Exterran Holdings (EXH) Updates on Financing Tied to International Assets Separation

Exterran Holdings (NYSE: EXH) announced an update to the planned financing in connection with its previously announced separation.

In November 2014, Exterran Holdings announced that it intends to separate its international contract operations, international aftermarket services and global fabrication businesses into a standalone, publicly traded company named Exterran Corporation. Upon completion of the spin-off, Exterran Holdings, which will continue to own and operate its contract operations and aftermarket services businesses in the United States, will be renamed Archrock, Inc.

Spin-off Transaction Details and Next Steps

Exterran Holdings has reached financing arrangements for Exterran Corporation and Archrock, Inc. that enable Exterran Holdings to move forward with the separation transaction through an all secured financing structure. As a result, Exterran Holdings expects that the spin-off of Exterran Corporation will take place in the fourth quarter 2015. The completion of the spin-off will be subject to completion of a review by the U.S. Securities and Exchange Commission of Exterran Corporation’s Form 10, the receipt of an opinion of counsel as to the tax-free nature of the transaction, the execution of separation and intercompany agreements and final approval of the Exterran Holdings board of directors.

Update on Credit Facilities

As previously announced, Exterran Corporation entered into a $750 million revolving credit facility on July 10, 2015 that would become available upon the completion of the separation and the satisfaction of certain other conditions. On Oct. 5, 2015, Exterran Corporation amended and restated the credit agreement to provide for a new $925 million credit facility, consisting of a $680 million revolving credit facility and a $245 million term loan facility. The revolving credit facility will have an interest rate subject to a leverage grid with an expected initial interest rate of LIBOR plus 2.75%. The term loan will carry an interest rate of LIBOR plus 5.75%, with a 1.00% LIBOR floor. Availability under the new credit facility is conditioned upon the completion of the separation and the satisfaction of certain other customary conditions. The revolving credit facility will mature five years after the effective date of the separation transaction, and the term loan facility will mature two years after the effective date of the separation transaction.

The new credit facility includes, among other covenants, financial covenants requiring Exterran Corporation to maintain (after the separation) an Interest Coverage Ratio of not less than 2.25:1.00 and a Total Leverage Ratio of not greater than 3.75:1.00. Should Exterran Corporation refinance the term loan facility with the proceeds of certain qualified unsecured debt or equity issuances, the financial covenants in the revolving credit facility will be modified to require that Exterran Corporation maintain a Total Leverage Ratio of not greater than 4.50:1.00 and a Senior Secured Leverage Ratio of not greater than 2.75:1.00, while the Interest Coverage Ratio will not change. Such capitalized terms are defined in the amended and restated credit agreement.

In connection with the spin-off, Exterran Holdings anticipates that Exterran Corporation initially will borrow under its new credit facility and transfer an amount of proceeds to Exterran Holdings which, when taken together with the proceeds from borrowings under the Archrock credit facility as described below, will enable Exterran Holdings to repay all of its existing indebtedness.

As of June 30, 2015, on a pro forma basis after giving effect to the spin-off, Exterran Corporation would have borrowed and transferred to Exterran Holdings approximately $539 million. Subsequent to June 30, 2015 and prior to the completion of the spin-off, Exterran Holdings expects to incur additional borrowings under its existing credit facility of between $40 million and $50 million to finance expenses related to the completion of the spin-off, which will increase the amount that Exterran Corporation borrows under its new credit facility and transfers to Exterran Holdings.

Also as previously announced, Exterran Holdings entered into a $300 million credit facility on July 10, 2015 that would become available upon the completion of the separation and the satisfaction of certain other conditions. On Oct. 5, 2015, Exterran Holdings executed a first amendment to the credit agreement that, among other things, increases the aggregate commitments under the revolving credit facility from $300 million to $350 million. As previously announced, the revolving credit facility includes, among other covenants, financial covenants requiring Archrock, Inc. to maintain (after the separation) an Interest Coverage Ratio of not less than 2.25:1.00 and a Total Leverage Ratio of not greater than 4.25:1.00 (except that the maximum Total Leverage Ratio during a Specified Acquisition Period will be increased to 4.75:1.00), as those capitalized terms are defined in the credit agreement. The revolving credit facility will have an interest rate subject to a leverage grid with an expected initial interest rate of LIBOR plus 1.75%.

Archrock, Inc.’s indebtedness under its credit facility upon the closing of the spin-off, and following the redemption of Exterran Holding’s 7.25% Senior Notes of $350 million, is expected to be approximately $170 million less the aggregate amount of installment payments Exterran Holdings receives from the Venezuelan state-owned oil company before completion of the spin-off. Archrock, Inc. expects to incur additional borrowings under its credit facility of approximately $10 million to $15 million to finance expenses related to the completion of the spin-off. The amount of indebtedness of Exterran Partners will not be impacted by the separation.

Venezuela Receivable

At Sept. 30, 2015, subsidiaries of Exterran Corporation were due approximately $96 million of principal payments from the previously announced sales of nationalized Venezuelan assets. In connection with the spin-off, Exterran Corporation’s subsidiary will transfer to an Archrock subsidiary the right to receive an amount equal to the payments made on those remaining receivables as they are received from the Venezuelan state-owned oil company.

Other Arrangements

In connection with the spin-off, a subsidiary of Exterran Corporation will transfer to a subsidiary of Archrock the right to receive $25 million upon Exterran Corporation’s completion of certain qualified unsecured debt or equity issuances and repayment in full of the term loan portion of Exterran Corporation’s credit facility after the spin-off. Exterran Corporation will use its commercially reasonable efforts to complete such a capital raise on or before the maturity date of its term loan or as soon as practicable thereafter.

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