CorEnergy Infrastructure (CORR) Reports Acquisition of Crimson Midstream's California Pipeline Assets for $350M

CorEnergy Infrastructure Trust, Inc. (NYSE: CORR) today announced the acquisition (the “Transaction”) of Crimson Midstream Holdings, LLC (“Crimson”), a California Public Utilities Commission (CPUC) regulated crude oil pipeline owner and operator, for consideration valued at approximately $350 million. The acquired assets include four critical infrastructure pipeline systems spanning approximately 1,800 miles across northern, central and southern California, connecting desirable native California crude production to in-state refineries producing state-mandated specialized fuel blends, among other products.

The acquisition was funded with a combination of cash on hand, commitments to issue, as described below, approximately $119.4 million of new common and preferred equity, contribution of the Grand Isle Gathering System (GIGS) to the sellers, and $105.0 million in new term and revolver borrowings. The acquired assets qualify for REIT treatment under established IRS regulations and CorEnergy’s Private Letter Ruling (PLR).

Crimson Transaction Highlights and Outlook

• Results in ownership of six pipeline systems in three markets serving diversified, creditworthy shippers
• Enhances CorEnergy’s reliance on regulated contractual revenue sources
• Crimson’s asset base and operating expertise facilitate greater potential for strategic acquisitions in the future
• Expected run rate combined EBITDA of $50-$52 million on an annualized basis in beginning in Q2 20211
• Total leverage at closing of approximately 4.4x expected EBITDA; senior secured leverage of 2.1x
• Will use cash flow to further de-leverage to a target of < 4.0x to create financial flexibility and reduce risk
• Incremental cash flow generated by acquisition will cover an initial $.20 annualized common stock dividend2 increasing to a target of $.35 - $.40 upon a return to pre-COVID market conditions in California, with near term commercial opportunities providing upside

Following the transaction, Dave Schulte will remain Chairman, CEO and President of CorEnergy. John Grier, founder and Board Chairman of Crimson Midstream, LLC, will become Chief Operating Officer and join the Board of Directors of CorEnergy. Additional members of Crimson’s executive and operating teams joining CorEnergy, include Robert Waldron, Chief Financial Officer at Crimson Midstream, who will become CFO of CorEnergy and Larry Alexander, President of Crimson California’s operations.

Commented Dave Schulte, “The acquisition of Crimson diversifies CORR’s critical infrastructure portfolio with four new pipeline networks and positions CorEnergy as an owner/operator of utility-like assets in line with expectations for our industry leading REIT qualifying platform. John and his team operate safely and reliably in a highly regulated market, and we plan to leverage their expertise to continue to grow our newly combined company. Additionally, we are exchanging CorEnergy’s single-tenant GIGS asset for long-lived critical infrastructure pipeline systems used by a diverse group of investment-grade rated customers.”

“Our combined ability to pursue additional opportunities leveraging Crimson’s oil market relationships, together with CorEnergy’s natural gas transmission assets, establishes a diversified foundation for future acquisition consideration,” said John Grier. “The Crimson pipeline networks connect multi-billion dollar refining complexes to low declining fields, producing desirable native grades of California crude oil, which is required for blended energy products satisfying state environmental standards. We are confident that Crimson’s total system volumes will increase from current levels as both consumers and producers return to pre-COVID-19 activity levels. In addition, we believe that there are commercial growth opportunities in California that could provide additional contributions to cash flow, including opportunities to leverage Crimson’s leading position in the market and extensive real property ownership for renewable fuel storage and distribution, carbon capture potential, and the shift to lower carbon power sourcing.”

Internalization of Manager

CorEnergy has also agreed to internalize (the “Internalization”) its REIT manager, Corridor InfraTrust Management, LLC (the “Manager”), for consideration of $16.9 million. As a result of the Internalization, CorEnergy anticipates that the pro forma management fees of approximately $5.5 million will be replaced with an estimated $3.4 million annualized SG&A expenses in 2021.

The Internalization was negotiated and approved by a special committee of CorEnergy’s Board of Directors comprised entirely of independent directors (the “Special Committee”). The Internalization will result in the direct employment of the Manager’s existing management team and certain other employees. The Internalization is subject to stockholder approval in compliance with NYSE rules and other customary closing conditions, and is expected to close in the second quarter of 2021. Evercore Inc. acted as financial advisor to the independent Special Committee and issued a fairness opinion in connection with the Internalization.

Internalization Highlights

• Increases equity ownership of the key executives, which further aligns the interests of those executives with those of CorEnergy’s stockholders
• Expected cost savings of approximately $2 million annualized in 2021 with additional cost savings as CorEnergy continues to grow through elimination of the existing asset-based management fee and dividend growth incentive fee
• Results in more transparent corporate structure and governance

“With the expansion of our assets and increased scale of our operating businesses, we believe it is appropriate to change the external manager structure, which enabled us to launch CORR in 2012,” said Dave Schulte. “The combined management team’s equity ownership enhances our alignment with our stockholders’ interest in the success of CorEnergy delivering dividend stability and long-term growth prospects.”

Crimson Transaction and Internalization Details

The Transaction is valued at $350.0 million, with CorEnergy’s consideration comprised of $75.6 million of cash on hand, $105.0 million in new term loan and revolver borrowings, contribution of the Grand Isle Gathering System (GIGS) to the sellers, $119.4 million of commitments to issue common and preferred equity.

Grier will initially receive new equity units in Crimson in connection with the Transaction, and those units will become convertible into CorEnergy common and preferred stock as described below. The conversion of the Crimson units to CorEnergy securities is contingent on obtaining CPUC approval, which is expected to occur in the third quarter of 2021. At that time, certain Crimson units held by Grier are expected to be transferred to other individuals currently managing Crimson. Additionally, Crimson units exchangeable for CorEnergy preferred stock only become convertible into CorEnergy common stock if existing CorEnergy stockholders approve such conversion into common stock in accordance with NYSE rules.

Assuming conversion of all Crimson units to CorEnergy securities and approval of CORR stockholders, Grier, other Crimson managers, and owners of the Manager will own approximately 49% of CorEnergy’s common stock and Class B common stock. The Class B common stock dividend will be subordinated to CorEnergy’s currently outstanding common stock, until pre-determined performance milestones for dividend stability and growth are achieved.

You May Also Be Interested In

• Progress Software Corporation (PRGS) Issues Statement on a Possible Offer for MariaDB
• Peapack-Gladstone Financial (PGC) Appoints Kate Sant'Angelo as SVP, Director of Personal Banking
• Eversource Energy (ES) to Sell 50% Stake in Sunrise Wind to Orsted