Private capital funds have been increasingly turning to short-term bridge loans to provide funding for deals, replacing the awkward practice of making capital calls to investors, according to a report out last week by Preqin.
The research and data provider said 53% of recent vintage funds have used some form of subscription credit facility, or SCF, twice the proportion of pre-2010 vehicles (26%).
The bulk of the growth has come from private equity funds, where usage has more than tripled from 13% among pre-2010 vintage funds to 47% among 2010 and later funds, Preqin noted.
Private debt and venture capital funds also have seen usage rise substantially, while real estate funds – historically the most active users of SCFs – have seen usage remain stable.
Justin Hall, a product manager at Preqin, said SCFs are something of a hot button issue with a wide range of opinions between and among fund managers and investors.
“While they can offer more liquidity and easier cash flow management to investors, they can also make it more difficult to evaluate portfolio performance and do due diligence on prospective managers’ previous funds,” Hall said.
As investors become more sophisticated and active in alternative assets, those drawbacks may fade as reliance on internal rate of return figures diminishes, Hall noted. But that’s unlikely to dispel investors’ unease completely, he added, with organizations like the Institutional Limited Partners Association publishing reporting guidelines ito bring more transparency to SCF usage.
“But given that these standards are voluntary, it remains to be seen if they will be widely adopted,” he said.
In Texas, dealmaking flourished last week, at least on a value basis, with 11 deals valued at almost $13.6 billion versus 13 transactions worth $2.87 billion the week before and 12 deals worth $6.3 billion in the same period last year.
The families of two iconic Texas brands sold down their positions to outsiders and two big pipeline projects were announced, which made for an interesting week.
Fourteen firms and 160 attorneys worked on the transactions, all of which were M&A, private equity or venture capital related. It may prove to be a cruel summer for capital markets lawyers.
M&A/PRIVATE EQUITY/VENTURE CAPITAL
Jackson Walker, NRF advise on Whataburger’s sale to BDT
Iconic Texas fast food chain Whataburger agreed to be sold to Chicago private equity firm BDT Capital Partners.
Terms weren’t disclosed, but reports had put the San Antonio-based chain’s value at $6 billion.
The Dobson family, which founded the chain 69 years ago, will keep a minority stake in the business.
Whataburger previously confirmed reports last month that it was considering selling the business.
Whataburger’s senior VP and general counsel Michael Gibbs tapped Jackson Walker to assist it on the sale.
San Antonio partner Patrick Tobin and Austin partner Brandon Janes led the deal team with assistance from associate Alexine Friedman in San Antonio.
Other partners in the group were Sam Hildebrand in Austin; Andrew Baumgardner and Pete Broderick in San Antonio; Brian Dethrow in Dallas; Leonard Dougal in Austin; George Hinchey in San Antonio; John Jansonius, Steve Jenkins and Ron Kerridge in Dallas; Ann Leafstedt, Billy McDonough and Jimmy McDonough in San Antonio; Mark Miller in Austin; Amanda Shaw-Castro in Houston; and David Snyder in Austin.
Support came from senior counsel Erik Romberg and Carlos Treviño in Austin; and San Antonio associates Art Cavazos, Shari Mao and Ruth Thomson.
Norton Rose Fulbright U.S. managing partner Daryl Lansdale in San Antonio counseled BDT with help from Dallas partner Brandon Byrne, Dallas associate Bekah Maloney and Austin associate Madison Keeble along with attorneys in the firm’s New York office.
Specialists included Dallas partner Linda Merritt, Austin counsel Katherine Madianos and Dallas associate Chandler Stephens on intellectual property; U.S. head of environmental Eddie Lewis in Houston with help from a lawyer in Denver; partner Katherine Tapley in San Antonio on real estate; Dallas partner Ben Ratliff on finance; and Dallas partner Alex Clark on benefits. San Antonio partner Gary McDaniel also pitched in.
Morgan Stanley and Ernst & Young were Whataburger’s transaction advisors. Morgan Stanley Senior Funding Inc. will provide the committed financing to support the transaction, which is expected to close this summer if it clears regulators.
Jackson Walker’s Tobin said the deal was a “career signature transaction” for the firm, which has counseled the company for about four years.
“Over the years, Jackson Walker has become the trusted advisor to many large family businesses, like Whataburger, throughout Texas,” he said. “Helping these families is more than simply practicing law. It is an opportunity to be a counselor to families as they make decisions that will impact generations to come. To be able to serve in this way provides a purpose much greater than ourselves.”
Whataburger has 828 locations in 10 states with sales of more than $2 billion in sales annually and 43,000 employees.
The chain will remain based in San Antonio and have much of the same leadership team, which BDT said will work with the firm to explore expansion plans “while staying true to the brand it has been over the past 69 years.”
Whataburger president and CEO Preston Atkinson said the chain has been been exploring different options to expand the brand and introduce it to new audiences.
“We’re excited about the partnership with BDT because they respect and admire the brand we’ve built,” he said. “They don’t plan to change our recipe for success.”
BDT managing director Tiffany Hagge said the investment is a perfect example of the firm’s business model – “to partner and invest alongside exceptional family businesses with strong cultures, deep community ties and loyal customers.”
Atkinson and board chair Tom Dobson are retiring from day-to-day operations but staying on the board. Both will turn to running Las Aguilas, an investment company launched by the Dobson family in 2011 that focuses on real estate and philanthropy.
Atkinson and Dobson promoted several within the company, including Gibbs, who will become executive VP and general counsel; CFO Ed Nelson, who will be president; and VP of business operations Leonard Mazzocco, who will become senior VP and COO.
The Dobson family, including Tom, Lynne and Hugh Dobson, said that while it was a difficult and emotional decision to sell the business, they believe BDT is the right partner to take Whataburger into the future.
“Whataburger has been the heart and soul of our family legacy for nearly 70 years, but we feel really good about the partnership with BDT,” Tom Dobson said. “They have a track record of success with businesses as special as ours that want to grow while preserving culture and family history. They are trusted advisors and partners who have worked closely with other family businesses and they have a tremendous reputation for doing the right thing.”
Whataburger was founded in 1950 by Harmon Dobson, who opened the first restaurant as a small roadside burger stand in Corpus Christi. He named it that because he hoped to hear customers say every time they took a bite of his 25 cent, 100% beef concoction, “What a burger!”
BDT has raised more than $15 billion across its investment funds and manages an additional $4.7 billion of co-investments from its global limited partner investors. Its merchant banking affiliate BDT & Co. works with family and founder-led businesses to pursue their strategic and financial objectives.
V&E advises Plains on $2.5B Red Oak pipeline JV with Phillips 66
Vinson & Elkins announced June 10 that it advised Plains All American Pipeline on the formation of Red Oak Pipeline LLC, a 50/50 joint venture with Phillips 66 to develop and operate the $2.5 billion Red Oak Pipeline system.
Partner Doug Bland and associate Yianni Georgeton led the deal team with assistance from partner John Lynch on tax and lawyers out of the firm’s Washington, D.C., office on antitrust.
Phillips 66 used Locke Lord, including partner Eric Larson and senior counsel Max Stubbs and Freddy Feldman. Phillips 66 senior counsel Emma Kerr led the deal in-house.
Plains’ in-house lawyers were general counsel Richard McGee, senior attorney David Rabinowitz, corporate attorney Chris Griffith and VP of law and M&A Carol Sandvick.
Plains will lead project construction for the JV and Phillips 66 will operate the pipeline.
The system will transport crude oil from Cushing, Okla., and the Permian Basin in West Texas to Corpus Christi, Ingleside, Houston and Beaumont. It’s underpinned with long-term shipper volume commitments but plans to hold a supplemental binding open season that will enable more shippers to enter into long-term transportation services agreements.
The
parties expect initial service from Cushing to the Gulf Coast will begin as
early as the first quarter of 2021 if it receives permits and regulatory
approvals.
Phillips 66 chairman and CEO Greg Garland said in a statement that the pipeline
will provide a competitive outlet for shippers to access the key market centers
along the Texas Gulf Coast from Cushing and the Permian.
“This
investment aligns with our long-term strategy to grow our midstream business
with projects generating stable, fee-based earnings while further enhancing
integration across our value chain,” he said.
Plains CEO Willie Chiang said Red Oak represents a capital-efficient solution
that will use existing assets and provide pull-through benefits to both
companies’ systems.
The venture will lease capacity on Plains’ Sunrise Pipeline system, which extends from Midland to Wichita Falls. It plans to construct a new 30-inch pipeline from Cushing to Wichita Falls and Sealy and a 30-inch pipeline segment from Sealy to Corpus Christi and Ingleside and a 20-inch pipeline segment to Houston and Beaumont.
Red Oak said it will use existing pipeline and utility corridors and advanced construction techniques where feasible to limit environmental and community impact.
Three firms aid on Comstock’s $2.2B Covey Park purchase
As The Texas Lawbook reported last week, natural gas producer Comstock Resources Inc. announced June 10 that it agreed to purchase Denham Capital-backed Covey Park for $2.2 billion, making it the leader in the Haynesville Shale.
Dallas Cowboys owner/billionaire Jerry Jones, who invested in Comstock last year, will sink another $475 million into the company in exchange for 50 million newly issued Comstock shares worth $300 million and newly issued shares of perpetual convertible preferred stock worth $175 million. That brings his investment in the company to $1.1 billion and his stake to 75%.
Frisco-based Comstock tapped longtime counsel Locke Lord for outside legal advice while Vinson & Elkins assisted Dallas-based Covey Park.
Locke Lord partners Jack Jacobsen of Dallas and Michael Blankenship of Houston led the deal team, which included Phil Bush, Paul Nason, Jason Schumacher, Jerry Higdon, Van Jolas, Will Becker, Ben Smolij, Matt McKenna, Katy Skattum, AJ Davitt, Stephanie McDermott, Enrique Santiago and Henry Benton.
Other Locke Lord lawyers who pitched in were Mark Backofen, Sean Kilian, Kelsey French, Emily Self and Stefano Wach.
Vinson & Elkins partners Doug McWilliams and Shamus Crosby and senior associate Robert Hughes in Houston led their group with assistance from associates Kathryn Hastings, Maggie Webber and Farah Chranya.
V&E’s specialists included partner Bryan Loocke and associate Cesar Leyva on energy transactions/projects; partner David D’Alessandro and senior associate Missy Spohnon executive compensation/benefits; partner Sean Becker and senior associate Christie Alcalá on labor/employment; partner John Lynch and associate Miron Klimkowski on tax; and senior associate Matt Dobbins on environmental.
Gibson, Dunn & Crutcher assisted Jerry Jones, including Dallas and Houston partner Doug Rayburn and Dallas partner Jonathan Whalen and associate Eric Pacifici. Houston partner James Chenoweth advised on the tax aspects of the deal.
The Dallas Cowboys’ general counsel is Jason Cohen.
The financial advisors on the deal included Wells Fargo Securities and BMO Capital Markets for Comstock and BofA Merrill Lynch, Barclays and Goldman Sachs for Covey Park.
The transaction has to clear regulators but is expected to close by July 31.
Locke Lord aids Phillips 66 on Bridger partnership for $1.6B Liberty pipeline
Phillips 66 announced another project on June 10, the expansion of its pipeline network into Cushing in a partnership with Bridger Pipeline called Liberty Pipeline.
A Phillips 66 spokesman wouldn’t provide in-house or outside counsel on the deal. Paula Johnson is the company’s general counsel.
Locke Lord said it represented Phillips 66, including partner Eric Larson and senior counsel Max Stubbs and Freddy Feldman.
That project, which is expected to cost $1.6 billion, will take product from the Rockies and Bakken shale in North Dakota to Cushing, where shippers can access several Gulf Coast destinations, including Corpus Christi, Ingleside and Houston.
The proposed 24-inch pipeline is underpinned with long-term shipper volume commitments but will hold a supplemental binding open season for other interested shippers. It’s scheduled to start service in the first quarter of 2021 if it clears regulators and permitting.
Bridger CEO Hank True said in a statement that the Liberty Pipeline will ensure that oil from Wyoming, the Rockies and the Bakken can get to markets in the U.S. and around the world, thus giving producers confidence to expand their production in those areas.
Phillips 66 will lead project construction on behalf of the joint venture and will operate the pipeline.
Willkie Farr, V&E aid on Glendale’s $500M partnership with TPG
Willkie Farr & Gallagher said June 12 it represented Glendale Energy Ventures on its partnership with TPG Sixth Street Partners to fund acquisitions of non-operated oil and gas properties. It has $500 million in initial commitments.
Willkie partner Michael De Voe Piazza in Houston led the deal team, which included counsel Daniel Elizondo and associate Will Thanheiser on corporate matters and Robert Jacobson and Yaniv Maman on tax.
Vinson & Elkins counseled TPG with a team led by partner Shamus Crosby with assistance from senior associates Daniel McEntee and Jeannie Poland.
Other key team members were partner Sean Becker (labor/employment); partner Mingda Zhao and senior associate Emery Choi (energy transactions/projects); partner Stephen Jacobson and senior associate Kristy Fields (executive compensation/benefits); partner David Peck and senior associate Paige Anderson (tax); and associate Audrey Bartosh (corporate).
Glendale plans to work closely with TPG Sixth Street’s Houston-based energy team to provide capital solutions to operators by structuring investments in non-operated interests and operated-by-others acquisitions. It’s already deployed funds with the completino of $55 million in acquisitions of non-operated interests in drilling pads in Oklahoma’s Stack play.
TPG Sixth Street partner Matt Dillard said the two aim to provide operators with the expertise, certainty and stable capital required to meet their short and long-term strategic needs.
Brent Grundberg, who co-founded Glendale with Vignesh Proddaturi, said there’s more demand than ever for partnership capital to allow operators to achieve their full-scale development plans.
TPG Sixth Street, which was founded in 2009 by managing partner Alan Waxman in partnerhsip with TPG, has more than $30 billion in assets under management.
Dykema, Squire advise on Cedar Fair’s $261M Schlitterbahn purchase
Another iconic Texas brand, Schlitterbahn Waterparks & Resorts, agreed to sell its originial park in New Braunfels as well as one in Galveston to Cedar Fair for $261 million.
Sandusky, Ohio-based Cedar Fair also has the right to acquire a shuttered Schlitterbahn property in Kansas City, Kansas, for $6 million.
The Henry family, which has owned Schlitterbahn for half a century, is keeping its South Padre waterpark and resort, which will be re-branded. The Corpus Christi Schlitterbahn park will remain owned by Diamond Beach Holdings, which bought it out of bankruptcy last year for $20 million.
Schlitterbahn corporate in-house counsel Michael Agnese led the deal for the New Braunfels-based company assisted by Dykema partner Nick Monaghan in San Antonio.
Squire Patton Boggs represented Cedar Fair with Kate Landrum, a senior associate from the firm’s Dallas office, counseling on Texas real estate matters.
Cedar Fair tapped Perella Weinberg Partners as its financial advisor.
The Henry family said in a statement that while the sale of the parks was a difficult decision after several challenging years, it believes that Cedar Fair – which owns the Cedar Point amusement park in Ohio – will be a “phenomenal owner” and will take the company to the “next level of world-class family entertainment.”
Last year a grand jury charged Schlitterbahn co-owner Jeffrey Henry and others with second-degree murder, aggravated battery and aggravated child endangerment. The 10-year-old Caleb Schwab – son of Kansas Rep. Scott Schwab – died on the park’s 17-story Verruckt water slide in Kansas in 2016 when his raft went airborne, leading him to hit his head on a metal bar supporting netting above the ride.
In February a Kansas judge dismissed the charges. The Schwab family settled a civil lawsuit against the park owner and several other companies in 2016 for about $20 million.
Cedar Fair president and CEO Richard Zimmerman said in a statement that the properties represent new markets for the company with attractive demographics in the growing Central Texas region and align with its strategy to identify opportunities to accelerate its growth and profitability.
“The investments we have made over the past five years to strengthen our back-of-house and customer-facing systems will support a smooth integration of these properties by ensuring a premium guest experience, strong team collaboration and superior execution,” he said.
Schlitterbahn’s New Braunfels park has been named as the best water park in the world for 21 straight years by Amusement Today and Galveston has been named as the best indoor water park.
Publicly traded Cedar Fair entertained 25.9 million guests, reported $1.35 billion in annual revenues and generated EBITDA of $468 million last year while the two Schlitterbahn water parks and the resort entertained 1.2 million guests and generated sales of $68 million.
Cedar Fair expects the two Texas locations to have margins similar to its own parks as it implements growth and operational initiatives over the next two years.
Following the transaction, Cedar Fair will have 15 parks, resort accommodations totaling more than 2,000 rooms across six parks, more than 600 luxury RV sites across four parks and two marinas.
The transaction has to clear regulators but is expected to close in the second quarter. The company intends to finance the transaction through long-term borrowings.
V&E, Haynes and Boone aid Sequitur on $245M purchase from Callon
Vinson & Elkins said June 13 it assisted Acon Investments-backed Sequitur Permian on its acquisition of certain Midland Basin oil and gas assets from Callon Petroleum Co. for $245 million.
Partner Danielle Patterson and associates Mike LeFevre and Kara Chung led the deal team, which included partner Todd Way and associates Megan James and Jake Wight on tax; partner Larry Nettles on environmental; and partner Stephen Jacobson, counsel Katherine Mull and senior associate Kristy Fields on compensation/benefits.
Others were partner Sean Becker and counsel Martin Luff (labor/employment); partner John B. Connally and associates Josh Rocha and Yianni Georgeton (energy transactions/projects); and partner Mike Telle (capital markets).
Haynes and Boone partner Kraig Grahmann in Houston was outside counsel to Callon, whose senior VP and general counsel Michol Eklund led the deal in-house side.
The net cash proceeds don’t include possible contingent consideration payments of up to $60 million based on West Texas Intermediate average annual pricing over a three-year period.
Callon CEO and president Joe Gatto said in a statement that the sale is a meaningful step forward on the company’s deleveraging goals, which also will be advanced by its cash flow generation in coming quarters.
V&E, Locke Lord work on Hartree’s $215M Martin Midstream acquisition
Vinson & Elkins said June 10 it also advised Hartree Bulk Storage unit Hartree Cardinal Gas on its agreement to purchase certain natural gas storage assets owned by units of Martin Midstream Partners for $215 million.
Partners John Grand and Peter Marshall led that deal team with assistance from senior associates Daniel McEntee and Robert Hughes and associate Kathryn Hastings.
Locke Lord counseled Kilgore-based Martin Midstream with a group led by partner Kevin Peter and senior counsel Ann Williams.
Others were partners Jerry Higdon, Mark Miller and Ed Razim and associates Rachel Fitzgerald, Stuart Lawson, Tom Johnson and Stefano Wach, all of Houston, and partner Van Jolas of Dallas.
Wells Fargo Securities was Martin Midstream’s financial advisor.
The assets include interests in Arcadia Gas Storage, Cadeville Gas Storage, Monroe Gas Storage and Perryville Gas Storage, which have 50 billion cubic feet of working capacity in northern Louisiana and Mississippi.
Ruben Martin, president and CEO of Martin Midstream’s general partner Martin Midstream GP, said the sale is an important piece of the partnership’s strategy to strengthen the balance sheet and refocus its operational expertise on the refinery services business.
The transaction is expected to close by the end of the second quarter.
Steve Semlitz is co-founder of Hartree Partners, which funds New York-based Hartree Bulk Storage along with Oaktree Capital Management.
Bracewell aids Sinclair Telecable on $39.3M radio station purchase from Emmis
Bracewell said June 13 it represented Sinclair Telecable on an agreement to acquire the interest in a partnership that owns and operates six Austin radio stations and two FM translators from its partner, Emmis Communications Corp., for $39.3 million.
Partner Dan Witschey and associate Ben Martin were the Bracewell lawyers on the deal. Wilkinson Barker Knauer represented Emmis out of Washingon.
Sinclair already owns the remaining interest in the partnership and has been partners in the venture with Emmis since Emmis purchased its controlling interest in July 2003.
The Austin radio cluster includes eight station brands: KLBJ-AM, KLBJ-FM, Bob FM, La Zeta, Star 93.3, 101X, Austin City Limits Radio and Latino 102.7. The Austin cluster will be rebranded as Waterloo Media.
Winstead, RBD aid on Lung Therapeutics’ $36M raise
Lung Therapeutics, an Austin-based developer of treatments for complications from pneumonia, raised $36 million in Series C funding from Fort Worth venture capital firm Bios Partners and other investors.
Winstead shareholder Charlie Florsheim and associate Sam Vinson in Fort Worth counseled Bios. Lung Therapeutics used Bill Wilson at Reiter, Brunel & Dunn in Austin.
Lung Therapeutics plans to use the funding to pay for a Phase II trial of its LTI-01 therapy for patients with loculated pleural effusions, or excessive accumulation of fluid in the lungs’ pleural cavity that often requires surgery.
Bios partner and Lung Therapeutics board member Aaron Fletcher said in a statement that LTI-01 could cut hospital stays and costs and improve the quality of life for patients.
The company also aims to fund the first-in-human study for LTI-03, its potential idiopathic pulmonary fibrosis therapy. The company said LTI-03 has demonstrated anti-fibrotic activity in multiple models of fibrosis, including scleroderma, kidney and cardiac, as well as the ability to protect healthy lung cells in pre-clinical testing.
Lung Therapeutics founder and chief scientific officer Steven Idell has been working on LTI-01 at the University of Texas Health Science Center at Tyler where he practices.
The company is led by CEO Brian Windsor, who previously was president of Enavail and director of life sciences at Emergent Technologies, both of Austin.
Locke Lord, Kirkland counsel on QCI’s sale to Intervale-backed Innovex
Locke Lord said it represented the shareholders of Quick Connectors Inc. on its sale to Intervale Capital-backed Innovex Downhole Solutions Inc. for an undisclosed sum.
The deal includes QCI’s exclusive Permian distributor Enerserv Inc.
The team was led by partner Joe Perillo and included Deannie Diep and Jason McCloskey, all of Houston.
Kirkland & Ellis counseled Intervale/Innovex with a team that included transactional associates Robert Goodin, Hannah Marshall, Daniel Cadis and Maggie Hoffman.
Others on the team were debt finance partner William Bos and associates Brandon Elliott and Levi Stoneking; and tax partner Mark Dundon and associate Joe Tobias. All are in Houston except for Marshall, who is in Dallas.
Founded in 1992, Houston-based QCI is a manufacturer of artificial lift accessories for the electrical submersible pump and gas lift end-markets with operations in the Permian Basin, Bakken, Mid-Continent and the Middle East.
Innovex CEO Adam Anderson will oversee the combined business. Peter Lawson, QCI’s president and COO, and Ward Schlittler, Enerserv’s founder and president, will join the Innovex senior team. QCI employs 120.
Innovex said the acquisition expands its product offering and positions it as a leading player in the artificial lift technologies market.
Tuan Tran and Patrick Connelly led the deal from Intervale, which has backed Innovex since 2008.
UPDATE/OTHER:
Houston rooftop solar panel installer Sunnova Energy Corp. is planning an initial public offering that could value it at more than $1 billion, including debt, Reuters reported June 11.
Sunnova didn’t respond to a request for comment.
Drew Baker is Sunnova’s executive VP and general counsel. The University of Texas law graduate previously was senior VP and general counsel at Atwood Oceanics Inc., which was acquired by Ensco in 2017 for $839 million in stock.
Before Atwood, Baker was VP and general counsel of Frontier Drilling USA Inc., associate general counsel of Transocean, VP and assistant general counsel at GlobalSantaFe Corp. and assistant general counsel at Global Marine Inc. He started his legal practice at Butler & Binion.
The timing and valuation of the IPO will depend on market conditions but could come later this year, Reuters said, citing sources.
Founded by CEO John Berger in a downtown Houston apartment in 2012, Sunnova is one of the largest residential rooftop solar providers in the U.S. serving 18 U.S. states and territories. It competes with Tesla Inc.’s SolarCity unit.
The company has attracted $2.5 billion in backing from Energy Capital Partners, Triangle Peak Partners and billionaire George Soros’ Quantum Strategic Partners.