Crestwood Equity Partners (CEQP) Updates on Strategic Plan; Enters New JV with ConEd

Crestwood Equity Partners LP (NYSE: CEQP) provided an update on its 2016 strategic plan, announcing a new joint venture with Consolidated Edison (NYSE: ED)(“Con Edison”), declaring its first quarter 2016 distribution, and updating its 2016 outlook.

In a separate press release issued today, Crestwood announced it has entered into definitive agreements with Con Edison to form a joint venture to own and develop Crestwood’s existing natural gas pipeline and storage business located in northern Pennsylvania and southern New York. These premier natural gas pipeline and storage facilities provide a critical link between robust natural gas supply sources and Northeast US demand markets. Subject to customary closing conditions and purchase price adjustments, Crestwood will contribute its existing natural gas pipeline and storage business to a new entity, Stagecoach Gas Services LLC (“Stagecoach Gas Services”), and a subsidiary of Con Edison Transmission, Inc. (“Con Edison Transmission”) which is a wholly-owned subsidiary of Con Edison, will purchase a 50 percent equity interest in Stagecoach Gas Services for approximately $975 million, with an implied market value of almost $2 billion. The transaction is expected to be substantially completed in the second quarter of 2016.

Highlights of the Transaction:

• Blue chip joint-venture partner: Aligns Crestwood’s interests around its Northeast Storage and Transportation platform with Con Edison, a strong investment grade partner and whose utility subsidiaries are premier natural gas consumers in the Northeast US market.
• Solidifies franchise position: Strengthens Crestwood’s competitive position in a highly attractive market which requires substantial natural gas infrastructure in the future.
• Strong asset valuation: Cash consideration of $975 million implies transaction multiple of ~13x current EBITDA (on a 50% basis), which provides Crestwood the opportunity to capture substantial value during a distressed commodity environment while maintaining future upside opportunities.
• Catalyst for substantial deleveraging and liquidity: Transaction proceeds allow for substantial debt reduction resulting in a pro forma leverage ratio of approximately 3.5x. Coupled with Crestwood’s revised distribution announced today, eliminates the need for any capital markets offerings to execute Crestwood’s 5-year growth objectives.

“With today’s announcements, the joint venture with Con Edison and the reduced payout of our quarterly distribution, Crestwood is providing a clear and comprehensive plan to improve our competitive position, substantially strengthen our balance sheet and broaden our appeal to investors,” stated Robert G. Phillips, Chairman, President and Chief Executive Officer of Crestwood’s general partner. “The partnership with Con Edison will reposition Crestwood’s Northeast pipeline and storage assets to more effectively compete for future expansion opportunities as Northeast demand for natural gas increases in the future. With the proceeds from the Con Edison transaction and the decision to reduce our distributions to a more appropriate level given the realities of the current energy market, Crestwood will materially reduce our long-term debt and gain the flexibility to invest retained available cash to drive long-term value creation for the partnership. We believe these strategic steps will significantly improve Crestwood’s investment profile with a top tier balance sheet, strong distribution coverage, and ample liquidity to execute our 5-year plan without accessing the capital markets.”

Stagecoach Gas Services, which will be managed by Crestwood and operated by a newly formed services company, will own four natural gas storage facilities (Stagecoach, Thomas Corners, Steuben and Seneca Lake) with a combined storage capacity of approximately 41 Bcf and three natural gas pipelines (MARC I, North/South and the East Pipeline) with a combined throughput capacity of 2,960 Mmcf per day. The assets boast a highly strategic asset footprint situated between robust Northeast natural gas supply sources and several leading U.S. natural gas demand centers, including New York City and New England. The assets have a diversified set of high quality customers with approximately 60 percent carrying an investment grade rating. Capacity across the system has consistently been contracted at levels near 100 percent capacity, backed with long-term firm contracts.

For the first three years following the closing, Con Edison will receive 65%, 65% and 60%, respectively, of the cash distributed by Stagecoach Gas Services. Thereafter, the joint venture members will receive their equity ownership percentage of the cash distributed. Con Edison and Crestwood will each make capital contributions to fund growth projects and maintenance capital expenditures in accordance with their equity ownership percentage. The joint venture’s operations are expected to generate Adjusted EBITDA of approximately $145 million for the full year 2016 with numerous identified growth opportunities around the system that Con Edison and Crestwood will jointly pursue through the new joint venture.

Distribution Declaration

The board of directors of Crestwood’s general partner has declared the partnership’s quarterly cash distribution of $0.60 per limited partner unit ($2.40 annually) for the quarter ended March 31, 2016, a reduction of approximately 56% from the fourth quarter 2015 distribution. Crestwood will issue 1,436,797 preferred units to its preferred unitholders in lieu of cash distributions. Distributions will be paid on May 13, 2016, to unitholders of record as of May 6, 2016.

Robert T. Halpin, Senior Vice President and Chief Financial Officer, commented, “Consistent with our stated 2016 strategy, the action Crestwood is taking today will position Crestwood to emerge from this challenging market as a stronger, better capitalized company. The new distribution level, coupled with our strategic joint venture with Con Edison, provides a catalyst for Crestwood to position our balance sheet at the top of our peer group and provides investors with visibility to sustainable current distributions and financial strength through a challenging market environment.”

Revised 2016 Outlook

The following projections were revised based on the assumption the Con Edison joint venture closes June 1, 2016. In 2016, our results attributed to Stagecoach Gas Services in the Storage and Transportation segment will include five months of Crestwood’s ownership at 100% and seven months of Crestwood’s proportionate share of Stagecoach Gas Services’ earnings of 35%. As a result, the mid-year timing of the joint venture will have a disproportionate impact on period-over-period comparisons for Adjusted EBITDA, distributable cash flow, and distribution coverage for periods beginning in the second quarter 2016 through full-year 2017. The following projections are subject to risks and uncertainties as described in the “Forward-Looking Statements” section at the end of this release.

• Adjusted EBITDA of $435 million to $465 million
• Contribution by operating segment is set forth below:

• Distributable cash flow of $275 million to $305 million
• Cash distributions of $2.40 per common unit resulting in full-year 2016 cash distribution coverage ratio of approximately 1.6x to 1.8x
• Forecasted year-end 2016 leverage ratio of approximately 3.9x
• Growth project capital spending and joint venture contributions in the range of $50 million to $75 million
• Maintenance capital spending in the range of $16 million to $18 million

Morgan Stanley & Co. LLC served as Crestwood’s financial advisor on the joint venture and evaluation of its 2016 financial objectives.

Crestwood to Host Conference Call to Discuss 2016 Strategic Plan Update

Crestwood will conduct a call to discuss the contents of this release with investors and analysts of Crestwood today at 9:00 a.m. Eastern Time (8:00 a.m. Central Time) which will be broadcast live over the Internet. Investors may participate in the call either by phone or audio webcast.

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