Note 14. Partners’ Equity and Cash Distributions

Partners’ Equity

Common Units

At September 30, 2018 there were 33,995,563 common units issued, including 7,347,370 common units held by affiliates of the General Partner, including directors and executive officers, collectively representing a 99.33% limited partner interest in the Partnership, and 230,303 general partner units representing a 0.67% general partner interest in the Partnership. There have been no changes to common units during the three and nine months ended September 30, 2018 and 2017.

Series A Preferred Units

On August 7, 2018, the Partnership issued 2,760,000 Series A Preferred Units at a price of $25.00 per Series A Preferred Unit. The Partnership used the proceeds, net of underwriting discount and expenses, of $66.4 million to reduce indebtedness under its Credit Agreement.

Cash Distributions

Common Units

The Partnership intends to make cash distributions to common unitholders on a quarterly basis, although there is no assurance as to the future cash distributions since they are dependent upon future earnings, capital requirements, financial condition and other factors. The Credit Agreement prohibits the Partnership from making cash distributions if any potential default or Event of Default, as defined in the Credit Agreement, occurs or would result from the cash distribution. The indentures governing the Partnership’s outstanding senior notes also limit the Partnership’s ability to make distributions to its common unitholders in certain circumstances.

Within 45 days after the end of each quarter, the Partnership will distribute all of its Available Cash (as defined in its partnership agreement) to common unitholders of record on the applicable record date. The amount of Available Cash is all cash on hand on the date of determination of Available Cash for the quarter; less the amount of cash reserves established by the General Partner to provide for the proper conduct of the Partnership’s business, to comply with applicable law, any of the Partnership’s debt instruments or other agreements or to provide funds for distributions to unitholders and the General Partner for any one or more of the next four quarters.

The Partnership will make distributions of Available Cash from distributable cash flow for any quarter in the following manner: 99.33% to the common unitholders, pro rata, and 0.67% to the General Partner, until the Partnership distributes for each outstanding common unit an amount equal to the minimum quarterly distribution for that quarter; and thereafter, cash in excess of the minimum quarterly distribution is distributed to the common unitholders and the General Partner based on the percentages as provided below.

As holder of the IDRs, the General Partner is entitled to incentive distributions if the amount that the Partnership distributes with respect to any quarter exceeds specified target levels shown below:


			Marginal Percentage
	Total Quarterly Distribution		Interest in Distributions
	Target Amount		Unitholders		General Partner
First Target Distribution		up to $0.4625	99.33	%	0.67	%
Second Target Distribution		above $0.4625 up to $0.5375	86.33	%	13.67	%
Third Target Distribution		above $0.5375 up to $0.6625	76.33	%	23.67	%
Thereafter		above $0.6625	51.33	%	48.67	%

The Partnership paid the following cash distributions to common unitholders during 2018 (in thousands, except per unit data):


	Earned for the	Per Unit
Cash Distribution	Quarter	Cash		Common		General		Incentive		Total Cash
Payment Date	Ended	Distribution		Units		Partner		Distribution		Distribution
2/14/2018	12/31/17	$	0.4625	$	15,723	$	106	$	—	$	15,829
5/15/2018	03/31/18		0.4625		15,723		106		—		15,829
8/14/2018	06/30/18		0.4750		16,149		109		67		16,325

In addition, on October 26, 2018, the board of directors of the General Partner declared a quarterly cash distribution of $0.4750 per unit ($1.90 per unit on an annualized basis) on all of its outstanding common units for the period from July 1, 2018 through September 30, 2018. On November 14, 2018, the Partnership will pay this cash distribution to its common unitholders of record as of the close of business on November 9, 2018. This distribution will result in the Partnership reaching its second target level distribution for the quarter ended September 30, 2018.

Series A Preferred Units

The Series A Preferred Units are a new class of equity security that ranks senior to all classes or series of the Partnership’s equity securities with respect to distribution rights and rights upon liquidation established after August 7, 2018, the original issue date of the Series A Preferred Units (the “Original Issue Date”).

Distributions on the Series A Preferred Units are cumulative from the Original Issue Date and payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, commencing on November 15, 2018 (each, a “Distribution Payment Date”), to holders of record as of the opening of business on the February 1, May 1, August 1 or November 1 next preceding the Distribution Payment Date, in each case, when, as, and if declared by the General Partner out of legally available funds for such purpose.

On October 23, 2018, the board of directors of the General Partner declared the initial quarterly cash distribution of $0.6635 per unit on the Series A Preferred Units, covering the period from August 7, 2018 (the issuance date of the Series A Preferred Units) through November 14, 2018. This distribution will be payable on November 15, 2018 to holders of record as of the opening of business on November 1, 2018.

The initial distribution rate for the Series A Preferred Units from and including the Original Issue Date, but excluding, August 15, 2023 is 9.75% per annum of the $25.00 liquidation preference per Series A Preferred Unit (equal to $2.4375 per Series A Preferred Unit per annum). On and after August 15, 2023, distributions on the Series A Preferred Units will accumulate for each distribution period at a percentage of the $25.00 liquidation preference equal to an annual floating rate of the three-month LIBOR plus a spread of 6.774% per annum.

At any time on or after August 15, 2023, the Partnership may redeem, in whole or in part, the Series A Preferred Units at a redemption price in cash of $25.00 per Series A Preferred Unit plus an amount equal to all accumulated and unpaid distributions thereon to, but excluding, the date of redemption, whether or not declared. The Partnership must provide not less than 30 days’ and not more than 60 days’ advance written notice of any such redemption.

Upon the occurrence of a Series A Change of Control (as defined in the partnership agreement), the Partnership may, at its option, redeem the Series A Preferred Units, in whole or in part, within 120 days after the first date on which such Series A Change of Control occurred, by paying $25.00 per Series A Preferred Unit, plus all accumulated and unpaid distributions to, but excluding, the date of redemption, whether or not declared. If, prior to the Series A Change of Control Conversion Date (as defined in the partnership agreement), the Partnership exercises its redemption rights relating to Series A Preferred Units, holders of the Series A Preferred Units that the Partnership has elected to redeem will not have the conversion right discussed below related to a Series A Change of Control.

Upon the occurrence of a Series A Change of Control, each holder of Series A Preferred Units will have the right (unless, prior to the Series A Change of Control Conversion Date, the Partnership provides notice of its election to redeem the Series A Preferred Units) to convert some or all of the Series A Preferred Units held by such holder on the Series A Change of Control Conversion Date into a number of common units per Series A Preferred Unit to be converted equal to the lesser of (a) the quotient obtained by dividing (i) the sum of the $25.00 liquidation preference plus the amount of any accumulated and unpaid distributions to, but excluding, the Series A Change of Control Conversion Date (unless the Series A Change of Control Conversion Date is after a record date for a Series A Preferred Unit distribution payment and prior to the corresponding Distribution Payment Date, in which case no additional amount for such accumulated and unpaid distribution will be included in this sum) by (ii) the Common Unit Price (as defined in the partnership agreement) and (b) 2.7100, subject, in each case, to certain exceptions and adjustments.

Any such redemptions would be effected only out of funds legally available for such purposes and would be subject to compliance with the provisions of the Partnership’s outstanding indebtedness.

Holders of Series A Preferred Units generally have no voting rights, except for limited voting rights with respect to (i) potential amendments to the partnership agreement that would have a material adverse effect on the terms of the Series A Preferred Units, (ii) the creation or issuance of any Parity Securities (as defined in the partnership agreement) (including any additional Series A Preferred Units) if the cumulative distributions payable on then outstanding Series A Preferred Units (or Parity Securities, if applicable) are in arrears, (iii) the creation or issuance of any Senior Securities (as defined in the partnership agreement) and (iv) the declaration or payment of any distribution to the holders of common units out of capital surplus.