Partners' Capital

12 Months Ended

Dec. 31, 2019

Partners’ Capital

Preferred Units

Subject to certain conditions, the holders of the preferred units will have the right to convert preferred units into (i) common units on a 1-for-10 basis, or (ii) a number of common units determined pursuant to a conversion ratio set forth in Crestwood Equity’s partnership agreement upon the occurrence of certain events, such as a change in control. The preferred units have voting rights that are identical to the voting rights of the common units and will vote with the common units as a single class, with each preferred units entitled to one vote for each common unit into which such preferred unit is convertible, except that the preferred units are entitled to vote as a separate class on any matter on which all unitholders are entitled to vote that adversely affects the rights, powers, privileges or preferences of the preferred units in relation to CEQP’s other securities outstanding.

In 2018, Crestwood Equity registered 71,257,445 preferred units under a shelf registration statement filed with the SEC under which holders of the preferred units may sell their preferred units. The preferred units representing limited partner interests are listed on the NYSE under the symbol “CEQP-P.”

Common Units

On August 4, 2017, we entered into an equity distribution agreement with certain financial institutions (each, a Manager), under which we may offer and sell from time to time through one or more of the Managers, common units having an aggregate offering price of up to $250 million. Common units sold pursuant to this at-the-market (ATM) equity distribution program are issued under a registration statement that became effective on April 12, 2017. We are required to pay the Managers an aggregate fee of up to 2.0% of the gross sales price per common unit sold under our ATM equity distribution program. There were no units issued under our ATM equity distribution program during the years ended December 31, 2019 and 2018. During the year ended December 31, 2017, we issued 633,271 common units under the ATM equity distribution program for net proceeds of approximately $15.2 million and we paid a manager fee of approximately $0.3 million related to the sale of these common units.

Subordinated Units

In conjunction with Crestwood Holdings’ acquisition of Crestwood Equity’s general partner, Crestwood Equity issued 438,789 subordinated units, which are considered limited partnership interests, and have the same rights and obligations as its common units, except that the subordinated units are entitled to receive distributions of available cash for a particular quarter only after each of our common units has received a distribution of at least $1.30 for that quarter. The subordinated units convert to common units after (i) CEQP’s common units have received a cumulative distribution in excess of $5.20 during a consecutive four quarter period; and (ii) its Adjusted Operating Surplus (as defined in the agreement) exceeds the distribution on a fully dilutive basis.

Distributions

Crestwood Equity

Limited Partners. Crestwood Equity makes quarterly distributions to its partners within approximately 45 days after the end of each quarter in an aggregate amount equal to its available cash for such quarter. Available cash generally means, with respect to each quarter, all cash on hand at the end of the quarter less the amount of cash that the general partner determines in its reasonable discretion is necessary or appropriate to:


•	provide for the proper conduct of its business;


•	comply with applicable law, any of its debt instruments, or other agreements; or


•	provide funds for distributions to unitholders for any one or more of the next four quarters;

plus all cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made after the end of the quarter. The amount of cash CEQP has available for distribution depends primarily upon its cash flow (which consists of the cash distributions it receives in connection with its ownership of Crestwood Midstream).

A summary of CEQP’s limited partner quarterly cash distributions for the years ended December 31, 2019, 2018 and 2017 is presented below:



Record Date	Payment Date	Per Unit Rate		Cash Distributions (in millions)
2019
February 7, 2019	February 14, 2019	$	0.60	$	43.1
May 8, 2019	May 15, 2019	0.60		43.1
August 7, 2019	August 14, 2019	0.60		43.1
November 7, 2019	November 14, 2019	0.60		43.1
				$	172.4
2018
February 7, 2018	February 14, 2018	$	0.60	$	42.7
May 8, 2018	May 15, 2018	0.60		42.7
August 7, 2018	August 14, 2018	0.60		42.7
November 7, 2018	November 14, 2018	0.60		42.7
				$	170.8
2017
February 7, 2017	February 14, 2017	$	0.60	$	41.8
May 8, 2017	May 15, 2017	0.60		41.8
August 7, 2017	August 14, 2017	0.60		41.8
November 7, 2017	November 14, 2017	0.60		42.2
				$	167.6

On February 14, 2020, we paid a distribution of $0.625 per limited partner unit to unitholders of record on February 7, 2020 with respect to the fourth quarter of 2019.

Preferred Unitholders. The holders of our preferred units are entitled to receive fixed quarterly distributions of $0.2111 per unit. Through the quarters ending September 30, 2017 (the Initial Distribution Period), distributions on the preferred units could be made in additional preferred units, cash, or a combination thereof, at our election. We paid distributions on our preferred units through the issuance of additional preferred units through and for the quarter ended June 30, 2017. The number of units distributed was calculated as the fixed quarterly distribution of $0.2111 per unit divided by the cash purchase price of $9.13 per unit. We accrued the fair value of such distribution at the end of the quarterly period and adjusted the fair value of the distribution on the date the additional preferred units were distributed. Distributions on the preferred units following the Initial Distribution Period will be paid in cash unless, subject to certain exceptions, (i) there is no distribution being paid on our common units; and (ii) our available cash (as defined in our partnership agreement) is insufficient to make a cash distribution to

our preferred unitholders. If we fail to pay the full amount payable to our preferred unitholders in cash following the Initial Distribution Period, then (x) the fixed quarterly distribution on the preferred units will increase to $0.2567 per unit, and (y) we will not be permitted to declare or make any distributions to our common unitholders until such time as all accrued and unpaid distributions on the preferred units have been paid in full in cash. In addition, if we fail to pay in full any Preferred Distribution (as defined in our partnership agreement), the amount of such unpaid distribution will accrue and accumulate from the last day of the quarter for which such distribution is due until paid in full, and any accrued and unpaid distributions will be increased at a rate of 2.8125% per quarter.

During the year ended December 31, 2019 and 2018, we made cash distributions to our preferred unitholders of approximately $60.1 million in both periods. In November 2017, we made a cash distribution to our preferred unitholders of approximately $15.0 million for the quarter ended September 30, 2017. During the year ended December 31, 2017, we issued 4,724,030 preferred units to our preferred unitholders in lieu of paying quarterly cash distributions of $43.1 million. On February 14, 2020, we made a cash distribution of approximately $15.0 million to our preferred unitholders for the quarter ended December 31, 2019.

Crestwood Midstream

In accordance with the partnership agreement, Crestwood Midstream’s general partner may, from time to time, cause Crestwood Midstream to make cash distributions at the sole discretion of the general partner. During the years ended December 31, 2019, 2018 and 2017, Crestwood Midstream made distributions of $235.8 million, $238.4 million and $174.0 million, which represented net amounts due to Crestwood Midstream related to cash advances to CEQP for its general corporate activities.

Non-Controlling Partner

Crestwood Niobrara, our consolidated subsidiary, issued a preferred interest (Series A Preferred Units) to a subsidiary of General Electric Capital Corporation and GE Structured Finance, Inc. (collectively, GE) in conjunction with the acquisition of its initial 50% equity interest in Jackalope. In December 2017, Crestwood Niobrara redeemed 100% of the outstanding Series A Preferred Units from GE for an aggregate purchase price of approximately $202.7 million and issued $175 million in new Series A-2 Preferred Units to CN Jackalope Holdings LLC (Jackalope Holdings), which is reflected as interest of non-controlling partner in subsidiary and a component of total partners’ capital on our consolidated balance sheet at December 31, 2018. In April 2019, Crestwood Niobrara issued $235 million in new Series A-3 Preferred Units (collectively with the Series A-2 Preferred Units defined as the Crestwood Niobrara Preferred Units) to Jackalope Holdings in conjunction with Crestwood Niobrara’s acquisition of the remaining 50% equity interest in Jackalope from Williams. In connection with the issuance of the Series A-3 Preferred Units, we entered into a Third Amended and Restated Limited Liability Company Agreement (Crestwood Niobrara Amended Agreement) with Jackalope Holdings, pursuant to which we serve as managing member of Crestwood Niobrara. The Crestwood Niobrara Amended Agreement modified certain provisions under the previous limited liability company agreement related to the conversion and redemption of the Series A-2 Preferred Units, as follows:


•	The Crestwood Niobrara Preferred Units are convertible by the preferred interest holder starting on January 1, 2021 into Crestwood Niobrara common units. The preferred interest holder has the option to contribute additional capital to Crestwood Niobrara to increase their common ownership percentage in Crestwood Niobrara to 50% upon the conversion.

•

The Crestwood Niobrara Preferred Units are redeemable by the preferred interest holder starting on December 31, 2023 for an amount equal to the Liquidation Preference (as defined in the Crestwood Niobrara Amended Agreement). If redemption is elected by the preferred interest holder, we have the option to elect to give consideration equal to the Liquidation Preference in either (i) unregistered CEQP common units (subject to a Registration Rights Agreement) with a total value of up to $100 million and/or cash; or (ii) proceeds from a full liquidation of Crestwood Niobrara’s assets and unregistered CEQP common units (subject to a Registration Rights Agreement).


•	The Crestwood Niobrara Preferred Units are redeemable by us starting on January 1, 2023 for either (i) unregistered CEQP common units (subject to a Registration Rights Agreement) with a total value of up to $100 million and/or cash; or (ii) proceeds from a full liquidation of Crestwood Niobrara’s assets and registered CEQP common units (subject to a Registration Rights Agreement).

As a result of the modification of the conversion and redemption provisions of the Crestwood Niobrara Preferred Units, we continue to consolidate Crestwood Niobrara and have reflected these preferred interests as a non-controlling interest in

subsidiary apart from partners’ capital (i.e., temporary equity) on our consolidated balance sheet at December 31, 2019. The following table shows the change in our non-controlling interest in subsidiary at December 31, 2019 (in millions):



Balance at April 9, 2019⁽¹⁾	$	—
Reclassification of Series A-2 Preferred Units	178.8
Issuance of Series A-3 Preferred Units	235.0
Distributions to non-controlling partner	(18.4		)
Net income attributable to non-controlling partner⁽²⁾	30.8
Balance at December 31, 2019	$	426.2


(1)	For further detail related to our non-controlling interest in subsidiary for the period December 31, 2018 to April 8, 2019, see our consolidated statements of partners’ capital.


(2)	We adjust the carrying amount of our non-controlling interest to its redemption value each period through net income attributable to non-controlling partner.

Crestwood Niobrara is required to make quarterly cash distributions on its preferred interest within 30 days after the end of each quarter. During the years ended December 31, 2019, 2018 and 2017, Crestwood Niobrara paid cash distributions of $25.0 million, $9.9 million and $15.2 million to its preferred interest owners. In January 2020, Crestwood Niobrara paid a cash distribution of $9.2 million to Jackalope Holdings for the quarter ended December 31, 2019.