker Botts L.L.P., Dallas, Texas. Certain legal matters in
connection with the common units offered hereby will be passed upon for the underwriters by Latham & Watkins LLP, Houston, Texas. Certain legal matters will be passed upon for the
Selling Unitholder by Vinson & Elkins LLP, Houston, Texas.
AVAILABLE INFORMATION
We file annual, quarterly and other reports and other information with the Commission under the Exchange Act. You may read and copy any
reports, statements or other information filed by us at the SEC's public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. Our filings with the SEC are also available to the public from commercial document retrieval services and at the SEC's website at http://www.sec.gov.
We
make available free of charge on our internet website at www.enlink.com our Annual Reports on Form 10-K, our Quarterly Reports
on Form 10-Q, our Current Reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to,
the SEC. Information contained on our website is not incorporated by reference into this prospectus supplement and you should not consider such information as part of this prospectus supplement.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" the information we have filed with the SEC. This means that we can disclose important
information to you without actually including the specific information in this prospectus supplement by referring you to those documents. The information incorporated by reference is an important part
of this prospectus supplement. Information that we file later with the SEC will automatically update and may replace information in this prospectus supplement and information previously filed with the
SEC. We incorporate by reference the documents listed below and any future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act (excluding any information
furnished under Items 2.02 or 7.01 on any Current Report on Form 8-K), including all such documents we may file with the SEC after the date of this prospectus supplement and until the
termination of this offering:
-
- our Annual Report on Form 10-K for the year ended December 31, 2014;
-
- our Current Reports on Form 8-K filed on February 5, 2015, February 11, 2015, February 17, 2015,
February 20, 2015, March 16, 2015 and March 24, 2015 (in each case to the extent filed and not furnished); and
-
- the description of our common units in our registration statement on Form 8-A (File No. 001-36340) filed pursuant to the
Exchange Act on March 7, 2014.
You
may obtain any of the documents incorporated by reference in this prospectus supplement from the SEC through the SEC's website at the address provided above. You also may request a
copy of any document incorporated by reference in this prospectus (including exhibits to those documents specifically incorporated by reference in this document), at no cost, by visiting our internet
website at www.enlink.com, or by writing or calling us at the following address:
EnLink
Midstream Partners, LP
2501 Cedar Springs Road
Dallas, Texas 75201
Attention: Investor Relations
Telephone: (214) 953-9500
S-21
Table of Contents
PROSPECTUS
EnLink Midstream Partners, LP
Debt Securities
Common Units
Partnership Securities
The following securities may be offered under this prospectus:
-
- Debt securities of EnLink Midstream Partners, LP;
-
- Common units representing limited partner interests in EnLink Midstream Partners, LP; and
-
- Partnership securities of EnLink Midstream Partners, LP.
The
securities we may offer:
-
- will be offered at prices and on terms to be determined by market conditions and other factors at the time of our offerings and to be
set forth in one or more accompanying prospectus supplements; and
-
- may be offered separately or together, or in separate series.
This
prospectus describes only the general terms of these securities and the general manner in which we will offer the securities. The specific terms of any securities we offer will be
included in a supplement to this prospectus. The prospectus supplement will describe the specific manner in which we will offer the securities and also may add, update or change information contained
in this prospectus.
Our
common units are traded on the New York Stock Exchange under the symbol "ENLK."
Investing in our securities involves risk. You should carefully consider the risk factors described under "Risk Factors"
beginning on page 1 of this prospectus before you make any investment in our securities.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these
securities or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The
date of this prospectus is March 10, 2014
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You should rely only on the information we have provided or incorporated by reference in this prospectus. We have not authorized any person to provide you with
additional or different information. You should not assume that the information in this prospectus is accurate as of any date other than the date on the cover page of this prospectus or that any
information we have incorporated by reference is accurate as of any date other than the date of the documents incorporated by reference. Our business, financial condition, results of operations and
prospects may have changed since those dates.
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-3 that we have filed with the Securities and Exchange Commission
(the "SEC") using a "shelf" registration process. This prospectus provides you with a general description of us and the securities offered under this prospectus, which we may sell in one or more
offerings.
Each
time we sell securities under this prospectus, we will provide a prospectus supplement that will contain specific information about the terms of that offering and the securities
being offered. The prospectus supplement also may add to, update or change information in this prospectus. If there is any inconsistency between the information in this prospectus and any prospectus
supplement, you should rely on the information in the prospectus supplement. You should read carefully this prospectus, any prospectus supplement and the additional information described below under
the heading "Where You Can Find More Information."
As
used in this prospectus, "we," "us" and "our" and similar terms mean EnLink Midstream Partners, LP and its subsidiaries, including EnLink Midstream Holdings, LP ("Midstream
Holdings"),
unless the context indicates otherwise. Midstream Holdings was formerly a wholly-owned subsidiary of Devon Energy Corporation ("Devon"), and, under the acquisition method of accounting, it is
considered the historical predecessor of our business because Devon obtained control of us through its control of EnLink Midstream, LLC and EnLink Midstream, LLC's indirect acquisition
of our general partner on March 7, 2014.
ENLINK MIDSTREAM PARTNERS, LP
EnLink Midstream Partners, LP (formerly known as Crosstex Energy, L.P.) is a publicly traded Delaware limited partnership
formed in 2002. We primarily focus on providing midstream energy services, including gathering, transmission, processing, fractionation and marketing, to producers of natural gas, NGLs, crude oil and
condensate. We also provide crude oil, condensate and brine services to producers.
Our
general partner, EnLink Midstream GP, LLC, is a Delaware limited liability company and has ultimate responsibility for conducting our business and managing our
operations.
Our
executive offices are located at 2501 Cedar Springs Rd., Dallas, Texas 75201, and our telephone number is (214) 953-9500.
RISK FACTORS
An investment in our securities involves a high degree of risk. Before you invest in our securities, you should carefully consider the
risk factors described in our most recent annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, all of which are incorporated herein by
reference and any other risk factors that may be described in the applicable prospectus supplement, together with all of the other information included in this prospectus, any prospectus supplement
and the documents we incorporate by reference. If any of these risks were to occur, our business, financial condition or results of operations could be adversely affected. In that case, the trading
price of our units or debt securities could decline and you could lose all or part of your investment. When we offer and sell any securities pursuant to a prospectus supplement, we may include
additional risk factors relevant to such securities in the prospectus supplement.
FORWARD-LOOKING STATEMENTS
Some of the information included in this prospectus, any prospectus supplement and the documents we incorporate by reference contain
forward-looking statements that are based on information currently available to management as well as management's assumptions and beliefs. All
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statements,
other than statements of historical fact, included in this prospectus constitute forward-looking statements, including but not limited to statements identified by the words "may," "will,"
"should," "plan," "predict," "anticipate," "believe," "intend," "estimate" and "expect" and similar expressions. Such statements reflect our current views with respect to future events, based on what
we believe are reasonable assumptions; however, such statements are subject to certain risks and uncertainties. In addition to the specific uncertainties discussed elsewhere in this prospectus, the
risk factors set forth in "Risk Factors" may affect our performance and results of operations. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may differ materially from those in the forward-looking statements. We disclaim any intention or obligation to update or review any forward-looking statements or information,
whether as a result of new information, future events or otherwise.
USE OF PROCEEDS
Unless we specify otherwise in any prospectus supplement, we will use the net proceeds we receive from the sale of securities covered
by this prospectus for general partnership purposes, which may include, among other things:
-
- paying or refinancing all or a portion of our indebtedness outstanding at the time; and
-
- funding working capital, capital expenditures or acquisitions.
The
actual application of proceeds from the sale of any particular offering of securities using this prospectus will be described in the applicable prospectus supplement relating to such
offering. The precise amount and timing of the application of these proceeds will depend upon our funding requirements and the availability and cost of other funds.
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RATIO OF EARNINGS TO FIXED CHARGES
For the five fiscal years ended December 31, 2013, EnLink Midstream Holdings, LP Predecessor had no fixed charges and no
preferred securities for which it was required to pay distributions. Accordingly, we have no ratio of earnings to fixed charges, and no ratio of earnings to combined fixed charges and preferred
security distributions, to illustrate for this period.
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DESCRIPTION OF THE DEBT SECURITIES
We will issue debt securities under an indenture among EnLink Midstream Partners, LP, any guarantors party thereto and a trustee
that we will name in the related prospectus supplement. If we offer senior debt securities, we will issue them under a senior indenture. If we offer subordinated debt securities, we will issue them
under a subordinated indenture. The term
"Trustee" as used in this prospectus refers to the trustee under any of the above indentures. References in this prospectus to an "Indenture" are to the particular indenture under which we may issue a
series of debt securities, in each case as supplemented by a supplemental indenture that establishes the form and terms of that series of debt securities. Any series of debt securities that we may
issue will be governed by the provisions of the related Indenture and those made part of that Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
This
description is a summary of the material provisions of the debt securities and the Indentures. We urge you to read the forms of Indentures filed as exhibits to the registration
statement of which this prospectus is a part because those Indentures, and not this description, govern your rights as a holder of debt securities. When we offer and sell any particular series of our
debt securities under this prospectus, we will file the supplemental indenture establishing the form and terms of that series as an exhibit to a Current Report on Form 8-K.
General
Any series of debt securities:
-
- may be issued in fully registered form;
-
- will be our general obligations; and
-
- will be general obligations of any guarantors that guarantee the series.
The
Indenture will not limit the total amount of debt securities that may be issued. Debt securities of any series, however, will be issued only up to the aggregate amount authorized for
such series and set forth in the prospectus supplement pertaining to that series.
We
will prepare a prospectus supplement and either an indenture supplement or a board resolution of our general partner and accompanying officers' certificate relating to any series of
debt securities that we offer, which will include specific terms relating to some or all of the following:
-
- whether the debt securities are senior or subordinated debt securities;
-
- the form and title of the debt securities;
-
- the total principal amount of the debt securities;
-
- the date or dates on which the debt securities may be issued;
-
- the portion of the principal amount which will be payable if the maturity of the debt securities is accelerated;
-
- the dates on which the principal of and premium, if any, on the debt securities will be payable;
-
- the rates at which the debt securities will bear interest and the interest payment dates for the debt securities;
-
- any option or conversion provisions;
-
- any optional redemption provisions;
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-
- any sinking fund or other provisions that would obligate us to redeem or otherwise repurchase the debt securities;
-
- whether the debt securities are entitled to the benefits of the guarantee of any guarantor;
-
- whether the debt securities may be issued in amounts other than $1,000 each or multiples thereof;
-
- any changes to or additional Events of Default or covenants; and
-
- any other terms of the debt securities.
This
description of debt securities will be deemed modified, amended or supplemented by any description of any series of debt securities set forth in a prospectus supplement related to
that series.
The
prospectus supplement will also describe any material United States federal income tax consequences or other special considerations regarding the applicable series of debt
securities, including those relating to:
-
- debt securities with respect to which payments of principal, premium or interest are determined with reference to an index or formula,
including changes in prices of particular securities, currencies or commodities;
-
- debt securities with respect to which principal, premium or interest is payable in a foreign or composite currency;
-
- debt securities that are issued at a discount below their stated principal amount, bearing no interest or interest at a rate that at
the time of issuance is below market rates; and
-
- variable rate debt securities that are exchangeable for fixed rate debt securities.
Interest
payments on debt securities in certificated form may be made by check mailed to the registered holders or, if so stated in the applicable prospectus supplement, at the option of
a holder, by wire transfer to an account designated by the holder.
Unless
otherwise provided in the applicable prospectus supplement, debt securities may be transferred or exchanged at the office of the Trustee at which its corporate trust business is
principally administered in the United States, subject to the limitations provided in the Indenture, without the payment of any service charge, other than any applicable tax or other governmental
charge.
Any
funds paid to the Trustee or any paying agent for the payment of amounts due on any debt securities that remain unclaimed for two years will be returned to us, and the holders of the
debt securities must look only to us for payment after that time.
Our payment obligations under any series of debt securities may be jointly and severally, fully and unconditionally guaranteed by one
or more guarantors. The applicable prospectus supplement will describe the terms of any guarantee by the guarantors.
The
obligations of each guarantor under its guarantee of the debt securities will be limited to the maximum amount that will not result in the obligations of the guarantor under the
guarantee constituting a fraudulent conveyance or fraudulent transfer under federal or state law, after giving effect to:
-
- all other contingent and fixed liabilities of the guarantor; and
-
- any collections from or payments made by or on behalf of any other guarantor in respect of the obligations of such other guarantor
under its guarantee.
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The
guarantee of any guarantor may be released under certain circumstances. If no default has occurred and is continuing under the Indenture, and to the extent not otherwise prohibited
by the Indenture, a guarantor will be unconditionally released and discharged from the guarantee:
-
- automatically upon any sale, exchange or transfer, whether by way of merger or otherwise, to any person that is not our affiliate, of
all of our direct or indirect limited liability company or other equity interests in the guarantor (provided the sale, exchange or transfer is not prohibited by the Indenture);
-
- automatically upon the merger of the guarantor into us or any other guarantor or the liquidation and dissolution of the guarantor; or
-
- following delivery of a written notice of the release or discharge by us to the Trustee, upon the release or discharge of all
guarantees by the guarantor of any debt of ours other than obligations arising under the Indenture and any debt securities issued thereunder, except a discharge or release by or as a result of payment
under the guarantees.
If
a series of debt securities is guaranteed by the guarantors and is designated as subordinate to our senior indebtedness, then the guarantees by the guarantors will be subordinated to
the senior indebtedness of the guarantors to substantially the same extent as the series is subordinated to our senior indebtedness. See "Provisions Relating Only to the Subordinated Debt
SecuritiesSubordinated Debt Securities Subordinated to Senior Indebtedness."
Certain Covenants
The covenants set forth in the Indenture include the following:
Payment of Principal, any Premium, Interest or Additional Amounts. We will duly and punctually pay the principal of, and premium and
interest on or
any additional amounts payable with respect to, any debt securities of any series in accordance with their terms and the terms of the Indenture.
Maintenance of Office or Agency. We will maintain an office or agency in each place of payment for each series of debt securities for
notice and
demand purposes and for the purposes of presenting or surrendering debt securities for payment, registration of transfer or exchange.
Reports. So long as any debt securities are outstanding, we will:
-
- during such time as we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), file with the Trustee, within 15 days after we file the same with the SEC, unless such reports are available on the SEC's EDGAR filing system (or any successor thereto), copies of the
annual reports and the information, documents and other reports which it is required to file with the SEC pursuant to the Exchange Act; and
-
- during such time as we are not subject to the reporting requirements of the Exchange Act, file with the Trustee, within 15 days
after we would have been required to file the same with the SEC, financial statements, including any notes thereto (and with respect to annual reports, an auditors' report by a firm of established
national reputation) and a Management's Discussion and Analysis of Financial Condition and Results of Operations, both comparable to what we would have been required to file with the SEC had we been
subject to the reporting requirements of the Exchange Act.
Additional Covenants. Any additional covenants with respect to any series of debt securities will be set forth in the supplemental
indenture or board
resolution and officer's certificate and prospectus supplement relating thereto.
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Events of Default, Remedies and Notice
Unless otherwise specified in a supplement to the Indenture, each of the following events will be an "Event of Default" under the
Indenture with respect to a series of debt securities:
-
- default in any payment of interest on any debt securities of that series when due that continues for 30 days;
-
- default in the payment of principal of or premium, if any, on any debt securities of that series when due at its stated maturity, upon
redemption, upon required repurchase or otherwise;
-
- default in the payment of any sinking fund payment on any debt securities of that series when due;
-
- failure by us or, if the series of debt securities is guaranteed by the guarantors, by a guarantor to comply for 60 days after
notice with the other agreements contained in the Indenture, any supplement to the Indenture with respect to that series or any board resolution authorizing the issuance of that series;
-
- certain events of bankruptcy, insolvency or reorganization of us or, if the series of debt securities is guaranteed by the guarantors,
of the guarantors; or
-
- if the series of debt securities is guaranteed by the guarantors: (i) any of the guarantees by the guarantors ceases to be in
full force and effect, except as otherwise provided in the Indenture; (ii) any of the guarantees by the guarantors is declared null and void in a judicial proceeding; or (iii) any
guarantor denies or disaffirms its obligations under the Indenture or its guarantee.
If an Event of Default, other than an Event of Default described in the fifth bullet point above, occurs and is continuing with respect
to a series of debt securities, the Trustee or the holders of at least 25% in principal amount of the outstanding debt securities of that series may declare the entire principal of, premium, if any,
and accrued and unpaid interest, if any, on all the debt securities of that series to be due and payable immediately. If an Event of Default described in the fifth bullet point above occurs, the
principal of, premium, if any, and accrued and unpaid interest on all outstanding debt securities of all series will become immediately due and payable without any declaration of acceleration or other
act on the part of the Trustee or any holders.
A
default under the fourth bullet point above will not constitute an Event of Default until the Trustee or the holders of 25% in principal amount of the outstanding debt securities of
that series notifies us of the default and such default is not cured within 60 days after receipt of notice.
The
holders of a majority in principal amount of the outstanding debt securities of a series may rescind any declaration of acceleration by the Trustee or the holders with respect to the
debt securities of that series, but only if:
-
- rescinding the declaration of acceleration would not conflict with any judgment or decree of a court of competent jurisdiction; and
-
- all existing Events of Default with respect to that series have been cured or waived, other than the nonpayment of principal, premium
or interest on the debt securities of that series that has become due solely by the declaration of acceleration.
If
an Event of Default occurs and is continuing with respect to a series of debt securities, the Trustee will be under no obligation, except as otherwise provided in the Indenture, to
exercise any of the rights or powers under the Indenture at the request or direction of any of the holders of the debt
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securities
of that series, unless such holders have offered to the Trustee reasonable indemnity or security against any costs, liability or expense. No holder may pursue any remedy with respect to the
Indenture or the debt securities of any series, except to enforce the right to receive payment of principal, premium or interest on its own debt securities when due,
unless:
-
- such holder has previously given the Trustee notice that an Event of Default with respect to that series is continuing;
-
- holders of at least 25% in principal amount of the outstanding debt securities of that series have requested that the Trustee pursue
the remedy;
-
- such holders have offered the Trustee reasonable indemnity or security against any cost, liability or expense to be incurred thereby;
-
- the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of indemnity or
security; and
-
- the holders of a majority in principal amount of the outstanding debt securities of that series have not given the Trustee a direction
that is inconsistent with such request within such 60-day period.
The
holders of a majority in principal amount of the outstanding debt securities of a series have the right, subject to certain restrictions, to direct the time, method and place of
conducting any proceeding
for any remedy available to the Trustee or of exercising any right or power conferred on the Trustee with respect to that series of debt securities. The Trustee, however, may refuse to follow any
direction that:
-
- conflicts with law;
-
- is inconsistent with any provision of the Indenture;
-
- the Trustee determines is unduly prejudicial to the rights of any other holder; or
-
- would involve the Trustee in personal liability.
Within 30 days after the occurrence of an Event of Default, we are required to give written notice to the Trustee and indicate
the status of the default and what action we are taking or propose to take to cure the default. In addition, we are required to deliver to the Trustee, within 120 days after the end of each
fiscal year, a compliance certificate indicating that we have complied with all covenants contained in the Indenture or whether any default or Event of Default has occurred during the previous year.
Within
90 days after the occurrence of any default known to it, the Trustee must mail to each holder of debt securities of the affected series a notice of the default.
Except in the case of a default in the payment of principal, premium or interest with respect to any series of debt securities, the Trustee may withhold such notice, but only if and so long as the
board of directors, the executive committee or a
committee of directors or responsible officers of the Trustee in good faith determines that withholding such notice is in the interests of the holders.
Amendments and Waivers
We may supplement or amend the Indenture without the consent of any holder of debt securities to, among other
things:
-
- cure any ambiguity, omission, defect or inconsistency;
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-
- provide for the assumption by a successor of our obligations under the Indenture;
-
- secure the debt securities;
-
- add covenants for the benefit of the holders or surrender any right or power conferred upon us;
-
- in the case of any subordinated debt security, to make any change in the subordination provisions that limits or terminates the
benefits applicable to any holder of our Senior Indebtedness;
-
- make any change that does not adversely affect the rights of any holder;
-
- add or appoint a successor or separate Trustee;
-
- comply with any requirement of the SEC in connection with the qualification of the Indenture under the Trust Indenture Act; or
-
- establish the form or terms of the debt securities of any new series.
In
addition, we may amend the Indenture if the holders of a majority in principal amount of all debt securities of each series that would be affected then outstanding under the Indenture
consent to it. We may not, however, without the consent of each holder of outstanding debt securities of each series that would be affected, amend the Indenture
to:
-
- reduce the percentage in principal amount of debt securities of any series whose holders must consent to an amendment;
-
- reduce the rate of or extend the time for payment of interest on any debt securities;
-
- reduce the principal of or extend the stated maturity of any debt securities;
-
- reduce the premium payable upon the redemption of any debt securities or change the time at which any debt securities may or shall be
redeemed;
-
- make any debt securities payable in a currency other than that stated in the debt security;
-
- in the case of any subordinated debt security, make any change in the subordination provisions that adversely affects the rights of
any holder under those provisions;
-
- impair the right of any holder to receive payment of premium, principal or interest with respect to such holder's debt securities on
or after the applicable due date;
-
- impair the right of any holder to institute suit for the enforcement of any payment with respect to such holder's debt securities;
-
- release any security that has been granted in respect of the debt securities;
-
- make any change in the amendment provisions which require each holder's consent; or
-
- make any change in the waiver provisions.
It
shall not be necessary for the consent of the holders under the Indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the
substance of the proposed amendment. After an amendment under the Indenture requiring the consent of the holders becomes effective, we are required to mail to all holders a notice briefly describing
the amendment. The failure to give, or any defect in, such notice, however, will not impair or affect the validity of the amendment.
The
holders of a majority in aggregate principal amount of the outstanding debt securities of each affected series, on behalf of all such holders, and subject to certain rights of the
Trustee, may waive:
-
- compliance with certain restrictive provisions of the Indenture; and
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Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect as to all outstanding debt securities of any series issued
thereunder, when:
(a) either:
(1) all
outstanding debt securities of that series that have been authenticated (except lost, stolen or destroyed debt securities that have been replaced or paid and debt
securities for whose payment money has theretofore been deposited in trust and thereafter repaid to us) have been delivered to the Trustee for cancellation; or
(2) all
outstanding debt securities of that series that have not been delivered to the Trustee for cancellation have become due and payable or will become due and payable at
their stated maturity within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee and in any case we have irrevocably deposited with the Trustee
as trust funds cash, certain U.S. government obligations or a combination thereof, in such amounts as will be sufficient, to pay the entire indebtedness of such debt securities not delivered to the
Trustee for cancellation, for principal, premium, if any, and accrued interest to the stated maturity or redemption date;
(b) we
have paid or caused to be paid all other sums payable by us under the Indenture with respect to the debt securities of that series; and
(c) we
have delivered to the Trustee an officers' certificate as to the sufficiency of the trust funds, without reinvestment, to pay the entire indebtedness of such debt
securities at maturity.
Notwithstanding
such satisfaction and discharge, our obligations to compensate and indemnify the Trustee, to pay additional amounts, if any, in respect of debt securities in certain
circumstances and to transfer or exchange debt securities pursuant to the terms thereof and our obligations and the obligations of the Trustee to hold funds in trust and to apply such funds pursuant
to the terms of the Indenture, with respect to issuing temporary debt securities, with respect to the registration, transfer and exchange of debt securities, with respect to the replacement of
mutilated, destroyed, lost or stolen debt securities and with respect to the maintenance of an office or agency for payment, shall in each case survive such satisfaction and discharge.
Defeasance
At any time, we may terminate, with respect to debt securities of a particular series, all our obligations under such series of debt
securities and the Indenture, which we call a "legal defeasance." If we decide to make a legal defeasance, however, we may not terminate our obligations specified in the Indenture, including
those:
-
- relating to the defeasance trust;
-
- to register the transfer or exchange of the debt securities;
-
- to replace mutilated, destroyed, lost or stolen debt securities; or
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-
- to maintain a registrar and paying agent in respect of the debt securities.
At
any time we may also effect a "covenant defeasance," which means we have elected to terminate our obligations under the additional covenants established pursuant to the terms of a
particular series of debt securities, which covenants are not described in the prospectus but will be described in the prospectus supplement applicable to such series, and any Event of Default
resulting from a failure to observe such covenants.
The
legal defeasance option may be exercised notwithstanding a prior exercise of the covenant defeasance option. If the legal defeasance option is exercised, payment of the affected
series of debt securities may not be accelerated because of an Event of Default with respect to that series. If the covenant defeasance option is exercised, payment of the affected series of debt
securities may not be accelerated because of an Event of Default with respect to the fourth and sixth (and, with respect to any guarantor, the fifth) bullet points under "Events of
Default, Remedies and NoticeEvents of Default" above or an Event of Default that is added specifically for such series and described in a prospectus supplement.
In
order to exercise either defeasance option, we must:
-
- irrevocably deposit in trust with the Trustee money or certain U.S. government obligations for the payment of principal, premium, if
any, and interest on the series of debt securities to redemption or stated maturity, as the case may be;
-
- comply with certain other conditions, including that no bankruptcy or default with respect to us has occurred and is continuing
91 days after the deposit in trust; and
-
- deliver to the Trustee an opinion of counsel to the effect that holders of the defeased series of debt securities will not recognize
income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amounts and in the same manner and at the same times as would
have been the case if such defeasance had not occurred. In the case of legal defeasance only, such opinion of counsel must be based on a ruling of the Internal Revenue Service or a change in
applicable Federal income tax law.
No Personal Liability
None of our general partner nor any director, officer, employee, incorporator, manager or unitholder or other owner of equity of our
general partner, our partnership or any guarantor, as such, will be liable for:
-
- any of our obligations under the debt securities or the Indenture; or
-
- any claim based on, in respect of, or by reason of, such obligations or their creation.
By
accepting a debt security, each holder will be deemed to have waived and released all such liability. This waiver and release are part of the consideration for the issuance of the
debt securities. This waiver may not be effective, however, to waive liabilities under the Federal securities laws and it is the view of the SEC that such a waiver is against public policy.
No Protection in the Event of a Change of Control
Unless otherwise set forth in the prospectus supplement, the debt securities will not contain any provisions that protect the holders
of the debt securities in the event of a
change of control in us or in the event of a highly leveraged transaction, whether or not such transaction results in a change of control in us.
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Provisions Relating Only to the Senior Debt Securities
The senior debt securities will rank equally in right of payment with all of our other unsubordinated debt. The senior debt securities
will be effectively subordinated, however, to all of our secured debt to the extent of the value of the collateral securing such debt. We will disclose the amount of our secured debt in the prospectus
supplement.
Provisions Relating Only to the Subordinated Debt Securities
The subordinated debt securities will rank junior in right of payment to all of our and our guarantors' Senior Indebtedness. "Senior
Indebtedness" will be defined in a supplemental indenture respecting any issuance of a series of subordinated debt securities, and the definition will be set forth in the prospectus supplement.
The Indenture respecting any series of subordinated debt securities will provide that no payment of principal, interest and any premium
on the subordinated debt securities or any related guarantee may be made in the event:
-
- we or our property or, if applicable to any series of outstanding debt securities, the guarantors or their property, is involved in
any voluntary or involuntary liquidation or bankruptcy;
-
- we fail to pay the principal, interest, any premium or any other amounts on any of our or, if applicable to any series of outstanding
debt securities, the guarantors' Senior Indebtedness within any applicable grace period or the maturity of such Senior Indebtedness is accelerated following any other default, subject to certain
limited exceptions set forth in the Indenture; or
-
- any other default on any of our or, if applicable to any series of outstanding debt securities, the guarantors' Senior Indebtedness
occurs that permits immediate acceleration of its maturity, in which case a payment blockage on the subordinated debt securities will be imposed for a maximum of 179 days at any one time.
The Indenture respecting any series of subordinated debt securities will not limit the amount of Senior Indebtedness that we may incur,
unless otherwise indicated in the prospectus supplement.
Book Entry, Delivery and Form
The debt securities of a particular series may be issued in whole or in part in the form of one or more global certificates that will
be deposited with the Trustee as custodian for The Depository Trust Company, New York, New York ("DTC"). This means that we will not issue certificates to each holder except in the limited
circumstances described below. Instead, one or more global debt securities will be issued to DTC, who will keep a computerized record of its participants (for example, your broker) whose clients have
purchased the debt securities. The participant will then keep a record of its clients who purchased the debt securities. Unless it is exchanged in whole or in part for a certificated debt security, a
global debt security may not be transferred, except that DTC, its nominees and their successors may transfer a global debt security as a whole to one another.
Beneficial
interests in global debt securities will be shown on, and transfers of global debt securities will be made only through, records maintained by DTC and its participants.
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DTC
has provided us the following information: DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the
New York Banking Law, a member of the United States Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered under
the provisions of Section 17A of the Exchange Act. DTC holds securities that its participants ("Direct Participants") deposit with DTC. DTC also records the settlement among Direct Participants
of securities transactions, such as transfers and pledges, in deposited securities through computerized records for Direct Participants' accounts. This eliminates the need to exchange certificates.
Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations.
DTC's
book-entry system is also used by other organizations such as securities brokers and dealers, banks and trust companies that work through a Direct Participant. The rules that apply
to DTC and its participants are on file with the SEC.
DTC
is a wholly owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed
Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries.
We
will wire all payments on the global debt securities to DTC's nominee. We and the Trustee will treat DTC's nominee as the owner of the global debt securities for all purposes.
Accordingly, we, the Trustee and any paying agent will have no direct responsibility or liability to pay amounts due on the global debt securities to owners of beneficial interests in the global debt
securities.
It
is DTC's current practice, upon receipt of any payment on the global debt securities, to credit Direct Participants' accounts on the payment date according to their respective
holdings of beneficial interests in the global debt securities as shown on DTC's records. In addition, it is DTC's current practice to assign any consenting or voting rights to Direct Participants
whose accounts are credited with debt securities on a record date, by using an omnibus proxy. Payments by participants to owners of beneficial interests in the global debt securities, and voting by
participants, will be governed by the customary practices between the participants and owners of beneficial interests, as is the case with debt securities held for the account of customers registered
in "street name." However, payments will be the responsibility of the participants and not of DTC, the Trustee or us.
Debt
securities represented by a global debt security will be exchangeable for certificated debt securities with the same terms in authorized denominations only
if:
-
- DTC notifies us that it is unwilling or unable to continue as depositary or if DTC ceases to be a clearing agency registered under
applicable law and in either event a successor depositary is not appointed by us within 90 days; or
-
- an Event of Default occurs and DTC notifies the Trustee of its decision to exchange the global debt security for certificated debt
securities.
Governing Law
Each Indenture and all of the debt securities will be governed by the laws of the State of New York.
The Trustee
We will enter into each Indenture with a Trustee that is qualified to act under the Trust Indenture Act and with any other trustee
chosen by us and appointed in a supplemental indenture for a particular series of debt securities. Unless we otherwise specify in the applicable prospectus supplement, the
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Trustee
for each series of debt securities will be Wells Fargo Bank, National Association. We may maintain a banking relationship in the ordinary course of business with our Trustee and one or more of
its affiliates.
If the Trustee has or acquires a conflicting interest within the meaning of the Trust Indenture Act after a default has occurred and is
continuing, the Trustee must either eliminate its conflicting interest within 90 days, apply to the SEC for permission to continue as Trustee or resign, to the extent and in the manner provided
by, and subject to the provisions of, the Trust Indenture Act and the applicable Indenture. Any resignation will require the appointment of a successor trustee under the applicable Indenture in
accordance with the terms and conditions of such Indenture.
The
Trustee may resign or be removed by us with respect to one or more series of debt securities and a successor Trustee may be appointed to act with respect to any such series. The
holders of a majority in aggregate principal amount of the debt securities of any series may remove the Trustee with respect to the debt securities of such series.
Each Indenture will contain certain limitations on the right of the Trustee, in the event that it becomes a creditor of us, to obtain
payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise.
The Trustee is required to submit an annual report to the holders of the debt securities regarding, among other things, the Trustee's
eligibility to serve as such, the priority of the Trustee's claims regarding certain advances made by it, and any action taken by the Trustee materially affecting the debt securities.
Each Indenture will provide that, in addition to other certificates or opinions that may be specifically required by other provisions
of the Indenture, every application by us for action by the Trustee will be accompanied by a certificate of certain of our officers and an opinion of counsel (who may be our counsel) stating that, in
the opinion of the signers, all conditions precedent to such action have been complied with by us.
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DESCRIPTION OF THE COMMON UNITS
The common units represent limited partner interests in EnLink Midstream Partners, LP that entitle the holders to participate in
our cash distributions and to exercise the rights or privileges available to limited partners under our partnership agreement. For a description of the relative rights and preferences of holders of
common units and our general partner in and to partnership distributions, see "Cash Distribution Policy" in this prospectus. For a general discussion of the expected federal income tax consequences of
owning and disposing of common units, see "Material Income Tax Considerations." References in this "Description of the Common Units" to "we," "us" and "our" mean EnLink Midstream Partners, LP.
Our
outstanding common units are traded on the New York Stock Exchange under the symbol "ENLK."
American
Stock Transfer & Trust Company serves as registrar and transfer agent for our common units.
Transfer of Common Units
Each purchaser of common units offered by this prospectus must execute a transfer application. By executing and delivering a transfer
application, the purchaser of common units:
-
- becomes the record holder of the common units and is an assignee until admitted into our partnership as a substituted limited partner;
-
- automatically requests admission as a substituted limited partner in our partnership;
-
- agrees to comply with and be bound by the terms and conditions of, and to execute, our partnership agreement;
-
- represents that the transferee has the right, capacity, power and authority to enter into the partnership agreement;
-
- grants powers of attorney to officers of our general partner and any liquidator of us as specified in the partnership agreement; and
-
- makes the consents and waivers contained in the partnership agreement.
An
assignee will become a substituted limited partner of our partnership for the transferred common units upon the consent of our general partner and the recording of the name of the
assignee on our books and records. Our general partner may withhold its consent in its sole discretion.
A
transferee's broker, agent or nominee may complete, execute and deliver a transfer application. We are entitled to treat the nominee holder of a common unit as the absolute owner. In
that case, the beneficial holder's rights are limited solely to those that it has against the nominee holder as a result of any agreement between the beneficial owner and the nominee holder.
Common
units are securities and are transferable according to the laws governing transfer of securities. In addition to other rights acquired upon transfer, the transferor gives the
transferee the right to request admission as a substituted limited partner in our partnership for the transferred common units. A purchaser or transferee of common units who does not execute and
deliver a transfer application obtains only:
-
- the right to assign the common unit to a purchaser or transferee; and
-
- the right to transfer the right to seek admission as a substituted limited partner in our partnership for the transferred common
units.
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Thus,
a purchaser or transferee of common units who does not execute and deliver a transfer application:
-
- will not receive cash distributions or federal income tax allocations, unless the common units are held in a nominee or "street name"
account and the nominee or broker has executed and delivered a transfer application; and
-
- may not receive some federal income tax information or reports furnished to record holders of common units.
The
transferor of common units has a duty to provide the transferee with all information that may be necessary to transfer the common units. The transferor does not have a duty to insure
the execution of the transfer application by the transferee and has no liability or responsibility if the transferee neglects or chooses not to execute and forward the transfer application to the
transfer agent.
Until
a common unit has been transferred on our books, we and the transfer agent may treat the record holder of the unit as the absolute owner for all purposes, except as otherwise
required by law or stock exchange regulations.
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DESCRIPTION OF THE PARTNERSHIP SECURITIES
Issuance of Additional Partnership Securities
We may issue additional partnership securities and options, rights, warrants and appreciation rights relating to the partnership
securities for any partnership purpose at
any time and from time to time to such persons for such consideration and on such terms and conditions as shall be established by our general partner in its sole discretion, all without the approval
of the unitholders. In accordance with Delaware law and the provisions of our partnership agreement, any additional partnership interests that we issue may, in the sole discretion of our general
partner, have special voting rights to which the common units are not entitled.
The
following is a description of the general terms and provisions of our partnership securities. The particular terms of any series of partnership securities will be described in the
applicable prospectus supplement and the amendment to our partnership agreement relating to that series of partnership securities, which will be filed as an exhibit to or incorporated by reference in
this prospectus at or before the time of issuance of any such series of partnership securities. If so indicated in a prospectus supplement, the terms of any such series may differ from the terms set
forth below.
Our
general partner is authorized to approve the issuance of one or more series of partnership securities without further authorization of the unitholders and to fix the number of
securities, the designations, rights, privileges, restrictions and conditions of any such series.
The
applicable prospectus supplement will set forth the number of securities, particular designation, relative rights and preferences and the limitations of any series of partnership
securities in respect of which this prospectus is delivered. The particular terms of any such series will include the following:
-
- the maximum number of securities to constitute the series and the designation and ranking thereof;
-
- the annual distribution rate, if any, on securities of the series, whether such rate is fixed or variable or both, the dates from
which distributions will begin to accrue or accumulate, whether distributions will be cumulative and whether such distributions will be paid in cash, securities or otherwise;
-
- whether the holders of the securities of the series will have any preemptive rights;
-
- whether the securities of the series will be redeemable and, if so, the price and the terms and conditions on which the securities of
the series may be redeemed, including the time during which securities of the series may be redeemed and any accumulated distributions thereof that the holders of the securities of the series will be
entitled to receive upon the redemption thereof;
-
- the liquidation preference, if any, applicable to securities of the series;
-
- the terms and conditions, if any, on which the securities of the series will be convertible into, or exchangeable for, securities of
any other class or classes of partnership securities, including the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same; and
-
- the voting rights, if any, of the securities of the series.
Partnership
securities will be fully paid and non-ssessable when issued upon full payment of the purchase price therefor. The prospectus supplement will contain, if applicable, a
description of the material U.S. federal income tax consequences relating to the purchase and ownership of the series of partnership securities offered by the prospectus supplement. The transfer
agent, registrar and distributions disbursement agent for the partnership securities will be designated in the applicable prospectus supplement.
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DESCRIPTION OF OUR PARTNERSHIP AGREEMENT
The following is a summary of the material provisions of our partnership agreement. Our partnership agreement is included as an exhibit
to the registration statement of which this prospectus constitutes a part. We summarize certain other provisions of the partnership agreement elsewhere in this prospectus, including in "Description of
the Common Units," "Cash Distribution Policy" and "Material Income Tax Considerations."
Organization and Duration
We were organized on July 12, 2002 and will have a perpetual existence except as provided below under "Termination
and Dissolution."
Purpose
Our purpose under the partnership agreement is limited to serving as a partner of the operating partnership and engaging in any
business activities that may be engaged in by the operating partnership or that are approved by our general partner. The partnership agreement of the operating partnership provides that the operating
partnership may, directly or indirectly, engage in:
-
- operations of the assets owned by it immediately before our initial public offering and any similar assets or properties acquired by
it;
-
- any business activity approved by the general partner; or
-
- any activity that enhances the operations of an activity that is described in either of the two preceding clauses or any other
activity provided such activity does not affect the operating partnership's treatment as a partnership for Federal income tax purposes.
Our
general partner is authorized in general to perform all acts deemed necessary to carry out our purposes and to conduct our business.
Power of Attorney
Each limited partner, and each person who acquires a unit from a unitholder and executes and delivers a transfer application, grants to
our general partner and, if appointed, a liquidator, a power of attorney to, among other things, execute and file documents required for our qualification, continuance or dissolution. The power of
attorney also grants our general partner the authority to amend, and to make consents and waivers under, the partnership agreement.
Capital Contributions
Unitholders are not obligated to make additional capital contributions, except as described below under "Limited
Liability."
Limited Liability
Assuming that a limited partner does not participate in the control of our business within the meaning of the Delaware Revised Uniform
Limited Partnership Act, or Delaware Act, and that he otherwise acts in conformity with the provisions of the partnership agreement, his liability under the Delaware Act will be limited, subject to
possible exceptions, to the amount of capital
he is obligated to contribute to us for his common units plus his share of any undistributed profits and assets. If it were determined, however, that the right, or exercise of the right, by the
limited partners as a group:
-
- to remove or replace our general partner;
-
- to approve some amendments to the partnership agreement; or
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-
- to take other action under the partnership agreement;
constituted
"participation in the control" of our business for the purposes of the Delaware Act, then the limited partners could be held personally liable for our obligations under the laws of
Delaware to the same extent as the general partner. This liability would extend to persons who transact business with us who reasonably believe that the limited partner is a general partner. Neither
the partnership agreement nor the Delaware Act specifically provides for legal recourse against our general partner if a limited partner were to lose limited liability through any fault of our general
partner. While this does not mean that a limited partner could not seek legal recourse, we know of no precedent for this type of a claim in Delaware case law.
Under
the Delaware Act, a limited partnership may not make a distribution to a partner if, after the distribution, all liabilities of the limited partnership, other than liabilities to
partners on account of their partnership interests and liabilities for which the recourse of creditors is limited to specific property of the partnership, would exceed the fair value of the assets of
the limited partnership. For the purpose of determining the fair value of the assets of a limited partnership, the Delaware Act provides that the fair value of property subject to liability for which
recourse of creditors is limited shall be included in the assets of the limited partnership only to the extent that the fair value of that property exceeds the nonrecourse liability. The Delaware Act
provides that a limited partner who
receives a distribution and knew at the time of the distribution that the distribution was in violation of the Delaware Act shall be liable to the limited partnership for the amount of the
distribution for three years. Under the Delaware Act, an assignee who becomes a substituted limited partner of a limited partnership is liable for the obligations of his assignor to make contributions
to the partnership, except the assignee is not obligated for liabilities unknown to him at the time he became a limited partner and that could not be ascertained from the partnership agreement.
Maintenance
of our limited liability as a limited partner of the operating partnership may require compliance with legal requirements in the jurisdictions in which the operating
partnership conducts business, including qualifying our subsidiaries to do business there. Limitations on the liability of limited partners for the obligations of a limited partner have not been
clearly established in many jurisdictions. If, by virtue of our limited partner interest in the operating partnership or otherwise, it were determined that we were conducting business in any state
without compliance with the applicable limited partnership or limited liability company statute, or that the right or exercise of the right by the limited partners as a group to remove or replace the
general partner, to approve some amendments to the partnership agreement, or to take other action under the partnership agreement constituted "participation in the control" of our business for
purposes of the statutes of any relevant jurisdiction, then the limited partners could be held personally liable for our obligations under the law of that jurisdiction to the same extent as our
general partner under the circumstances. We will operate in a manner that our general partner considers reasonable and necessary or appropriate to preserve the limited liability of the limited
partners.
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Voting Rights
The following matters require the unitholder vote specified below. Certain significant decisions require approval by a "unit majority,"
which means a majority of the outstanding common units.
|
|
|
Matter
|
|
Vote Requirement |
Issuance of additional units |
|
No approval right. |
Amendment of the partnership agreement |
|
Certain amendments may be made by our general partner without the approval of the unitholders. Other amendments generally
require the approval of a unit majority. See "Amendment of the Partnership Agreement." |
Merger of our partnership or the sale of all or substantially all of our assets |
|
Unit majority. See "Merger, Sale or Other Disposition of Assets." |
Amendment of the operating partnership agreement and other action taken by us as a limited partner of the operating
partnership |
|
Unit majority if such amendment or other action would adversely affect our limited partners (or any particular class of
limited partners) in any material respect. See "Action Relating to the Operating Partnership." |
Dissolution of our partnership |
|
Unit majority. See "Termination and Dissolution." |
Reconstitution of our partnership upon dissolution |
|
Unit majority. See "Termination and Dissolution." |
Withdrawal of the general partner |
|
No approval right. See "Withdrawal or Removal of our General Partner." |
Removal of the general partner |
|
Not less than 662/3% of the outstanding units, voting as a single class, including units held by
our general partner and its affiliates. See "Withdrawal or Removal of our General Partner." |
Transfer of the general partner interest |
|
No approval right. See "Transfer of General Partner Interests." |
Transfer of incentive distribution rights |
|
No approval right. See "Transfer of Incentive Distribution Rights." |
Transfer of ownership interests in the general partner |
|
No approval right. See "Transfer of Ownership Interests in our General Partner." |
Issuance of Additional Securities
Our partnership agreement authorizes us to issue an unlimited number of additional partnership securities and rights to buy partnership
securities for the consideration and on the terms and conditions established by our general partner in its sole discretion without the approval of the unitholders.
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It
is possible that we will fund acquisitions through the issuance of additional common units or other equity securities. Holders of any additional common units we issue will be entitled
to share equally with the then-existing holders of common units in our distributions of available cash. In addition, the issuance of additional partnership interests may dilute the value of the
interests of the then-existing holders of common units in our net assets.
In
accordance with Delaware law and the provisions of our partnership agreement, we may also issue additional partnership securities interests that, in the sole discretion of our general
partner, have special voting rights to which the common units are not entitled.
Upon
the issuance of additional partnership securities, our general partner may, but will not be required to, make additional capital contributions to maintain its then current general
partner interest in us. Moreover, our general partner will have the right, which it may from time to time assign in whole or in part to any of its affiliates, to purchase common units or other equity
securities whenever, and on the same terms that, we issue those securities to persons other than our general partner and its affiliates, to the extent necessary to maintain its then current percentage
interest, including its interest represented by common units or other equity securities that existed immediately prior to each issuance. The holders of common units will not have preemptive rights to
acquire additional common units or other partnership securities.
Amendment of the Partnership Agreement
General. Amendments to the partnership agreement may be proposed only by or with the consent of our general partner, which consent may
be given or
withheld in its sole discretion. In order to adopt a proposed amendment, other than the amendments discussed below, our general partner must seek written approval of the holders of the number of units
required to approve the amendment or call a meeting of the limited partners to consider and vote upon the proposed amendment. Except as we describe below, an amendment must be approved by a unit
majority.
Prohibited Amendments. No amendment may be made that would:
-
- enlarge the obligations of any limited partner without its consent, unless approved by at least a majority of the type or class of
limited partner interests so affected;
-
- enlarge the obligations of, restrict in any way any action by or rights of, or reduce in any way the amounts distributable,
reimbursable or otherwise payable by us to our general partner or any of its affiliates without the consent of our general partner, which may be given or withheld in its sole discretion;
-
- change the term of our partnership;
-
- provide that our partnership is not dissolved upon an election to dissolve our partnership by our general partner that is approved by
a unit majority; or
-
- give any person the right to dissolve our partnership other than our general partner's right to dissolve our partnership with the
approval of a unit majority.
The
provision of the partnership agreement preventing the amendments having the effects described in any of the clauses above can be amended upon the approval of the holders of at least
90% of the outstanding units voting together as a single class.
No Unitholder Approval. Our general partner may generally make amendments to the partnership agreement without the approval of any
limited partner or
assignee to reflect:
-
- a change in our name, the location of our principal place of business, our registered agent or our registered office;
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-
- the admission, substitution, withdrawal or removal of partners in accordance with the partnership agreement;
-
- a change that, in the sole discretion of our general partner, is necessary or advisable for us to qualify or to continue our
qualification as a limited partnership or a partnership in which the limited partners have limited liability under the laws of any state or to ensure that neither we, the operating partnership nor any
of its subsidiaries will be treated as an association taxable as a corporation or otherwise taxed as an entity for federal income tax purposes;
-
- an amendment that is necessary, in the opinion of our counsel, to prevent us or our general partner or its directors, officers, agents
or trustees, from in any manner being subjected to the provisions of the Investment Company Act of 1940, the Investment Advisors Act of 1940, or plan asset regulations adopted under the Employee
Retirement Income Security Act of 1974, whether or not substantially similar to plan asset regulations currently applied or proposed;
-
- subject to the limitations on the issuance of additional partnership securities described above, an amendment that in the discretion
of our general partner is necessary or advisable for the authorization of additional partnership securities or rights to acquire partnership securities;
-
- any amendment expressly permitted in the partnership agreement to be made by our general partner acting alone;
-
- an amendment effected, necessitated or contemplated by a merger agreement that has been approved under the terms of the partnership
agreement;
-
- any amendment that, in the discretion of our general partner, is necessary or advisable for the formation by us of, or our investment
in, any corporation, partnership or other entity, as otherwise permitted by our partnership agreement;
-
- a change in our fiscal year or taxable year and related changes; or
-
- any other amendments substantially similar to any of the matters described in the preceding clauses.
In
addition, our general partner may make amendments to the partnership agreement without the approval of any limited partner or assignee if those amendments, in the discretion of our
general partner:
-
- do not adversely affect the limited partners (or any particular class of limited partners as compared to other classes of limited
partners) in any material respect;
-
- are necessary or advisable to satisfy any requirements, conditions or guidelines contained in any opinion, directive, order, ruling or
regulation of any federal or state agency or judicial authority or contained in any federal or state statute;
-
- are necessary or advisable to facilitate the trading of limited partner interests or to comply with any rule, regulation, guideline or
requirement of any securities exchange on which the limited partner interests are or will be listed for trading, compliance with any of which our general partner deems to be in our best interest and
the best interest of our limited partners;
-
- are necessary or advisable for any action taken by our general partner relating to splits or combinations of units under the
provisions of the partnership agreement; or
-
- are required to effect the intent expressed in this prospectus or the intent of the provisions of our partnership agreement or are
otherwise contemplated by our partnership agreement.
Opinion of Counsel and Unitholder Approval. Our general partner will not be required to obtain an opinion of counsel that an amendment
will not
result in a loss of limited liability to the limited
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partners
or result in our being treated as an entity for federal income tax purposes if one of the amendments described above under "No Unitholder Approval" should occur. No other
amendments to the partnership agreement will become effective without the approval of holders of at least 90% of the units unless we obtain an opinion of counsel to the effect that the amendment will
not affect the limited liability under applicable law of any of our limited partners or cause us, the operating partnership or its subsidiaries to be taxable as a corporation or otherwise to be taxed
as an entity for federal income tax purposes (to the extent not previously taxed as such).
In
addition to the above restrictions, any amendment that would have a material adverse effect on the rights or preferences of any type or class of outstanding units in relation to other
classes of units will require the approval of at least a majority of the type or class of units so affected. Any amendment that reduces the voting percentage required to take any action must be
approved by the affirmative vote of limited partners constituting not less than the voting requirement sought to be reduced.
Action Relating to the Operating Partnership
Without the approval of holders of units representing a unit majority, our general partner is prohibited from consenting on our behalf,
as the limited partner of the operating partnership, to any amendment to the partnership agreement of the operating partnership or taking any action on our behalf permitted to be taken by a limited
partner of the operating partnership, in each case that would adversely affect our limited partners (or any particular class of limited partners as compared to other classes of limited partners) in
any material respect.
Merger, Sale or Other Disposition of Assets
The partnership agreement generally prohibits our general partner, without the prior approval of the holders of units representing a
unit majority, from causing us to, among other things, sell, exchange or otherwise dispose of all or substantially all of our assets in a single transaction or a series of related transactions,
including by way of merger, consolidation or other combination, or approving on our behalf the sale, exchange or other disposition of all or substantially all of the assets of our subsidiaries as a
whole. Our general partner may, however, mortgage, pledge, hypothecate or grant a security interest in all or substantially all of our assets without that approval. Our general partner may also sell
all or substantially all of our assets under a foreclosure or other realization upon those encumbrances without that approval.
If
conditions specified in the partnership agreement are satisfied, our general partner may merge us or any of our subsidiaries into, or convey some or all of our assets to, a newly
formed entity if the sole purpose of that merger or conveyance is to change our legal form into another limited liability entity. The unitholders are not entitled to dissenters' rights of appraisal
under the partnership agreement or applicable Delaware law in the event of a merger or consolidation, a sale of substantially all of our assets or any other transaction or event.
Termination and Dissolution
We will continue as a limited partnership until terminated under the partnership agreement. We will dissolve
upon:
-
- the election of our general partner to dissolve us, if approved by the holders of units representing a unit majority;
-
- the sale, exchange or other disposition of all or substantially all of our assets and properties and our subsidiaries;
-
- the entry of a decree of judicial dissolution of our partnership; or
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-
- the withdrawal or removal of our general partner or any other event that results in its ceasing to be our general partner other than
by reason of a transfer of its general partner interest in accordance with the partnership agreement or withdrawal or removal following approval and admission of a successor.
Upon
a dissolution under the last clause, the holders of a unit majority may also elect, within specific time limitations, to reconstitute us and continue our business on the same terms
and conditions described in the partnership agreement by forming a new limited partnership on terms identical to those in the partnership agreement and having as general partner an entity approved by
the holders of units representing a unit majority, subject to our receipt of an opinion of counsel to the effect that:
-
- the action would not result in the loss of limited liability of any limited partner; and
-
- neither our partnership, the reconstituted limited partnership nor the operating partnership would be treated as an association
taxable as a corporation or otherwise be taxable as an entity for federal income tax purposes upon the exercise of that right to continue.
Liquidation and Distribution of Proceeds
Upon our dissolution, unless we are reconstituted and continued as a new limited partnership, the liquidator authorized to wind up our
affairs will, acting with all of the powers of our general partner that the liquidator deems necessary or desirable in its judgment, liquidate our assets and apply the proceeds of the liquidation as
provided in "Cash Distribution PolicyDistributions of Cash Upon Liquidation." The liquidator may defer liquidation of our assets for a reasonable period of time or distribute assets to
partners in kind if it determines that a sale would be impractical or would cause undue loss to the partners.
Withdrawal or Removal of our General Partner
Our general partner may withdraw as general partner without first obtaining approval of any unitholder by giving 90 days'
written notice, and that withdrawal will not constitute a violation of the partnership agreement. In addition, the partnership agreement permits our general partner to sell or otherwise transfer all
of its general partner interest in us without the approval of the unitholders. Please read "Transfer of General Partner Interests" below.
Upon
the voluntary withdrawal of our general partner, other than as a result of a transfer by our general partner of all or a part of its general partner interest in us, the holders of a
unit majority may select a successor to that withdrawing general partner. If a successor is not elected, or is elected but an opinion of counsel regarding limited liability and tax matters cannot be
obtained, we will be dissolved, wound up and liquidated, unless within 90 days after that withdrawal, the holders of a unit majority agree in writing to continue our business and to appoint a
successor general partner. Please read "Termination and Dissolution" above.
Our
general partner may not be removed unless that removal is approved by the vote of the holders of not less than 662/3% of the outstanding units, including units held by
our general partner and its affiliates, and we receive an opinion of counsel regarding limited liability and tax matters. Any removal of the general partner is also subject to the approval of a
successor general partner by the vote of the holders of a majority of the outstanding common units. The ownership of more than 331/3% of the outstanding units by our general partner and
its affiliates would give it the practical ability to prevent its removal.
The
partnership agreement also provides that if EnLink Midstream GP, LLC is removed as our general partner under circumstances where cause does not exist and units held by
our general partner and its affiliates are not voted in favor of that removal, our general partner will have the right to
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convert
its general partner interest and its incentive distribution rights into common units or to receive cash in exchange for those interests based on the fair market value of those interests at the
time.
In
the event of removal of the general partner under circumstances where cause exists or withdrawal of a general partner where that withdrawal violates the partnership agreement, a
successor general partner will have the option to purchase the general partner interest and incentive distribution rights of the departing general partner for a cash payment equal to the fair market
value of those interests. Under all other circumstances where a general partner withdraws or is removed by the limited partners, the departing general partner will have the option to require the
successor general partner to purchase the general partner interest of the departing general partner and its incentive distribution rights for fair market value. In each case, this fair market value
will be determined by agreement between the departing general partner and the successor general partner. If no agreement is reached, an independent investment banking firm or other independent expert
selected by the departing general partner and the successor general partner will determine the fair market value. Or, if the departing general partner and the successor general partner cannot agree
upon an expert, then an expert chosen by agreement of the experts selected by each of them will determine the fair market value.
If
the option described above is not exercised by either the departing general partner or the successor general partner, the departing general partner's general partner interest and its
incentive distribution rights will automatically convert into common units equal to the fair market value of those interests as determined by an investment banking firm or other independent expert
selected in the manner described in the preceding paragraph.
In
addition, we will be required to reimburse the departing general partner for all amounts due the departing general partner, including, without limitation, all employee-related
liabilities, including severance liabilities, incurred for the termination of any employees employed by the departing general partner or its affiliates for our benefit.
Our
general partner and its affiliates may at any time transfer units to one or more persons, without unitholder approval.
Transfer of General Partner Interest
At any time, our general partner may sell or transfer all or part its general partner interest in us without the approval of the
unitholders. As a condition of this transfer, the transferee must assume the rights and duties of our general partner, agree to be bound by the provisions of the partnership agreement, furnish an
opinion of counsel regarding limited liability and tax matters.
Transfer of Ownership Interests in our General Partner
At any time, the members of our general partner may sell or transfer all or part of their membership interests in the general partner
without the approval of the unitholders.
Transfer of Incentive Distribution Rights
Our general partner or its affiliates or a subsequent holder of incentive distribution rights may transfer its incentive distribution
rights without the prior approval of the unitholders; provided, however, that the transferee must agree to be bound by the provisions of the partnership
agreement.
Change of Management Provisions
The partnership agreement contains specific provisions that are intended to discourage a person or group from attempting to remove
EnLink Midstream GP, LLC as our general partner or otherwise change management. If any person or group other than our general partner and its affiliates acquires
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beneficial
ownership of 20% or more of any class of units, that person or group loses voting rights on all of its units. This loss of voting rights does not apply to any person or group that acquires
the units from our general partner or its affiliates and any transferees of that person or group approved by our general partner or to any person or group who acquires the units with the prior
approval of the board of directors.
Limited Call Right
If at any time our general partner and its affiliates hold more than 80% of the then-issued and outstanding partnership securities of
any class, our general partner will have the right, which it may assign in whole or in part to any of its affiliates or to us, to acquire all, but not less than all, of the remaining partnership
securities of the class held by unaffiliated persons as of a record date to be selected by our general partner, on at least ten but not more than 60 days notice. The purchase price in the event
of this purchase is the greater of:
-
- the highest cash price paid by our general partner or any of its affiliates for any partnership securities of the class purchased
within the 90 days preceding the date on which our general partner first mails notice of its election to purchase those partnership securities; and
-
- the current market price as of the date three days before the date the notice is mailed.
As
a result of our general partner's right to purchase outstanding partnership securities, a holder of partnership securities may have his partnership securities purchased at an
undesirable time or price. The tax consequences to a unitholder of the exercise of this call right are the same as a sale by that unitholder of his units in the market. Please read "Material Income
Tax ConsiderationsDisposition of Common Units."
Meetings; Voting
Except as described below regarding a person or group owning 20% or more of any class of units then outstanding, unitholders or
assignees who are record holders of units on the record date will be entitled to notice of, and to vote at, meetings of our limited partners and to act upon matters for which approvals may be
solicited. Common units that are owned by an assignee who is a record holder, but who has not yet been admitted as a limited partner, will be voted by our general partner at the written direction of
the record holder. Absent direction of this kind, the common units will not be voted, except that, in the case of common units held by our general partner on behalf of non-citizen assignees, our
general partner will distribute the votes on those common units in the same ratios as the votes of limited partners on other units are cast.
Any
action that is required or permitted to be taken by the unitholders may be taken either at a meeting of the unitholders or without a meeting if consents in writing describing the
action so taken are signed by holders of the number of units necessary to authorize or take that action at a meeting. Meetings of the unitholders may be called by our general partner or by unitholders
owning at least 20% of the outstanding units of the class for which a meeting is proposed. Unitholders may vote either in person or by proxy at meetings. The holders of a majority of the outstanding
units of the class or classes for which a meeting has been called, represented in person or by proxy, will constitute a quorum unless any action by the unitholders requires approval by holders of a
greater percentage of the units, in which case the quorum will be the greater percentage.
Each
record holder of a unit has a vote according to his percentage interest in us, although additional limited partner interests having special voting rights could be issued. Please
read "Issuance of Additional Securities." If at any time any person or group, other than our general partner and its affiliates, or a direct or subsequently approved transferee of our
general partner or its affiliates, acquires, in the aggregate, beneficial ownership of 20% or more of any class of units then outstanding,
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that
person or group will lose voting rights on all of its units and the units may not be voted on any matter and will not be considered to be outstanding when sending notices of a meeting of
unitholders, calculating required votes, determining the presence of a quorum or for other similar purposes. Common units held in nominee or street name account will be voted by the broker or other
nominee in accordance with the instruction of the beneficial owner unless the arrangement between the beneficial owner and his nominee provides otherwise.
Any
notice, demand, request, report or proxy material required or permitted to be given or made to record holders of common units under the partnership agreement will be delivered to the
record holder by us or by the transfer agent.
Status as Limited Partner or Assignee
An assignee of a unit, after executing and delivering a transfer application, but pending its admission as a substituted limited
partner, is entitled to an interest equivalent to that of a limited partner for the right to share in allocations and distributions from us, including liquidating distributions. Our general partner
will vote and exercise other powers attributable to units owned by an assignee that has not become a substitute limited partner at the written direction of the assignee. Transferees that do not
execute and deliver a transfer application will be treated neither as assignees nor as record holders of units, and will not receive cash distributions, federal income tax allocations or reports
furnished to holders of units. Please read "Description of the Common UnitsTransfer of Common Units."
Non-citizen Assignees; Redemption
If we are or become subject to federal, state or local laws or regulations that, in the reasonable determination of our general
partner, create a substantial risk of cancellation or forfeiture of any property that we have an interest in because of the nationality, citizenship or other related status of any limited partner or
assignee, we may redeem the units held by the limited partner or assignee at their current market price. In order to avoid any cancellation or forfeiture, our general partner may require each limited
partner or assignee to furnish information about his nationality, citizenship or related status. If a limited partner or assignee fails to furnish information about his nationality, citizenship or
other related status within 30 days after a request for the information or our
general partner determines after receipt of the information that the limited partner or assignee is not an eligible citizen, the limited partner or assignee may be treated as a non-citizen assignee.
In addition to other limitations on the rights of an assignee that is not a substituted limited partner, a non-citizen assignee does not have the right to direct the voting of his units and may not
receive distributions in-ind upon our liquidation.
Indemnification
Under the partnership agreement, in most circumstances, we will indemnify the following persons, to the fullest extent permitted by
law, from and against all losses, claims, damages or similar events:
-
- our general partner;
-
- any departing general partner;
-
- any person who is or was an affiliate of a general partner or any departing general partner;
-
- any person who is or was a member, partner, officer, director, employee, agent or trustee of us or the operating partnership or our or
its respective subsidiaries, our general partner or any departing general partner or any affiliate of us or the operating partnership or our or its respective subsidiaries, the general partner or any
departing general partner; or
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-
- any person who is or was serving at the request of a general partner or any departing general partner or any affiliate of a general
partner or any departing general partner as an officer, director, employee, member, partner, agent, fiduciary or trustee of another person.
Any
indemnification under these provisions will only be out of our assets. Unless it otherwise agrees in its sole discretion, our general partner will not be personally liable for, or
have any obligation to contribute or loan funds or assets to us to enable us to effectuate, indemnification. We may purchase insurance against liabilities asserted against and expenses incurred by
persons for our activities, regardless of whether we would have the power to indemnify the person against liabilities under the partnership agreement.
Books and Reports
Our general partner is required to keep appropriate books of our business at our principal offices. The books will be maintained for
both tax and financial reporting purposes on an accrual basis. For tax and fiscal reporting purposes, our fiscal year is the calendar year.
We
will furnish or make available to record holders of common units, within 120 days after the close of each fiscal year, an annual report containing audited financial statements
and a report on those financial statements by our independent public accountants. Except for our fourth quarter, we will also furnish or make available summary financial information within
90 days after the close of each quarter.
We
will furnish each record holder of a unit with information reasonably required for tax reporting purposes within 90 days after the close of each calendar year. This information
will be furnished in summary form so that some complex calculations normally required of partners can be avoided. Our ability to furnish this summary information to unitholders will depend on the
cooperation of unitholders in supplying us with specific information. Every unitholder will receive information to assist
him in determining his federal and state tax liability and filing his federal and state income tax returns, regardless of whether he supplies us with information.
Right to Inspect Our Books and Records
The partnership agreement provides that a limited partner can, for a purpose reasonably related to his interest as a limited partner,
upon reasonable demand and at his own expense, have furnished to him:
-
- a current list of the name and last known address of each partner;
-
- a copy of our tax returns;
-
- information as to the amount of cash, and a description and statement of the agreed value of any other property or services,
contributed or to be contributed by each partner and the date on which each became a partner;
-
- copies of the partnership agreement, the certificate of limited partnership of the partnership, related amendments and powers of
attorney under which they have been executed;
-
- information regarding the status of our business and financial condition; and
-
- any other information regarding our affairs as is just and reasonable.
Our
general partner may, and intends to, keep confidential from the limited partners trade secrets or other information the disclosure of which our general partner believes in good faith
is not in our best interests or that we are required by law or by agreements with third parties to keep confidential.
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Registration Rights
Under the partnership agreement, we have agreed to register for resale under the Securities Act and applicable state securities laws
any common units or other partnership securities proposed to be sold by our general partner or any of its affiliates or their assignees if an exemption from the registration requirements is not
otherwise available. These registration rights continue for two years following any withdrawal or removal of EnLink Midstream GP, LLC as our general partner. We are obligated to pay all
expenses incidental to the registration, excluding underwriting discounts and commissions.
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CASH DISTRIBUTION POLICY
Distributions of Available Cash
References in this "Cash Distribution Policy" to "we," "us" and "our" mean EnLink Midstream Partners, LP.
General. Within approximately 45 days after the end of each quarter, we will distribute all of our available cash to unitholders
of record on
the applicable record date.
Definition of Available Cash. Available Cash means, for any quarter ending prior to liquidation:
-
- the sum of
-
- all cash and cash equivalents of EnLink Midstream Partners, LP and its subsidiaries on hand at the end of that
quarter; and
-
- all additional cash and cash equivalents of EnLink Midstream Partners, LP and its subsidiaries on hand on the date
of determination of available cash for that quarter resulting from working capital borrowings made after the end of that quarter;
-
- less the amount of cash reserves that is necessary or appropriate in the reasonable discretion of the general partner to
-
- provide for the proper conduct of the business of EnLink Midstream Partners, LP and its subsidiaries (including
reserves for future capital expenditures and for future credit needs of EnLink Midstream Partners, LP and its subsidiaries) after that quarter;
-
- comply with applicable law or any debt instrument or other agreement or obligation to which EnLink Midstream
Partners, LP or any of its subsidiaries is a party or its assets are subject; and
-
- provide funds for minimum quarterly distributions and cumulative common unit arrearages for any one or more of the next
four quarters;
provided,
however, that disbursements made by EnLink Midstream Partners, LP or any of its subsidiaries or cash reserves established, increased or reduced after the end of that quarter but on or
before the date of determination of available cash for that quarter shall be deemed to have been made, established, increased or reduced, for purposes of determining available cash, within that
quarter if the general partner so determines.
Operating Surplus and Capital Surplus
General. All cash distributed to unitholders will be characterized either as "operating surplus" or "capital surplus." We distribute
available cash
from operating surplus differently than available cash from capital surplus.
Definition of Operating Surplus. For any period operating surplus generally means:
-
- our cash balance of $7.2 million at the closing of our initial public offering; plus
-
- $8.9 million; plus
-
- all of our cash receipts since the initial public offering, excluding cash from borrowings that are not working capital borrowings,
sales of equity and debt securities and sales or other dispositions of assets outside the ordinary course of business; plus
-
- working capital borrowings made after the end of a quarter but before the date of determination of operating surplus for the quarter;
less
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-
- all of our operating expenditures since the initial public offering, including the repayment of working capital borrowings, but not
the repayment of other borrowings, and including maintenance capital expenditures, and less
-
- the amount of cash reserves that the general partner deems necessary or advisable to provide funds for future operating expenditures.
Definition of Capital Surplus. Capital surplus will generally be generated only by:
-
- borrowings other than working capital borrowings;
-
- sales of debt and equity securities; and
-
- sales or other disposition of assets for cash, other than inventory, accounts receivable and other current assets sold in the ordinary
course of business or as part of normal retirements or replacements of assets.
Characterization of Cash Distributions. We will treat all available cash distributed as coming from operating surplus until the sum of
all available
cash distributed since we began operations equals the operating surplus as of the most recent date of determination of available cash. We will treat any amount distributed in excess of operating
surplus, regardless of its source, as capital surplus. While we do not anticipate that we will make any distributions from capital surplus in the near term, we may determine that the sale or
disposition of an asset or business owned or acquired by us may be beneficial to our unitholders. If we distribute to you the equity we own in a subsidiary or the proceeds from the sale of one of our
businesses, such a distribution would be characterized as a distribution from capital surplus.
Distributions of Available Cash from Operating Surplus
We will make distributions of available cash from operating surplus in the following
manner:
-
- First, 100% to the general partner and the unitholders in accordance with their
respective then-current percentage interests until we distribute for each outstanding unit an amount equal to $0.25 (the "minimum quarterly distribution") for that quarter;
-
- Second, (A) to the general partner in accordance with its then-current
percentage interest, (B) 13% to the holders of the incentive distribution rights, pro rata, and (C) to all unitholders, pro rata, a percentage equal to 100% less the sum of the
percentages specified under subclauses (A) and (B) until each unitholder receives a total of $0.3125 per unit for that quarter (the "first target distribution");
-
- Third, (A) to the general partner in accordance with its then-current
percentage interest, (B) 23% to the holders of the incentive distribution rights, pro rata, and (C) to all unitholders, pro rata, a percentage equal to 100% less the sum of the
percentages specified under subclauses (A) and (B) until each unitholder receives a total of $0.375 per unit for that quarter (the "second target distribution"); and
-
- Thereafter, (A) to the general partner in accordance with its then-current
percentage interest, (B) 48% to the holders of the incentive distribution rights, pro rata, and (C) to all unitholders, pro rata, a percentage equal to 100% less the sum of the
percentages specified under subclauses (A) and (B).
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Distributions from Capital Surplus
How Distributions from Capital Surplus will be Made. We will make distributions of available cash from capital surplus in the following
manner:
-
- First, (A) to the general partner in accordance with its then-current
percentage interest and (B) to all unitholders holding common units, pro rata, a percentage equal to 100% less the general partner's percentage interest, until we distribute for each common
unit that was issued in the initial public offering, an amount of available cash from capital surplus equal to the initial public offering price; and
-
- Thereafter, we will make all distributions of available cash from capital surplus as
if they were from operating surplus.
Effect of a Distribution from Capital Surplus. The partnership agreement treats a distribution of capital surplus as the repayment of
the initial
unit price from the initial public offering, which is a return of capital. The initial public offering price less any distributions of capital surplus per unit is referred to as the "unrecovered
initial unit price." Each time a distribution of capital surplus is made, the minimum quarterly distribution and the target distribution levels will be reduced in the same proportion as the
corresponding reduction in the unrecovered initial unit price.
Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels
In addition to adjusting the minimum quarterly distribution and target distribution levels to reflect a distribution of capital
surplus, if we combine our units into fewer units or subdivide our units into a greater number of units we will proportionately adjust the minimum quarterly distribution, the target distribution
levels and the unrecovered initial unit price.
Distributions of Cash upon Liquidation
If we dissolve in accordance with the partnership agreement, we will sell or otherwise dispose of our assets in a process called a
liquidation. We will first apply the proceeds of liquidation to the payment of our creditors. We will distribute any remaining proceeds to the unitholders and our general partner, in accordance with
their capital account balances, as adjusted to reflect any gain or loss upon the sale or other disposition of our assets in liquidation.
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MATERIAL INCOME TAX CONSIDERATIONS
This section is a summary of the material tax considerations that may be relevant to prospective unitholders who are individual
citizens or residents of the U.S. and, unless otherwise noted in the following discussion, is the opinion of Baker Botts L.L.P., counsel to our general partner and us, insofar as it relates to
legal conclusions with respect to matters of U.S. federal income tax law. This section is based upon current provisions of the Internal Revenue Code of 1986, as amended (the "Code"), existing and
proposed Treasury regulations promulgated under the Code (the "Treasury Regulations") and current administrative rulings and court decisions, all of which are subject to change. Later changes in these
authorities may cause the tax consequences to vary substantially from the consequences described below. Unless the context otherwise requires, references in this section to "us" or "we" are references
to EnLink Midstream Partners, LP
The
following discussion does not comment on all federal income tax matters affecting us or the unitholders. Moreover, the discussion focuses on unitholders who are individual citizens
or residents of the U.S. and has only limited application to corporations, estates, trusts, partnerships and entities treated like partnerships for federal income tax purposes, nonresident aliens,
U.S. expatriates and former citizens or long-term residents of the United States or other unitholders subject to specialized tax treatment, such as banks, insurance companies and other financial
institutions, tax-exempt institutions, foreign persons (including, without limitation, controlled foreign corporations, passive foreign investment companies and non-U.S. persons eligible for the
benefits of an applicable income tax treaty with the United States), IRAs, real estate investment trusts (REITs), employee benefit plans or mutual funds, dealers in securities or currencies, traders
in securities, U.S. persons whose "functional currency" is not the U.S. dollar, persons holding their units as part of a "straddle," "hedge," "conversion transaction" or other risk reduction
transaction, and persons deemed to sell their units under the constructive sale provisions of the Code. In addition, the discussion only comments to a limited extent on state, and does not comment on
local or foreign, tax consequences. Accordingly, we encourage each prospective unitholder to consult, and depend on, his own tax advisor in analyzing the federal, state, local and foreign tax
consequences particular to him of the ownership or disposition of common units.
No
ruling has been or will be requested from the Internal Revenue Service (the "IRS") regarding any matter affecting us or prospective unitholders. Instead, we will rely on opinions of
Baker Botts L.L.P. Unlike a ruling, an opinion of counsel represents only that counsel's best legal judgment and does not bind the IRS or the courts. Accordingly, the opinions and statements
made herein may not be sustained by a court if contested by the IRS. Any contest of this sort with the IRS may materially and
adversely impact the market for our common units and the prices at which common units trade. In addition, the costs of any contest with the IRS, principally legal, accounting and related fees, will
result in a reduction in cash available for distribution to our unitholders and our general partner and thus will be borne indirectly by our unitholders and our general partner. Furthermore, the tax
treatment of us, or of an investment in us, may be significantly modified by future legislative or administrative changes or court decisions. Any modifications may or may not be retroactively applied.
All
statements as to matters of law and legal conclusions, but not as to factual matters, contained in this section, unless otherwise noted, are the opinions of Baker Botts L.L.P.
and are based on the accuracy of the representations made by us.
For
the reasons described below, Baker Botts L.L.P. has not rendered an opinion with respect to the following specific federal income tax issues: (i) the treatment of a
unitholder whose common units are loaned to a short seller to cover a short sale of common units (please read "Tax Consequences of Unit OwnershipTreatment of Short Sales");
(ii) whether our monthly convention for allocating taxable income and losses is permitted by existing Treasury Regulations (please read "Disposition of Common
UnitsAllocations Between Transferors and Transferees"); and (iii) whether our method for
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depreciating
Section 743 adjustments is sustainable in certain cases (please read "Tax Consequences of Unit OwnershipSection 754 Election" and
"Uniformity of Common Units").
Partnership Status
A partnership is not a taxable entity and incurs no federal income tax liability. Instead, each partner of a partnership is required to
take into account his share of items of income, gain, loss and deduction of the partnership in computing his federal income tax liability, regardless of whether cash distributions are made to him by
the partnership. Distributions by a partnership to a partner are generally not taxable to the partnership or the partner unless the amount of cash distributed to him is in excess of the partner's
adjusted basis in his partnership interest.
Section 7704
of the Code provides that publicly traded partnerships will, as a general rule, be taxed as corporations. However, an exception, referred to as the "Qualifying Income
Exception," exists with respect to publicly traded partnerships of which 90% or more of the gross income for every taxable year consists of "qualifying income." Qualifying income includes income and
gains derived from the transportation, storage, processing and marketing of crude oil, natural gas and other products thereof. Other types of qualifying income include interest (other than from a
financial business), dividends, gains from the sale of real property and gains from the sale or other disposition of capital assets held for the production of income that otherwise constitutes
qualifying income.
No
ruling has been or will be sought from the IRS and the IRS has made no determination as to our status or the status of the operating partnership for federal income tax purposes or
whether our operations generate "qualifying income" under Section 7704 of the Code. Instead, we will rely on the opinion of Baker Botts L.L.P. on such matters. It is the opinion of Baker
Botts L.L.P. that, based upon the Code, its regulations, published revenue rulings and court decisions and the representations described below
that:
-
- We will be classified as a partnership for federal income tax purposes; and
-
- The operating partnership will be classified as a partnership for federal income tax purposes.
In
rendering its opinion, Baker Botts L.L.P. has relied on factual representations made by us and our general partner. The representations made by us and our general partner upon
which Baker Botts L.L.P. has relied are:
-
- Neither we nor the operating partnership has elected or will elect to be treated as a corporation; and
-
- For every taxable year, more than 90% of our gross income has been and will be income of the type that Baker Botts L.L.P. has
opined or will opine is "qualifying income" within the meaning of Section 7704(d) of the Code; and
-
- Each hedging transaction that we treat as resulting in qualifying income of the type has been and will be appropriately identified as
a hedging transaction pursuant to applicable Treasury Regulations, and has been and will be associated with oil, gas, or other products thereof that are held or to be held by us in activities that
Baker Botts L.L.P. has opined or will opine result in qualifying income.
We
believe that these representations have been true in the past and expect that these representations will continue to be true in the future.
If
we fail to meet the Qualifying Income Exception, other than a failure that is determined by the IRS to be inadvertent and that is cured within a reasonable time after discovery (in
which case the IRS may also require us to make adjustments with respect to our unitholders or pay other amounts), we will be treated as if we had transferred all of our assets, subject to liabilities,
to a newly formed
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corporation,
on the first day of the year in which we fail to meet the Qualifying Income Exception, in return for stock in that corporation, and then distributed that stock to the unitholders in
liquidation of their interests in us. This deemed contribution and liquidation should be tax-free to unitholders and us so long as we, at that time, do not have liabilities in excess of the tax basis
of our assets. Thereafter, we would be treated as a corporation for federal income tax purposes.
If
we were taxed as a corporation for federal income tax purposes in any taxable year, either as a result of a failure to meet the Qualifying Income Exception or otherwise, our items of
income, gain, loss and deduction would be reflected only on our tax return rather than being passed through to the unitholders, and our net income would be taxed to us at corporate rates. In addition,
any distribution made to a unitholder would be treated as taxable dividend income, to the extent of our current and accumulated earnings and profits, or, in the absence of earnings and profits, a
nontaxable return of capital, to the extent of the unitholder's tax basis in his common units, or taxable capital gain, after the unitholder's tax basis in his common units is reduced to zero.
Accordingly, taxation as a corporation would result in a material reduction in a unitholder's cash flow and after-tax return and thus would likely result in a substantial reduction of the value of the
units.
The
discussion below is based on Baker Botts L.L.P.'s opinion that we will be classified as a partnership for federal income tax purposes.
Tax Treatment of Income Earned Through C Corporation Subsidiary
A material portion of our taxable income is earned through a C corporation subsidiary. Such C corporation subsidiary is subject
to federal income tax on it's taxable income at the corporate tax rate, which is currently a maximum of 35%, and will likely pay state (and possibly local) income tax at varying rates, on its taxable
income. Any such entity level taxes will reduce the cash available for distribution to our unitholders. Distributions from such C corporation subsidiary will generally be taxed again to unitholders as
dividend income to the extent of current and accumulated earnings and profits of such subsidiary. The maximum federal income tax rate applicable to such dividend income which is allocable to
individuals currently is 20%. An individual unitholder's share of dividend and interest income from our C corporation subsidiary would constitute portfolio income that could not be offset by the
unitholder's share of our other losses or deductions. The assets held or formerly held through our C corporation subsidiary have minimal tax basis. As a result, if such assets were to be sold by us,
our C corporation subsidiary would recognize substantial amounts of taxable income on which it would owe corporate level tax.
Limited Partner Status
Unitholders who have become limited partners of EnLink Midstream Partners, LP will be treated as partners of EnLink Midstream
Partners, LP for federal income tax purposes. Also:
-
- assignees who have executed and delivered transfer applications, and are awaiting admission as limited partners, and
-
- unitholders whose common units are held in street name or by a nominee and who have the right to direct the nominee in the exercise of
all substantive rights attendant to the ownership of their common units
will
be treated as partners of EnLink Midstream Partners, LP for federal income tax purposes.
As
there is no direct or indirect controlling authority addressing the federal income tax treatment of assignees of common units who are entitled to execute and deliver transfer
applications and thereby become entitled to direct the exercise of attendant rights, but who fail to execute and deliver transfer applications, Baker Botts L.L.P.'s opinion does not extend to
these persons. Furthermore, a purchaser or other transferee of common units who does not execute and deliver a transfer application may not
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receive
some federal income tax information or reports furnished to record holders of common units unless the common units are held in a nominee or street name account and the nominee or broker has
executed and delivered a transfer application for those common units.
A
beneficial owner of common units whose units have been transferred to a short seller to complete a short sale would appear to lose his status as a partner with respect to those units
for federal income tax purposes. Please see "Tax Consequences of Unit OwnershipTreatment of Short Sales."
Income,
gain, deductions or losses would not appear to be reportable by a unitholder who is not a partner for federal income tax purposes, and any cash distributions received by a
unitholder who is not a partner for federal income tax purposes would therefore be fully taxable as ordinary income. These holders are urged to consult their own tax advisors with respect to the tax
consequences of holding common units in EnLink Midstream Partners, LP
The
references to "unitholders" in the discussion that follows are to persons who are treated as partners in EnLink Midstream Partners, LP for federal income tax purposes.
Tax Consequences of Unit Ownership
Flow-Through of Taxable Income. Subject to the discussion below under "Tax Treatment of Income Earned Through C Corporations" and
the
discussion below under "Entity-Level Collections," we will not pay any federal income tax. Instead, each unitholder will be required to report on his income tax return his share of our
income, gains, losses and deductions without regard to whether we make cash distributions to him. Consequently, we may allocate income to a unitholder even if he has not received a cash distribution.
The income we allocate to unitholders will generally be taxable as ordinary income. Each unitholder will be required to include in income his allocable share of our income, gains, losses and
deductions for our taxable year ending with or within his taxable year. Our taxable year ends on December 31.
Treatment of Distributions. Distributions by us to a unitholder generally will not be taxable to the unitholder for federal income tax
purposes,
except to the extent the amount of any such cash distribution exceeds his tax basis in his common units immediately before the distribution. Cash distributions made by us to a unitholder in an amount
in excess of a unitholder's tax basis generally will be considered to be gain from the sale or exchange of our common units, taxable in accordance with the rules described under
"Disposition of Common Units" below. Any reduction in a unitholder's share of our liabilities for which no partner, including the general partner, bears the economic risk of loss, known
as "nonrecourse liabilities," will be treated as a distribution by us of cash to that unitholder. To the extent our distributions cause a unitholder's "at-risk" amount to be less than zero at the end
of any taxable year, the Unitholder will be required the recapture any losses deducted in previous years. Please read "Limitations on Deductibility of Losses."
A
decrease in a unitholder's percentage interest in us because of our issuance of additional common units will decrease his share of our nonrecourse liabilities under Section 752
of the Code, and thus will result in a corresponding deemed distribution of cash. This deemed distribution may constitute a non-pro rata distribution. A non-pro rata distribution of money or property
may result in ordinary income to a unitholder, regardless of his tax basis in his common units, if the distribution reduces the unitholder's share of our "unrealized receivables," including
depreciation recapture, and/or substantially appreciated "inventory items," each as defined in the Code, and collectively, "Section 751 Assets." To that extent, the unitholder will be treated
as having been distributed his proportionate share of the Section 751 Assets and then having exchanged those assets with us in return for the non-pro rata portion of the actual distribution
made to him. This latter deemed exchange will generally result in the unitholder's realization of ordinary income, which will equal the excess of (i) the non-pro rata portion of that
distribution over (ii) the unitholder's tax basis (often zero) for the share of Section 751 Assets deemed relinquished in the exchange.
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Basis of Common Units. A unitholder's initial tax basis for his common units will generally equal the amount he paid for our common
units plus his
share of our nonrecourse liabilities. That basis will be increased by his share of our income and by any increases in his share of our nonrecourse liabilities and decreased, but not below zero, by
distributions from us, by the unitholder's share of our losses, by any decreases in his share of our nonrecourse liabilities and by his share of our expenditures that are not deductible in computing
taxable income and are not required to be capitalized. A unitholder generally will have no share of our debt that is recourse to our general partner, but will have a share, generally based on his
share of profits, of our nonrecourse liabilities. Please read "Disposition of Common UnitsRecognition of Gain Loss."
Limitations on Deductibility of Losses. The deduction by a unitholder of his share of our losses will be limited to the tax basis in
his units and,
in the case of an individual unitholder, estate, trust, or corporate unitholder (if more than 50% of the value of the corporate unitholder's stock is owned directly or indirectly by or for five or
fewer individuals or some tax-exempt organizations) to the amount for which the unitholder is considered to be "at risk" with respect to our activities, if that is less than his tax basis. A
unitholder subject to these limitations must recapture losses deducted in previous years to the extent that distributions cause his at -risk amount to be less than zero at the end of any taxable year.
Losses disallowed to a unitholder or recaptured as a result of these limitations will carry forward and will be allowable as a deduction to the extent that his at-risk amount is subsequently
increased, provided such losses do not exceed such unitholders' tax basis in his common units. Upon the taxable disposition of a unit, any gain recognized by a unitholder can be offset by losses that
were previously suspended by the at-risk limitation but may not be offset by losses suspended by the basis limitation. Any loss previously suspended by the at-risk limitation in excess of that gain
would no longer be utilizable.
In
general, a unitholder will be at risk to the extent of the tax basis of his units, excluding any portion of that basis attributable to his share of our nonrecourse liabilities,
reduced by (i) any portion of that basis representing amounts otherwise protected against loss because of a guarantee, stop loss agreement or other similar arrangement and (ii) any
amount of money he borrows to acquire or hold his units, if the lender of those borrowed funds owns an interest in us, is related to another unitholder or can look only to the units for repayment. A
unitholder's at -risk amount will increase or decrease as the tax basis of the unitholder's units increases or decreases, other than tax basis increases or decreases attributable to increases or
decreases in his share of our nonrecourse liabilities.
In
addition to the basis and at-risk limitations on the deductibility of losses, the passive loss limitations generally provide that individuals, estates, trusts and some closely-held
corporations and personal service corporations can deduct losses from passive activities, which are generally defined as trade or business activities in which the taxpayer does not materially
participate, only to the extent of the taxpayer's income from those passive activities. The passive loss limitations are applied separately with respect to each publicly traded partnership.
Consequently, any passive losses we generate will only be available to offset our passive income generated in the future and will not be available to offset income from other passive activities or
investments, including our investments or a unitholder's investments in other publicly traded partnerships, or salary or active business income. Passive losses that are not deductible because they
exceed a unitholder's share of income we generate may be deducted in full when he disposes of his entire investment in us in a fully taxable transaction with an unrelated party. The passive loss
limitations are applied after other applicable limitations on deductions, including the at-risk rules and the basis limitation.
A
unitholder's share of our net income may be offset by any of our suspended passive losses, but it may not be offset by any other current or carryover losses from other passive
activities, including those attributable to other publicly traded partnerships.
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Limitations on Interest Deductions. The deductibility of a non-corporate taxpayer's "investment interest expense" is generally limited
to the amount
of that taxpayer's "net investment income." Investment interest expense includes:
-
- interest on indebtedness properly allocable to property held for investment;
-
- our interest expense attributed to income that is treated as portfolio income under the passive loss rules; and
-
- the portion of interest expense incurred to purchase or carry an interest in a passive activity to the extent attributable to
portfolio income.
The
computation of a unitholder's investment interest expense will take into account interest on any margin account borrowing or other loan incurred to purchase or carry a unit. Net
investment income includes gross income from property held for investment and amounts treated as portfolio income under the passive loss rules, less deductible expenses, other than interest, directly
connected with the production of investment income, but generally does not include gains attributable to the disposition of property held for investment or (if applicable) qualified dividend income.
The IRS has indicated in Notice 88-75, 1988-2 C.B. 386, that the net passive income earned by a publicly traded partnership will be treated as investment income to its unitholders. In addition, the
unitholder's share of to income that is treated as portfolio income under the passive loss rules will be treated as investment income.
Entity-Level Collections. If we are required or elect under applicable law to pay any federal, state, local or foreign income tax on
behalf of any
unitholder or our general partner or any former unitholder, we are authorized to pay those taxes from our funds. That payment, if made, will be treated as a distribution of cash to the unitholder on
whose behalf the payment was made. If the payment is made on behalf of a person whose identity cannot be determined, we are authorized to treat the payment as a distribution to all current
unitholders. We are authorized to amend our partnership agreement in the manner necessary to maintain uniformity of intrinsic tax characteristics of units and to adjust later distributions, so that
after giving effect to these distributions, the priority and characterization of distributions otherwise applicable under our partnership agreement is maintained as nearly as is practicable. Payments
by us as described above could give rise to an overpayment of tax on behalf of an individual unitholder in which event the unitholder would be required to file a claim in order to obtain a
credit or refund.
Allocation of Income, Gain, Loss and Deduction. In general, if we have a net profit, our items of income, gain, loss and deduction will
be allocated
among the general partner and the common unitholders in accordance with their percentage interests in us. At any time that distributions are made to the common units in excess of distributions to
certain other classes of units, or incentive distributions are made to the general partner, gross income will be allocated to the recipients to the extent of those excess distributions. If we have a
net loss, that loss will be allocated first to the general partner and the common unitholders in accordance with their percentage interests in us to the extent of their positive capital accounts and,
second, to the general partner. Notwithstanding the foregoing, any items of loss or deduction that are attributable to compensatory transfers of stock, stock options or other property by our general
partner or EnLink Midstream Partners, LP to any employee or other service provider will generally be specially allocated to the general partner.
Specified
items of our income, gain, loss and deduction will be allocated to account for (i) any difference between the tax basis and fair market value of our assets at the time
of an offering and (ii) any difference between the tax basis and fair market value of any assets contributed to us that exists at the time of such contribution (the difference described in
clauses (i) and (ii) are together referred to in this discussion as the "BookTax Disparity"). The effect of these allocations, referred to as Section 704(c)
Allocations, to a unitholder purchasing common units from us in an offering will, as
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to
those assets in respect of which we use the remedial method, be essentially the same as if the tax bases of our assets were equal to their fair market values at the time of such offering. In the
event we issue additional common units or engage in certain other transactions in the future, we will make "reverse Section 704(c) Allocations," similar to the Section 704(c) Allocations
described above, to all holders of partnership interests immediately prior to such issuance or other transactions to account for the difference between the "book" basis for purposes of maintaining
capital accounts and the fair market value of all property held by us at the time of such issuance or future transaction. In addition, items of recapture income will be allocated to the extent
possible to the unitholder who was allocated the deduction giving rise to the treatment of that gain as recapture income in order to minimize the recognition of ordinary income by some unitholders.
Finally, although we do not expect that our operations will result in the creation of negative capital accounts, if negative capital accounts nevertheless result, items of our income and gain will be
allocated in an amount and manner sufficient to eliminate the negative balance as quickly as possible.
An
allocation of items of our income, gain, loss or deduction, other than an allocation required under the Section 704(c) principles described above, will generally be given
effect for federal income tax purposes in determining a partner's share of an item of income, gain, loss or deduction only if the allocation has "substantial economic effect." In any other case, a
partner's share of an item will be determined on the basis of his interest in us, which will be determined by taking into account all the facts and circumstances,
including:
-
- his relative contributions to us;
-
- the interests of all the partners in profits and losses;
-
- the interest of all the partners in cash flow; and
-
- the rights of all the partners to distributions of capital upon liquidation.
Baker
Botts L.L.P. is of the opinion that, with the exception of the issues described in "Section 754 Election," "Disposition of Common
UnitsAllocations Between Transferors and Transferees," and "Uniformity of Common Units," allocations under our partnership agreement will be given effect under Section 704 of the
Code for federal income tax purposes in determining a partner's share of an item of income, gain, loss or deduction.
Treatment of Short Sales. A unitholder whose units are loaned to a "short seller" to cover a short sale of units may be considered as
having disposed
of those units. If so, he would no longer be treated for tax purposes as a partner with respect to those units during the period of the loan and may recognize gain or loss from the disposition. As a
result, during this period:
-
- any of our income, gain, loss or deduction with respect to those units would not be reportable by the unitholder;
-
- any cash distributions received by the unitholder as to those units would be fully taxable; and
-
- all of these distributions would appear to be ordinary income.
Because
there is no direct or indirect controlling authority on the issue relating to partnership interests, Baker Botts L.L.P. has not rendered an opinion regarding the tax
treatment of a unitholder whose common units are loaned to a short seller to cover a short sale of common units; therefore, unitholders desiring to assure their status as partners and avoid the risk
of gain recognition from a loan to a short seller are urged to modify any applicable brokerage account agreements to prohibit their brokers from borrowing and loaning their units. The IRS has
previously announced that it is studying issues relating to the tax treatment of short sales of partnership interests. Please also read "Disposition of Common
UnitsRecognition of Gain or Loss."
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Alternative Minimum Tax. Each unitholder will be required to take into account his distributive share of any items of our income, gain,
loss or
deduction for purposes of the alternative minimum tax. We do not expect to generate significant tax preference items or adjustments. For 2014, the minimum tax rate for noncorporate taxpayers is 26% on
the first $182,500 ($91,250 for married individuals filing separately) of alternative minimum taxable income in excess of the exemption amount and 28% on any additional alternative minimum taxable
income. Prospective unitholders are urged to consult with their tax advisors as to the impact of an investment in units on their liability for the alternative minimum tax.
Tax Rates. The highest marginal U.S. federal income tax rate applicable to ordinary income and long-term capital gains of individuals
currently is
39.6% and 20%, respectively. These rates are subject to change by new legislation at any time.
Section 1411
of the Code imposes a 3.8% Medicare tax on certain investment income earned by certain individuals, estates and trusts for taxable years. For these purposes,
investment income generally includes a unitholder's allocable share of our income and gain realized by a unitholder from a sale of units. In the case of an individual, the tax will be imposed on the
lesser of (i) the unitholder's net income from all investments, and (ii) the amount by which the unitholder's adjusted gross income exceeds (A) $250,000 (if unitholder is married
and filing jointly or a surviving spouse), (B) $125,000 (if the unitholder is married and filing separately) or (C) $200,000 (in any other case). In the case of an estate or trust, the
tax will be imposed on the lesser of (1) undistributed net investment income, or (2) the excess adjusted gross income over the dollar amount at which the highest income tax bracket
applicable to an estate or trust begins.
Section 754 Election. We have made the election permitted by Section 754 of the Code. That election is irrevocable without
the consent
of the IRS unless there is a constructive termination of the partnership. Please read "Disposition of Common UnitsConstructive Termination." The election will generally
permit us to adjust a common unit purchaser's tax basis in our assets, or inside basis, under Section 743(b) of the Code to reflect his purchase price. This election does not apply with respect
to a person who purchases common units directly from us, including a purchaser of units in this offering. The Section 743(b) adjustment belongs to the purchaser and not to other unitholders.
For purposes of this discussion, the inside basis in our assets with respect to a unitholder will be considered to have two components: (i) his share of our tax basis in our assets, or common
basis, and (ii) his Section 743(b) adjustment to that basis.
Where
the remedial allocation method is adopted (which we have generally adopted as to all of our properties), the Treasury Regulations under Section 743 of the Internal Revenue
Code require a portion of the Section 743(b) adjustment that is attributable to recovery property under Section 168 of the Internal Revenue Code whose book basis is in excess of its tax
basis to be depreciated over the remaining cost recovery period for the Section 704(c) built in gain. Under Treasury Regulation Section 1.167(c)-1(a)(6), a Section 743(b)
adjustment attributable to property subject to depreciation under Section 167 of the Internal Revenue Code, rather than cost recovery deductions under Section 168, is generally required
to be depreciated using either the straight-line method or the 150% declining balance method. Under our partnership agreement, the general partner is authorized to take a position to preserve the
uniformity of units even if that position is not consistent with these and any other Treasury Regulations. Although Baker Botts L.L.P. is unable to opine as to the validity of this approach
because there is no direct or indirect controlling authority on this issue, we intend to depreciate the portion of a Section 743(b) adjustment attributable to unrealized appreciation in the
value of property that has a Book-Tax Disparity, to the extent of any unamortized Book-Tax Disparity, using a rate of depreciation or amortization derived from the depreciation or amortization method
and useful life applied to the property's unamortized Book-Tax Disparity, or treat that portion as non-mortizable to the extent attributable to property which is not amortizable. This method is
consistent with the methods employed by other publicly traded partnerships but is arguably inconsistent with Treasury Regulation Section 1.167(c)-1(a)(6), which is not expected to directly
apply to a material
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portion
of our assets. To the extent this Section 743(b) adjustment is attributable to appreciation in value in excess of the unamortized Book-Tax Disparity, we will apply the rules described
in the Treasury Regulations and legislative history. If we determine that this position cannot reasonably be taken, we may take a depreciation or amortization position under which all purchasers
acquiring units in the same month would receive depreciation or amortization, whether attributable to common basis or a Section 743(b) adjustment, based upon the same applicable rate as if they
had purchased a direct interest in our assets. This kind of aggregate approach may result in lower annual depreciation or amortization deductions than would otherwise be allowable to some unitholders.
Please read "Uniformity of Common Units." A unitholder's tax basis for his common units is reduced by his share of our deductions (whether or not such deductions were claimed on an
individual's income tax return) so that any position we take that understates deductions will overstate the common unitholder's basis in his common units, which may cause the unitholder to understate
gain or overstate loss on any sale of such units. Please see "Disposition of Common UnitsRecognition of Gain or Loss." The IRS may challenge our position with respect to
depreciating or amortizing the Section 743(b) adjustment we take to preserve the uniformity of the units. If such a challenge were sustained, the gain from the sale of units might be increased
without the benefit of additional deductions.
A
Section 754 election is advantageous if the transferee's tax basis in his units is higher than the units' share of the aggregate tax basis of our assets immediately prior to the
transfer. In that case, as a result of the election, the transferee would have, among other items, a greater amount of depreciation deductions and his share of any gain or loss on a sale of our assets
would be less. A basis adjustment is required regardless of whether a Section 754 election is made in the case of a transfer of an interest in us if we have a substantial built-in loss
immediately after the transfer, or if we distribute property and have a substantial basis reduction. Generally a built-in loss or a basis reduction is substantial if it exceeds $250,000.
The
calculations involved in the Section 754 election are complex and will be made on the basis of assumptions as to the value of our assets and other matters. For example, the
allocation of the Section 743(b) adjustment among our assets must be made in accordance with the Code. The IRS could seek to reallocate some or all of any Section 743(b) adjustment
allocated by us to our tangible assets to goodwill instead. Goodwill, as an intangible asset, is generally nonamortizable or amortizable over a longer period of time or under a less accelerated method
than our tangible assets. We cannot assure you that the determinations we make will not be successfully challenged by the IRS and that the deductions resulting from them will not be reduced or
disallowed altogether. Should the IRS require a different basis adjustment to be made, and should, in our opinion, the expense of compliance exceed the benefit of the election, we may seek permission
from the IRS to revoke our Section 754 election. If permission is granted, a subsequent purchaser of units may be allocated more income than he would have been allocated had the election not
been revoked.
Tax Treatment of Operations
Accounting Method and Taxable Year. We use the year ending December 31 as our taxable year and the accrual method of accounting
for federal
income tax purposes. Each unitholder will be required to include in income his share of our income, gain, loss and deduction for our taxable year ending within or with his taxable year. In addition, a
unitholder who has a taxable year ending on a date other than December 31 and who disposes of all of his units following the close of our taxable year but before the close of his taxable year
must include his share of our income, gain, loss and deduction in income for his taxable year, with the result that he will be required to include in income for his taxable year his share of more than
twelve months of our income, gain, loss and deduction. Please read "Disposition of Common UnitsAllocations Between Transferors and Transferees."
Tax Basis, Depreciation and Amortization. The tax basis of our assets will be used for purposes of computing depreciation and cost
recovery
deductions and, ultimately, gain or loss on the disposition of
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these
assets. The federal income tax burden associated with the difference between the fair market value of our assets and their tax basis immediately prior to an offering will be borne by our
unitholders holding interests in us prior to any such offering. Please read "Tax Consequences of Unit OwnershipAllocation of Income, Gain, Loss and Deduction."
To
the extent allowable, we may elect to use the depreciation and cost recovery methods, including bonus depreciation to the extent available, that will result in the largest deductions
being taken in the early years after assets subject to these allowances are placed in service. Property we subsequently acquire or construct may be depreciated using accelerated methods permitted by
the Code.
If
we dispose of depreciable property by sale, foreclosure or otherwise, all or a portion of any gain, determined by reference to the amount of depreciation previously deducted and the
nature of the
property, may be subject to the recapture rules and taxed as ordinary income rather than capital gain. Similarly, a unitholder who has taken cost recovery or depreciation deductions with respect to
property we own will likely be required to recapture some or all of those deductions as ordinary income upon a sale of his interest in us. Please read "Tax Consequences of Unit
OwnershipAllocation of Income, Gain, Loss and Deduction" and "Disposition of Common UnitsRecognition of Gain or Loss."
The
costs we incur in selling our units (called "syndication expenses") must be capitalized and cannot be deducted currently, ratably or upon our termination. There are uncertainties
regarding the classification of costs as organization expenses, which may be amortized by us, and as syndication expenses, which may not be amortized by us. The underwriting discounts and commissions
we incur will be treated as syndication expenses.
Valuation and Tax Basis of Our Properties. The federal income tax consequences of the ownership and disposition of units will depend in
part on our
estimates of the relative fair market values, and the amount of initial tax bases, of our assets. Although we may from time to time consult with professional appraisers regarding valuation matters, we
will make many of the relative fair market value estimates ourselves. These estimates of value and determinations of basis are subject to challenge and will not be binding on the IRS or the courts. If
the estimates of fair market value or determinations of basis are later found to be incorrect, the character and amount of items of income, gain, loss or deductions previously reported by unitholders
might change, and unitholders might be required to adjust their tax liability for prior years and incur interest and penalties with respect to those adjustments.
Disposition of Common Units
Recognition of Gain or Loss. Gain or loss will be recognized on a sale of units equal to the difference between the amount realized and
the
unitholder's tax basis for the units sold. A unitholder's amount realized will be measured by the sum of the cash or the fair market value of other property received by him plus his share of our
nonrecourse liabilities. Because the amount realized includes a unitholder's share of our nonrecourse liabilities, the gain recognized on the sale of units could result in a tax liability in excess of
any cash received from the sale.
Prior
distributions from us that in the aggregate were in excess of cumulative net taxable income for a common unit and, therefore, decreased a unitholder's tax basis in that common unit
will, in effect,
become taxable income if the common unit is sold at a price greater than the unitholder's tax basis in that common unit, even if the price received is less than his original cost.
Except
as noted below, gain or loss recognized by a unitholder, other than a "dealer" in units, on the sale or exchange of a unit will generally be taxable as capital gain or loss.
Capital gain recognized by an individual on the sale of units held for more than twelve months will generally be taxed at a maximum U.S. federal income tax rate of 20%. However, a portion of this gain
or loss, which will likely be substantial, will be separately computed and taxed as ordinary income or loss under Section 751 of the Code to the extent attributable to assets giving rise to
depreciation recapture or other "unrealized
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receivables"
or to "inventory items" we own. The term "unrealized receivables" includes potential recapture items, including depreciation recapture. Ordinary income attributable to unrealized
receivables, inventory items and depreciation recapture may exceed net taxable gain realized upon the sale of a unit and may be recognized even if there is a net taxable loss realized on the sale of a
unit. Thus, a unitholder may recognize both ordinary income and a capital loss upon a sale of units. Capital losses may offset capital gains and no more than $3,000 of ordinary income each year, in
the case of individuals, and may only be used to offset capital gains in the case of corporations.
The
IRS has ruled in Rev. Rul. 84-53, 1984-1 C.B. 159, that a partner who acquires interests in a partnership in separate transactions must combine those interests and maintain a single
adjusted tax basis for all those interests. Upon a sale or other disposition of less than all of those interests, a portion of that tax basis must be allocated to the interests sold using an
"equitable apportionment" method, which generally means that the tax basis allocated to the interest sold equals an amount that bears the same relation to the partner's tax basis in his entire
interest in the partnership as the value of the interest sold bears to the value of the partner's entire interest in the partnership. Treasury Regulations under Section 1223 of the Code allow a
selling unitholder who can identify common units transferred with an ascertainable holding period to elect to use the actual holding period of the common units transferred. Thus, according to the
ruling discussed above, a common unitholder will be unable to select high or low basis common units to sell as would be the case with corporate stock, but, according to the Treasury Regulations, he
may designate specific common units sold for purposes of determining the holding period of units transferred. A unitholder electing to use the actual holding period of common units transferred must
consistently use that identification method for all subsequent sales or exchanges of common units. A unitholder considering the purchase of additional units or a sale of common units purchased in
separate transactions is urged to consult his tax advisor as to the possible consequences of this ruling and application of the Treasury Regulations.
Section 1259
of the Code can affect the taxation of some financial products and securities, including partnership interests, by treating a taxpayer as having sold an "appreciated"
partnership interest, one in
which gain would be recognized if it were sold, assigned or terminated at its fair market value, if the taxpayer or related persons enter(s) into:
-
- a short sale;
-
- an offsetting notional principal contract; or
-
- a futures or forward contract;
in
each case, with respect to the partnership interest or substantially identical property.
Moreover,
if a taxpayer has previously entered into a short sale, an offsetting notional principal contract or a futures or forward contract with respect to the partnership interest, the
taxpayer will be treated as having sold that position if the taxpayer or a related person then acquires the partnership interest or substantially identical property. The Secretary of the Treasury is
also authorized to issue regulations that treat a taxpayer that enters into transactions or positions that have substantially the same effect as the preceding transactions as having constructively
sold the financial position.
Allocations Between Transferors and Transferees. In general, our taxable income and losses will be determined annually, will be
prorated on a monthly
basis and will be subsequently apportioned among the unitholders in proportion to the number of units owned by each of them as of the opening of the applicable exchange on the first business day of
the month, which we refer to as the "Allocation Date." However, gain or loss realized on a sale or other disposition of our assets other than in the ordinary course of business will be allocated among
the unitholders on the Allocation Date in the month in which that gain or loss is recognized. As a result, a unitholder transferring units may be allocated income, gain, loss and deduction realized
after the date of transfer.
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Although simplifying conventions are contemplated by the Code and most publicly traded partnerships use similar simplifying conventions, the use of this method
may not be permitted under existing Treasury Regulations as there is no direct or indirect controlling authority on this issue. Recently, however, the Department of the Treasury and the IRS issued
proposed Treasury Regulations that provide a safe harbor pursuant to which a publicly traded partnership may use a similar monthly simplifying convention to allocate tax items among transferor and
transferee unitholders, although such tax items must be prorated on a daily basis. Nonetheless, the proposed regulations do not specifically authorize the use of the proration method we have adopted.
Existing publicly traded partnerships are entitled to rely on these proposed Treasury Regulations; however, they are not binding on the IRS and are subject to change until final Treasury Regulations
are issued. Accordingly, Baker Botts L.L.P. is unable to opine on the validity of this method of allocating income and deductions between transferor and transferee unitholders because the issue
has not been finally resolved by the IRS or the courts. If this method is not allowed under the Treasury Regulations, or only applies to transfers of less than all of the unitholder's interest, our
taxable income or losses might be reallocated among the unitholders. We are authorized to revise our method of allocation between transferor and transferee unitholders, as well as unitholders whose
interests vary during a taxable year, to conform to a method permitted under future Treasury Regulations.
A
unitholder who disposes of units prior to the record date set for a cash distribution for that quarter will be allocated items of our income, gain, loss and deductions attributable to
that quarter but will not be entitled to receive that cash distribution.
Notification Requirements. A unitholder who sells any of his units is generally required to notify us in writing of that sale within
30 days
after the sale (or, if earlier, January 15 of the year following the sale). A purchaser of units who purchases units from another unitholder is also generally required to notify us in writing
of that purchase within 30 days after the purchase. Upon receiving such notifications, we are required to notify the IRS of that transaction and to furnish specified information to the
transferor and transferee. Failure to notify us of a sale may lead to the imposition of penalties. However, these reporting requirements do not apply to a sale by an individual who is a citizen of the
U.S. and who effects the sale or exchange through a broker who will satisfy such requirements.
Constructive Termination. We will be considered to have terminated our partnership for federal income tax purposes upon the sale or
exchange of our
interests that, in the aggregate, constitute 50% or more of the total interests in our capital and profits within a twelve-month period. For purposes of measuring whether the 50% threshold is reached,
multiple sales of the same interest are counted only once. A constructive termination results in the closing of our taxable year for all unitholders. In the case of a unitholder reporting on a taxable
year other than a fiscal year ending December 31, the closing of our taxable year may result in more than twelve months of our taxable income or loss being includable in his taxable income for
the year of termination. A constructive termination occurring on a date other than December 31 will result in us filing two tax returns (and common unitholders could receive two
Schedules K-1 if the relief discussed below is not available) for one fiscal year and the cost of the preparation of these returns will be borne by all common unitholders. We would be required
to make new tax elections after a termination, including a new election under Section 754 of the Code, and a termination would result in a deferral of our deductions for depreciation. A
termination could also result in penalties if we were unable to determine that the termination had occurred. Moreover, a termination might either accelerate the application of, or subject us to, any
tax legislation enacted before the termination. The IRS has recently announced a relief procedure whereby if a publicly traded partnership that has technically terminated requests publicly traded
partnership technical termination relief and the IRS grants such relief, among other things, the partnership will only have to provide one Schedule K-1 to unitholders for the year
notwithstanding two partnership tax years.
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Uniformity of Common Units
Because we cannot match transferors and transferees of units, we must maintain uniformity of the economic and tax characteristics of
the common units to a purchaser of
these common units. In the absence of uniformity, we may be unable to completely comply with a number of federal income tax requirements, both statutory and regulatory. Any non-uniformity could have
an impact upon the value of our units. The timing of deductions attributable to Section 743(b) adjustments to the common basis of our assets with respect to persons purchasing units from
another unitholder may affect the uniformity of our units. Please read "Tax Consequences of Unit OwnershipSection 754 Election."
We
intend to depreciate the portion of a Section 743(b) adjustment attributable to unrealized appreciation in the value of property that has a Book-Tax Disparity, to the extent of
any unamortized Book-Tax Disparity, using a rate of depreciation or amortization derived from the depreciation or amortization method and useful life applied to the property's unamortized Book-Tax
Disparity, or treat that portion as nonamortizable, to the extent attributable to property the common basis of which is not amortizable, consistent with the regulations under Section 743 of the
Internal Revenue Code, even though that position may be inconsistent with Treasury Regulation Section 1.167(c)-1(a)(6), which is not expected to directly apply to a material portion of our
assets. Please see "Tax Consequences of Unit OwnershipSection 754 Election." To the extent that the Section 743(b) adjustment is attributable to appreciation in
value in excess of the unamortized Book-Tax Disparity, we will apply the rules described in the Treasury Regulations and legislative history. If we determine that this position cannot reasonably be
taken, we may adopt a depreciation and amortization position under which all purchasers acquiring units in the same month would receive depreciation and amortization deductions, whether attributable
to a common basis or Section 743(b) adjustment, based upon the same applicable methods and lives as if they had purchased a direct interest in our property. If this position is adopted, it may
result in lower annual depreciation and amortization deductions than would otherwise be allowable to some unitholders and risk the loss of depreciation and amortization deductions not taken in the
year that these deductions are otherwise allowable. This position will not be adopted if we determine that the loss of depreciation and amortization deductions will have a material adverse effect on
the unitholders. If we choose not to utilize this aggregate method, we may use any other reasonable depreciation and amortization method to preserve the uniformity of the intrinsic tax characteristics
of any units that would not have a material adverse effect on the unitholders. The IRS may challenge any method of depreciating the Section 743(b) adjustment described in this paragraph. If
this challenge were sustained, the uniformity of units might be affected, and the gain from the sale of units might be increased without the benefit of additional deductions. Please see
"Disposition of Common UnitsRecognition of Gain Loss."
Tax-Exempt Organizations and Other Investors
Ownership of units by employee benefit plans, other tax-exempt organizations, non-resident aliens, foreign corporations and other
foreign persons raises issues unique to those investors and, as described below to a limited extent, may have substantially adverse tax consequences to them. If you are a tax-exempt entity or a
non-U.S. person, you should consult your tax advisor before investing in our common units.
Employee
benefit plans and most other organizations exempt from federal income tax, including individual retirement accounts and other retirement plans, are subject to federal income tax
on unrelated business taxable income. Virtually all of our income allocated to a unitholder that is a tax-exempt organization will be unrelated business taxable income and will be taxable to it.
Non-resident
aliens and foreign corporations, trusts or estates that own units will be considered to be engaged in business in the U.S. because of the ownership of units. As a
consequence, they will be required to file federal tax returns to report their share of our income, gain, loss or deduction and pay
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federal
income tax at regular rates on their share of our net income or gain. Moreover, under rules applicable to publicly traded partnerships, we will withhold at the highest applicable effective tax
rate from cash distributions made quarterly to foreign unitholders. Each foreign unitholder must obtain a taxpayer identification number from the IRS and submit that number to our transfer agent on a
Form W-8BEN or applicable substitute form in order to obtain credit for these withholding taxes. A change in applicable law may require us to change these procedures.
In
addition, because a foreign corporation that owns units will be treated as engaged in a U.S. trade or business, that corporation may be subject to the U.S. branch profits tax at a
rate of 30%, in addition to regular federal income tax, on its share of our income and gain, as adjusted for changes in the foreign corporation's "U.S. net equity," which is effectively connected with
the conduct of a U.S. trade or business. That tax may be reduced or eliminated by an income tax treaty between the U.S. and the country in which the foreign corporate unitholder is a "qualified
resident." In addition, this type of unitholder is subject to special information reporting requirements under Section 6038C of the Code.
A
foreign unitholder who sells or otherwise disposes of a common unit will be subject to U.S. federal income tax on gain realized from the sale or disposition of that unit to the extent
the gain is effectively connected with a U.S. trade or business of the foreign unitholder. Under Rev. Rul. 91-32, 1991-1 C.B. 107, interpreting the scope of "effectively connected income," a foreign
unitholder would be considered to be engaged in a trade or business in the U.S. by virtue of the U.S. activities of the partnership, and part or all of that unitholder's gain would be effectively
connected with that unitholder's indirect U.S. trade or business. In this regard, substantially all of our assets (excluding the stock we own in our C corporation subsidiaries) are used in the conduct
of a U.S. trade or business. Moreover, under the Foreign Investment in Real Property Tax Act, a foreign common unitholder generally will be subject to U.S. federal income tax upon the sale or
disposition of a common unit if (i) he owned (directly or constructively applying certain attribution rules) more than 5% of our common units at any time during the five-year period ending on
the date of such disposition and (ii) 50% or more of the fair market value of all of our assets consisted of U.S. real property interests at any time during the shorter of the period during
which such unitholder held the common units or the five-year period ending on the date of disposition. Currently, more than 50% of our assets consist of U.S. real property interests and we do
not expect that to change in the foreseeable future. Therefore, foreign unitholders may be subject to federal income tax on gain from the sale or disposition of their units.
Administrative Matters
Information Returns and Audit Procedures. We intend to furnish to each unitholder, within 90 days after the close of each taxable
year
(generally, the calendar year), specific tax information, including a Schedule K-1, which describes his share of our income, gain, loss and deduction for our preceding taxable year. In
preparing this information, which will not be reviewed by counsel, we will take various accounting and reporting positions, some of which have been mentioned earlier, to determine each unitholder's
share of income, gain, loss and deduction. We cannot assure you that those positions will yield a result that conforms to the requirements of the Code, Treasury Regulations or administrative
interpretations of the IRS. Neither we nor Baker Botts L.L.P. can assure prospective unitholders that the IRS will not successfully contend in court that those positions are impermissible. Any
challenge by the IRS could negatively affect the value of the units.
The
IRS may audit our federal income tax information returns. Adjustments resulting from an IRS audit may require each unitholder to adjust a prior year's tax liability, and possibly may
result in an audit of his return. Any audit of a unitholder's return could result in adjustments not related to our returns as well as those related to our returns.
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Partnerships
generally are treated as separate entities for purposes of federal tax audits, judicial review of administrative adjustments by the IRS and tax settlement proceedings. The
tax treatment of partnership items of income, gain, loss and deduction are determined in a partnership proceeding rather than in separate proceedings with the partners. The Code requires that one
partner be designated as the "Tax Matters Partner" for these purposes. Our partnership agreement names our general partner as our Tax Matters Partner.
The
Tax Matters Partner has made and will make some elections on our behalf and on behalf of unitholders. In addition, the Tax Matters Partner can extend the statute of limitations for
assessment of tax deficiencies against unitholders for items in our returns. The Tax Matters Partner may bind a unitholder with less than a 1% profits interest in us to a settlement with the IRS
unless that unitholder elects, by filing a statement with the IRS, not to give that authority to the Tax Matters Partner. The Tax Matters Partner may seek judicial review, by which all the unitholders
are bound, of a final partnership administrative adjustment and, if the Tax Matters Partner fails to seek judicial review, judicial review may be sought by any unitholder having at least a 1% interest
in profits or by any group of unitholders having in the aggregate at least a 5% interest in profits. However, only one action for judicial review will go forward, and each unitholder with an interest
in the outcome may participate.
A
unitholder must file a statement with the IRS identifying the treatment of any item on his federal income tax return that is not consistent with the treatment of the item on our
return. Intentional or negligent disregard of this consistency requirement may subject a unitholder to substantial penalties.
Additional Withholding Requirements. Under recently enacted legislation, the relevant withholding agent may be required to withhold 30%
of any
interest, dividends and other fixed or determinable annual or periodical gains, profits and income from sources within the United States ("FDAP Income") or gross proceeds from the sale of any property
of a type which can produce interest or dividends from sources within the United States paid to (i) a foreign financial institution (for which purposes includes foreign broker-dealers, clearing
organizations, investment companies, hedge funds and certain other investment entities) unless such foreign financial institution agrees to verify, report and disclose its U.S. accountholders and
meets certain other specified requirements or (ii) a non-financial foreign entity that is a beneficial owner of the payment unless such entity certifies that it does not have any substantial
U.S. owners or provides the name, address and taxpayer identification number of each substantial U.S. owner and such entity meets certain other specified requirements or otherwise qualifies for an
exemption from this withholding. Under recently finalized Treasury Regulations, withholding only applies to payments of FDAP Income which are made after June 30, 2014, and to payments of
relevant gross proceeds which are made after December 31, 2016. Non-U.S. and U.S. unitholders are encouraged to consult their own tax advisors regarding the possible implications of this
legislation on their investment in our common units.
Nominee Reporting. Persons who hold an interest in us as a nominee for another person are required to furnish to
us:
-
- the name, address and taxpayer identification number of the beneficial owner and the nominee;
-
- whether the beneficial owner is:
- (1)
- a
person that is not a U.S. person;
- (2)
- a
foreign government, an international organization or any wholly-owned agency or instrumentality of either of the foregoing; or
- (3)
- a
tax-exempt entity;
-
- the amount and description of common units held, acquired or transferred for the beneficial owner; and
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-
- specific information including the dates of acquisitions and transfers, means of acquisitions and transfers, and acquisition cost for
purchases, as well as the amount of net proceeds from sales.
Brokers
and financial institutions are required to furnish additional information, including whether they are U.S. persons and specific information on units they acquire, hold or
transfer for their own account. A penalty of $100 per failure, up to a maximum of $1,500,000 per calendar year, is imposed for failure to report that information to us. The nominee is required to
supply the beneficial owner of the units with the information furnished to us.
Accuracy- Related Penalties. An additional tax equal to 20% of the amount of any portion of an underpayment of tax that is attributable
to one or
more specified causes, including negligence or disregard of rules or regulations, substantial understatements of income tax and substantial valuation misstatements, is imposed. No penalty will be
imposed, however, for any portion of an underpayment if it is shown that there was a reasonable cause for that portion and that the taxpayer acted in good faith regarding that portion.
For
individuals, a substantial understatement of income tax in any taxable year exists if the amount of the understatement exceeds the greater of 10% of the tax required to be shown on
the return for the taxable year or $5,000 ($10,000 for most corporations). The amount of any understatement subject to penalty generally is reduced if any portion is attributable to a position adopted
on the return:
-
- for which there is, or was, "substantial authority"; or
-
- as to which there is a reasonable basis and the pertinent facts of that position are disclosed on the return.
If
any item of income, gain, loss or deduction included in the distributive shares of unitholders might result in that kind of an "understatement" of income for which no "substantial
authority" exists, we must disclose the pertinent facts on our return. In addition, we will make a reasonable effort to furnish sufficient information for unitholders to make adequate disclosure on
their returns and to take other actions as may be appropriate to permit unitholders to avoid liability for this penalty. More stringent rules apply to "tax shelters," which we do not believe includes
us, or any of our investments, plans or arrangements.
A
substantial valuation misstatement exists if (a) the value of any property, or the adjusted basis of any property, claimed on a tax return is 150% or more of the amount
determined to be the correct amount of the valuation or adjusted basis, (b) the price for any property or services (or for the use of property) claimed on any such return with respect to any
transaction between persons described in Section 482 of the Code is 200% or more (or 50% or less) of the amount determined under Code Section 482 to be the correct amount of such price,
or (c) the net Section 482 transfer price adjustment for the taxable year exceeds the lesser of $5 million or 10% of the taxpayer's gross receipts. No penalty is imposed unless
the portion of the underpayment attributable to a substantial valuation misstatement exceeds $5,000 ($10,000 for most corporations). If the valuation claimed on a return is 200% or more than the
correct valuation or certain other thresholds are met, the penalty imposed increases to 40%. We do not anticipate making any valuation misstatements.
In
addition, the 20% accuracy-related penalty also applies to any portion of an underpayment of tax that is attributable to transactions lacking economic substance. To the extent that
such transactions are not disclosed, the penalty imposed is increased to 40%. Additionally, there is no reasonable cause defense to the imposition of this penalty to such transactions.
Reportable Transactions. If we were to engage in a "reportable transaction," we (and possibly you and others) would be required to make
a detailed
disclosure of the transaction to the IRS. A transaction may be a reportable transaction based upon any of several factors, including the fact that it is a type of tax avoidance transaction publicly
identified by the IRS as a "listed transaction" or that it
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produces
certain kinds of losses for partnerships, individuals, S corporations, and trusts in excess of $2 million in any single year, or $4 million in any combination of six successive
tax years. Our participation in a reportable transaction could increase the likelihood that our federal income tax information return (and possibly your tax return) would be audited by the IRS. Please
read "Information Returns and Audit Procedures."
Moreover,
if we were to participate in a reportable transaction with a significant purpose to avoid or evade tax, or in any listed transaction, you may be subject to the following
provisions:
-
- accuracy-related penalties with a broader scope, significantly narrower exceptions, and potentially greater amounts than described
above at "Accuracy-related Penalties";
-
- for those persons otherwise entitled to deduct interest on federal tax deficiencies, nondeductibility of interest on any resulting tax
liability; and
-
- in the case of a listed transaction, an extended statute of limitations.
Recent Legislative Developments
The present federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be
modified by administrative, legislative or judicial interpretation at any time. For example, from time to time members of the U.S. Congress propose and consider substantive changes to the existing
federal income tax laws that affect publicly traded partnerships. One legislative proposal made during 2012 but which was not enacted would have eliminated the qualifying income exception upon which
we rely for our treatment as a partnership for U.S. federal income tax purposes. Please read "Partnership Status." We are unable to predict whether any such changes will ultimately be
enacted. However, it is possible that a change in law could affect us and may be applied retroactively. Any such changes could negatively impact the value of an investment in our units.
State, Local, Foreign and Other Tax Considerations
In addition to federal income taxes, you likely will be subject to other taxes, such as state, local and foreign income taxes,
unincorporated business taxes, and estate, inheritance or intangible taxes that may be imposed by the various jurisdictions in which we do business or own property or in which you are a resident.
Although an analysis of those various taxes is not presented here, each prospective unitholder should consider their potential impact on his investment in us. We currently own property and do business
in several states, most of which impose personal income taxes on individuals. Most of these states also impose income tax on corporations and other entities. Moreover, we may also own property or do
business in other states in the future that impose income or similar taxes on nonresident individuals. Although you may not be required to file a return and pay taxes in some jurisdictions
because your income from that jurisdiction falls below the filing and payment requirement, a unitholder may be required to file income tax returns and to pay income taxes in other jurisdictions in
which we do business or own property, now or in the future, and may be subject to penalties for failure to comply with those requirements. In some jurisdictions, tax losses may
not produce a tax benefit in the year incurred and may not be available to offset income in subsequent taxable years. Some jurisdictions may require us, or we may elect, to withhold a percentage of
income from amounts to be distributed to a unitholder who is not a resident of the jurisdiction. Withholding, the amount of which may be greater or less than a particular unitholder's income tax
liability to the jurisdiction, generally does not relieve a nonresident unitholder from the obligation to file an income tax return. Amounts withheld will be treated as if distributed to unitholders
for purposes of determining the amounts distributed by us. Please read "Tax Consequences of Unit OwnershipEntityLevel Collections." Based on current
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law
and our estimate of our future operations, the general partner anticipates that any amounts required to be withheld will not be material.
It is the responsibility of each unitholder to investigate the legal and tax consequences, under the laws of pertinent jurisdictions, of his investment in us.
Accordingly, each prospective unitholder is urged to consult, and depend upon, his tax counsel or other advisor with regard to those matters. Further, it is the responsibility of each unitholder to
file all state, local and foreign, as well as U.S. federal tax returns, that may be required of him. Baker Botts L.L.P. has not rendered an opinion on the state, local or foreign tax
consequences of an investment in us.
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PLAN OF DISTRIBUTION
We may sell the securities being offered hereby in and outside the U.S. (1) through underwriters or underwriting syndicates led
by one or more managing underwriters, (2) to or through brokers or dealers, (3) to or through agents, (4) directly to one or more purchasers, including our affiliates,
(5) pursuant to delayed delivery contracts or forward contracts or (6) through a combination of any of these methods.
The
prospectus supplement will set forth the terms of the offering and the method of distribution and will include the following
information:
-
- the names of any underwriters or agents;
-
- the name or names of any managing underwriter or underwriters;
-
- the purchase price of the securities from us;
-
- the net proceeds to us from the sale of the securities;
-
- any delayed delivery arrangements;
-
- any over-allotment options under which underwriters may purchase additional securities from us;
-
- any underwriting discounts, commissions and other items constituting compensation to underwriters, dealers or agents;
-
- any public offering price;
-
- any discounts or concessions allowed or reallowed or paid to dealers;
-
- any commissions paid to agents; and
-
- any securities exchange or market on which the securities offered in the prospectus supplement may be listed.
Sale Through Underwriters or Dealers
If we use underwriters in the sale of securities, we will execute an underwriting agreement with the underwriter at the time of sale
and we will provide the name of any underwriter in the prospectus supplement that the underwriter will use to make resales of securities to the public. The underwriters will acquire the securities for
their own account, and the underwriters may resell the securities from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying
prices determined at the time of sale. Underwriters may offer securities to the public either through underwriting syndicates represented by one or more managing underwriters or directly by one or
more firms acting as underwriters. The obligations of the underwriters to purchase the securities will be subject to conditions, and any underwritten offering may be on a firm commitment basis. The
underwriters may change from time to time any initial public offering price and any discounts or concessions allowed or reallowed or paid to dealers.
If
we use dealers in the sale of securities, we will sell the securities to them as principals. They may then resell those securities to the public at varying prices determined by the
dealers at the time of resale. The dealers participating in any sale of the securities may be deemed to be underwriters within the meaning of the Securities Act, with respect to any sale of those
securities. We will include in the prospectus supplement the names of the dealers and the terms of the transaction.
Sales Through Agents
We may also sell the securities through agents we designate from time to time. In the prospectus supplement, we will name any agent
involved in the offer or sale of the offered securities, and we will
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describe
any commissions payable by us to the agent. Unless we inform you otherwise in the prospectus supplement, any agent will agree to use its reasonable best efforts to solicit purchases for the
period of its appointment.
Direct Sales
We may sell the securities directly. In that event, no underwriters or agents would be involved. We may use electronic media, including
the Internet, to sell offered securities directly.
Delayed Delivery or Forward Contracts
If we so indicate in the prospectus supplement, we may authorize agents, underwriters or dealers to solicit offers to purchase
securities from us at the public offering price set forth in the prospectus under delayed delivery or forward contracts. These contracts would provide for payment and delivery on a specified date in
the future at prices determined as described in the prospectus supplement. The prospectus supplement would describe the commission payable for solicitation of those contracts.
Remarketing
We may offer and sell any of the securities in connection with a remarketing upon their purchase, in accordance with a redemption or
repayment by their terms or otherwise by one or more remarketing firms acting as principals for their own accounts or as our agents. We will identify any remarketing firm, the terms of any remarketing
agreement and the compensation to be paid to the remarketing firm in the prospectus supplement. Remarketing firms may be deemed underwriters under the Securities Act.
Derivative Transactions
We may enter into derivative transactions with third parties, or sell securities not covered by this prospectus to third parties in
privately negotiated transactions. If the applicable prospectus supplement indicates, in connection with those derivatives, the third parties may sell securities covered by this prospectus and the
applicable prospectus supplement, including in short sale transactions. If so, the third parties may use securities pledged by us or borrowed from us or others to settle those sales or to close out
any related open borrowings of stock, and may use securities received from us in settlement of those derivatives to close out any related open borrowings of stock. The third parties in these sale
transactions will be underwriters and, if not identified in this prospectus, will be identified in the applicable prospectus supplement or in a post-effective amendment to the registration statement
of which this prospectus forms a part. In addition, we may otherwise loan or pledge securities to a financial institution or other third party that in turn may sell the securities short using
this prospectus. Such financial institution or other third party may transfer its economic short position to investors in our securities or in connection with a concurrent offering of other
securities.
General Information
In connection with the sale of the securities, underwriters, dealers or agents may be deemed to have received compensation from us in
the form of underwriting discounts or commissions and may also receive commissions from securities purchasers for whom they may act as agent. Underwriters may sell the securities to or through
dealers, and the dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters or commissions from the purchasers for whom they may act as agent. We will
provide in the applicable prospectus supplement information regarding any underwriting discounts or other compensation that we pay to underwriters or agents in connection with the securities offering,
and any discounts, concessions or commissions which underwriters allow to dealers.
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We
may have agreements with the agents, dealers and underwriters to indemnify them against certain civil liabilities, including liabilities under the Securities Act, or to contribute
with respect to payments that the agents,dealers or underwriters may be required to make because of those liabilities. Agents, dealers and underwriters, or their affiliates or associates, may be
customers of, engage in transactions with or perform services for us in the ordinary course of their businesses.
Other
than the common units, which are listed on the New York Stock Exchange, each series of offered securities will have no established trading market. We may elect to list any series
of offered securities on an exchange, but we are not obligated to do so. It is possible that one or more underwriters may make a market in a series of offered securities. However, they will not be
obligated to do so and may discontinue market making at any time without notice. We cannot assure you as to the liquidity of, or the trading market for, any of our offered securities.
In
connection with an offering, certain persons participating in the offering may make a market in the securities or engage in transactions that stabilize, maintain or otherwise affect
the market price of the offered securities. This may include, among other transactions, over-allotments or short sales of the securities, which involves the sale by persons participating in the
offering of more securities than we sold to them. In these circumstances, these persons would cover such over-allotments or short positions by making purchases in the open market or by exercising
their over-allotment option. As a result, the price of the securities may be higher than the price that might otherwise prevail in the open market. If these activities are commenced, these
transactions may be discontinued at any time.
Because
FINRA views our common units as interests in a direct participation program, any offering of common units pursuant to this registration statement will be made in compliance with
FINRA Rule 2310.
To
the extent required, this prospectus may be amended or supplemented from time to time to describe a specific plan of distribution. The place and time of delivery for the securities in
respect of which this prospectus is delivered are set forth in the accompanying prospectus supplement.
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LEGAL MATTERS
The validity of the securities offered in this prospectus will be passed upon for us by Baker Botts L.L.P., Dallas, Texas. Baker
Botts L.L.P. will also render an opinion on the material federal income tax considerations regarding the securities. If certain legal matters in connection with an offering of the securities
made by this prospectus and a related prospectus supplement are passed on by counsel for the underwriters of such offering, that counsel will be named in the applicable prospectus supplement related
to that offering.
EXPERTS
The consolidated financial statements of EnLink Midstream Holdings, LP (Predecessor) as of December 31, 2013 and 2012,
and for each of the years in the three-year period ended December 31, 2013, have been incorporated by reference herein in reliance upon the report of KPMG LLP, independent registered
public accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.
The
consolidated financial statements of EnLink Midstream Partners, LP (formerly known as Crosstex Energy, L.P.) as of December 31, 2013 and 2012, and for each of
the years in the three-year period ended December 31, 2013 and management's assessment of the effectiveness of internal control over financial reporting as of December 31, 2013, have
been incorporated by reference herein in reliance upon the report of KPMG LLP, independent registered public accounting firm, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement with the SEC under the Securities Act that registers the securities offered by this prospectus.
The registration statement, including the
attached exhibits, contains additional relevant information about us. The rules and regulations of the SEC allow us to omit some information included in the registration statement from this
prospectus.
In
addition, we file annual, quarterly and other reports and other information with the SEC. You may read and copy any document we file at the SEC's public reference room at 100 F
Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-732-0330 for further information on the operation of the SEC's public reference room. Our SEC filings are available on the SEC's web
site at http://www.sec.gov. We also make available free of charge on our website at http://www.enlink.com all materials that we file electronically with the SEC, including our annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Section 16 reports and amendments to these reports as soon as reasonably practicable after such
materials are electronically filed with, or furnished to, the SEC. Information contained on our website or any other website is not incorporated by reference into this prospectus and does not
constitute a part of this prospectus.
The
SEC allows us to "incorporate by reference" the information we have filed with the SEC. This means that we can disclose important information to you without actually including the
specific information in this prospectus by referring you to other documents filed separately with the SEC. These other documents contain important information about us, our financial condition and
results of operations. The information incorporated by reference is an important part of this prospectus. Information that we file later with the SEC will automatically update and may replace
information in this prospectus and information previously filed with the SEC.
We
incorporate by reference in this prospectus the documents listed below and any subsequent filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act
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of
1934 (excluding information deemed to be furnished and not filed with the SEC) until all offerings under this registration statement are
completed:
-
- our annual report on Form 10-K for the year ended December 31, 2013;
-
- our current reports on Form 8-K filed on January 14, 2014, January 17, 2014, January 22, 2014,
February 5, 2014, February 21, 2014, February 28, 2014 and March 10, 2014, respectively (in each case to the extent filed and not furnished); and
-
- the description of our common units in our registration statement on Form 8-A (File No. 001-36340) filed pursuant to the
Securities Exchange Act of 1934 on March 7, 2014.
You
may obtain any of the documents incorporated by reference in this prospectus from the SEC through the SEC's web site at the address provided above. You also may request a copy of any
document incorporated by reference in this prospectus (including exhibits to those documents specifically incorporated by reference in those documents), at no cost, by visiting our internet website at
www.enlink.com, or by writing or calling us at the following address:
EnLink
Midstream Partners, LP
2501 Cedar Springs Rd.
Dallas, Texas 75201
Attention: Investor Relations
Telephone: (214) 953-9500
55
Table of Contents
EnLink Midstream Partners, LP
22,800,000 Common Units
Representing Limited Partner Interests
PRELIMINARY PROSPECTUS SUPPLEMENT
, 2015
Morgan Stanley
BofA Merrill Lynch
Barclays
Wells Fargo Securities
J.P. Morgan
UBS Investment Bank
Citigroup
Credit Suisse
Deutsche Bank Securities
Goldman, Sachs & Co.
RBC Capital Markets
Jefferies
Raymond James
Baird
Oppenheimer & Co.
EnLink Midstream Partners, LP (NYSE:ENLK)
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