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Partners' Capital and Distributions
 9 Months Ended
Sep. 30, 2012
Partners' Capital and Distributions  
Partners' Capital and Distributions

Note 9—Partners’ Capital and Distributions

 

PAA Distributions

 

Our general partner is entitled to receive incentive distributions if the amount we distribute with respect to any quarter exceeds levels specified in our partnership agreement. As a result of the two-for-one unit split that was effected on October 1, 2012, the partnership agreement was amended to adjust the quarterly incentive distribution provisions. Under the provisions of the amended partnership agreement, our general partner is entitled, without duplication, to 15% of amounts we distribute in excess of $0.2250 per unit, 25% of the amounts we distribute in excess of $0.2475 per unit and 50% of amounts we distribute in excess of $0.3375 per unit.

 

The following table details the distributions paid during or pertaining to the first nine months of 2012, net of reductions to the general partner’s incentive distributions (in millions, except per unit amounts):

 

 

 

 

 

Distributions Paid

 

Distributions

 

 

 

 

 

Common

 

General Partner

 

 

 

per limited

 

Date Declared

 

Date Paid or To Be Paid

 

Units

 

Incentive

 

2%

 

Total

 

partner unit (2)

 

October 4, 2012

 

November 14, 2012 (1)

 

$

181

 

$

74

 

$

4

 

$

259

 

$

0.5425

 

July 9, 2012

 

August 14, 2012

 

$

174

 

$

69

 

$

4

 

$

247

 

$

0.5325

 

April 10, 2012

 

May 15, 2012

 

$

169

 

$

65

 

$

3

 

$

237

 

$

0.5225

 

January 10, 2012

 

February 14, 2012

 

$

159

 

$

63

 

$

3

 

$

225

 

$

0.5125

 

 

(1)                     Payable to unitholders of record at the close of business on November 2, 2012, for the period July 1, 2012 through September 30, 2012.

 

(2)                     Distributions per limited partner unit are presented as adjusted for the two-for-one unit split effected on October 1, 2012.

 

In order to enhance our distribution coverage ratio and liquidity in connection with a significant acquisition, our general partner has, from time to time, agreed to reduce the amounts due to it as incentive distributions.  In connection with the BP NGL Acquisition, our general partner agreed to reduce the amount of its incentive distributions by $3.75 million per quarter through February 2014 and $2.5 million per quarter thereafter.  Through September 30, 2012, our general partner’s incentive distributions had been reduced by $7.5 million related to this acquisition. See Note 4 for further discussion of the BP NGL Acquisition.

 

PAA Equity Offerings

 

Continuous Offering Programs. On May 9, 2012, we entered into an equity distribution agreement with respect to the offer and sale, through our sales agent, of common units representing limited partner interests having an aggregate offering price of up to $300 million. The final sales under this equity distribution agreement occurred during September 2012. Under this agreement, we sold an aggregate of approximately 7.2 million common units, as adjusted for the two-for-one unit split, generating proceeds of approximately $302 million, including our general partner’s proportionate capital contribution, net of approximately $4 million of commissions to our sales agent. The net proceeds from sales were used for general partnership purposes.

 

On September 13, 2012, we entered into an additional equity distribution agreement with several financial institutions pursuant to which we may offer and sell, through our sales agents, common units representing limited partner interests having an aggregate offering price of up to $500 million. Sales of such common units will be made by means of ordinary brokers’ transactions on the NYSE at market prices, in block transactions or as otherwise agreed upon by our sales agent and us. Under the terms of the agreement, we have the option to sell common units to any of our sales agents as principal for its own account at a price to be agreed upon at the time of the sale. For any such sales, we will enter into a separate terms agreement with the sales agent.

 

Through September 30, 2012, we sold an aggregate of approximately 1.2 million common units, as adjusted for the two-for-one unit split, under this agreement, generating proceeds of approximately $55 million, including our general partner’s proportionate capital contribution, net of approximately $1 million of commissions to our sales agents. The net proceeds from sales were used for general partnership purposes.

 

Other Equity Offerings. During the first nine months of 2012, we completed an offering of our common units that was not associated with our Continuous Offering Programs, as shown in the table below (in millions, except unit and per unit data):

 

 

 

 

 

 

 

 

 

General

 

 

 

 

 

 

 

 

 

Gross

 

Proceeds

 

Partner

 

 

 

Net

 

Date

 

Units Issued (2)

 

Unit Price (2)

 

from Sale

 

Contribution

 

Costs

 

Proceeds

 

March 2012 (1)

 

11,500,000

 

$

40.015

 

$

460

 

$

9

 

$

(14

)

$

455

 

 

(1)                    This offering of common units was an underwritten transaction that required us to pay a gross spread.  The net proceeds from this offering were used to fund a portion of the BP NGL Acquisition, to reduce outstanding borrowings under our credit facilities and for general partnership purposes.

 

(2)                    Units issued and gross unit price are presented as adjusted for the two-for-one unit split that was effected on October 1, 2012.

 

LTIP Vesting

 

In connection with the settlement of vested LTIP awards, we issued approximately 0.9 million common units, as adjusted for the unit split, during the nine months ended September 30, 2012, which resulted in an increase to partners’ capital of approximately $34 million, including the general partner’s contribution.

 

Noncontrolling Interests in Subsidiaries

 

As of September 30, 2012, noncontrolling interests in subsidiaries consisted of the following: (i) an approximate 36% interest in PNG and (ii) a 25% interest in SLC Pipeline LLC.

 

Modification of PNG Subordinated Units

 

In February 2012, PNG modified the terms of the first three tranches of the PNG Series B subordinated units held by PAA. The Series B subordinated units do not participate in quarterly distributions. Instead, the Series B subordinated units convert into Series A subordinated units in five distinct tranches upon the achievement of defined benchmarks tied to the amount of capacity in service at Pine Prairie and increases in PNG’s quarterly distributions. Any Series B subordinated units that remain outstanding as of December 31, 2018 will automatically be cancelled. The February 2012 modification increased the quarterly distribution benchmark for Tranche 1, 2 and 3 from annualized levels of $1.44 per unit, $1.53 per unit and $1.63 per unit, respectively, to an annualized level of $1.71 per unit. The following table presents the operational and financial benchmarks, as modified, for conversion of the Series B subordinated units into Series A subordinated units for each tranche (units in millions):

 

 

 

Series B Subordinated Units to Convert into
Series A Subordinated Units

 

Working Gas Storage Capacity (Bcf)

 

Annualized
Distribution Level (1)

 

Tranche 1

 

2.6

 

29.6

 

$

1.71

 

Tranche 2

 

2.8

 

35.6

 

$

1.71

 

Tranche 3

 

2.1

 

41.6

 

$

1.71

 

Tranche 4

 

3.0

 

48.0

 

$

1.71

 

Tranche 5

 

3.0

 

48.0

 

$

1.80

 

 

(1)                     For satisfaction of this benchmark, PNG must, for two consecutive quarters, (i) generate distributable cash flow sufficient to pay a quarterly distribution of at least the annualized distribution benchmark on the weighted average number of common units and Series A subordinated units and all of such Series B subordinated units outstanding during such quarter plus (ii) distribute available cash of at least the annualized distribution benchmark on all of its outstanding common units and Series A subordinated units and the corresponding distributions on PNG’s general partner’s 2% interest and the related distributions on the incentive distribution rights.  See Note 5 to our Consolidated Financial Statements included in Part IV of our 2011 Annual Report on Form 10-K for a complete discussion of PNG’s Series B subordinated units.

 

Noncontrolling Interests Rollforward

 

The following table reflects the changes in the noncontrolling interests in partners’ capital (in millions):

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2012

 

2011

 

Beginning balance

 

$

524

 

$

231

 

Sale of noncontrolling interests in a subsidiary

 

—

 

306

 

Net income attributable to noncontrolling interests

 

23

 

18

 

Distributions to noncontrolling interests

 

(36

)

(28

)

Equity compensation expense

 

3

 

2

 

Distribution equivalent right payments

 

(1

)

—

 

Other comprehensive income/(loss):

 

 

 

 

 

Reclassification adjustments

 

(7

)

—

 

Net deferred loss on cash flow hedges

 

(1

)

—

 

Ending balance

 

$

505

 

$

529