Note 18. Partners’ Equity, Allocations and Cash Distributions

Partners’ Equity

Common Units and General Partner Units

At December 31, 2019 there were 33,995,563 common units issued, including 7,402,198 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 or the general partner interest during the years ended December 31, 2019, 2018 and 2017.

Series A Preferred Units

On August 7, 2018, the Partnership issued 2,760,000 9.75% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units representing limited partner interests (the “Series A Preferred Units”) for $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. There have been no changes to the Series A Preferred Units during the year ended December 31, 2019.

Common Units

The common units have limited voting rights as set forth in the Partnership’s partnership agreement.

General Partner Units and Incentive Distribution Rights

The Partnership’s general partner interest is represented by general partner units. The General Partner is entitled to a percentage (equal to the general partner interest) of all cash distributions of available cash on all common units. The Partnership’s partnership agreement sets forth the calculation to be used to determine the amount and priority of cash distributions that the common unitholders, holders of the incentive distribution rights and the General Partner will receive. The Partnership’s general partner interest has the management rights as set forth in the Partnership’s partnership agreement.

Incentive distribution rights represent the right to receive an increasing percentage of quarterly distributions of available cash from distributable cash flow after the target distribution levels have been achieved, as defined in the Partnership’s partnership agreement. The General Partner holds all of the incentive distribution rights, but may transfer these rights separately from its general partner interest, subject to restrictions in the Partnership’s partnership agreement.

Series A Preferred Units

The Series A Preferred Units is a class of equity security that ranks senior to the common units, the incentive distribution rights and each other class or series of the Partnership’s equity securities established after August 7, 2018, the original issue date of the Series A Preferred Units (the “Original Issue Date”), that is not expressly made senior to or on parity with the Series A Preferred Units as to the payment of distributions and amounts payable on a liquidation event.

Allocations of Net Income

Net income is allocated between the General Partner and the common unitholders in accordance with the provisions of the Partnership’s partnership agreement. Net income is generally allocated first to the General Partner and the common unitholders in an amount equal to the net losses allocated to the General Partner and the common unitholders in the current and prior tax years under the Partnership’s partnership agreement. The remaining net income is allocated to the General Partner and the common unitholders in accordance with their respective percentage interests of the general partner units and common units.

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 businesses, 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 2019, 2018 and 2017 (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
2017
2/14/2017	12/31/16	$	0.4625	$	15,723	$	106	$	—	$	15,829
5/15/2017	03/31/17		0.4625		15,723		106		—		15,829
8/14/2017	06/30/17		0.4625		15,723		106		—		15,829
11/14/2017	09/30/17		0.4625		15,723		106		—		15,829
2018
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 (1)	06/30/18		0.4750		16,149		109		67		16,325
11/14/2018 (1)	09/30/18		0.4750		16,149		109		67		16,325
2019
2/14/2019 (1)	12/31/18	$	0.5000	$	16,998	$	115	$	202	$	17,315
5/15/2019 (1)	03/31/19		0.5100		17,338		117		256		17,711
8/14/2019 (1)	06/30/19		0.5150		17,508		118		269		17,895
11/14/2019 (1)	09/30/19		0.5200		17,678		119		294		18,091

(1)

This distribution resulted in the Partnership reaching its second target level distribution for the respective quarter. As a result, the General Partner, as the holder of the IDRs, received an incentive distribution.

In addition, on January 27, 2020, the board of directors of the General Partner declared a quarterly cash distribution of $0.5250 per unit ($2.10 per unit on an annualized basis) on all of its outstanding common units for the period from October 1, 2019 through December 31, 2019 to the Partnership’s common unitholders of record as of the close of business February 10, 2020. On February 14, 2020, the Partnership paid the total cash distribution of approximately $18.3 million.

Series A Preferred Units

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. Distributions on the Series A Preferred Units will be paid out of Available Cash with respect to the quarter immediately preceding the applicable Distribution Payment Date.

On November 15, 2018, the Partnership paid the initial quarterly cash distribution of $0.6635 per unit on the Series A Preferred Units, covering the period from the Original Issue Date through November 14, 2018, totaling $1.8 million. 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.

The Partnership paid the following cash distributions on the Series A Preferred Units during 2019 (in thousands, except per unit data):


	Earned for the	Per Unit
Cash Distribution	Quarterly Period	Cash		Total Cash
Payment Date	Covering	Distribution		Distribution
2/15/2019	11/15/18 - 2/14/19	$	0.609375	$	1,682
5/15/2019	2/15/19 - 5/14/19		0.609375		1,682
8/15/2019	5/15/19 - 8/14/19		0.609375		1,682
11/15/2019	8/15/19 - 11/14/19		0.609375		1,682

In addition, on January 21, 2020, the board of directors of the General Partner declared a quarterly cash distribution of $0.609375 per unit ($2.4375 per unit on an annualized basis) on the Series A Preferred Units for the period from November 15, 2019 through February 14, 2020 to the Partnership’s preferred unitholders of record as of the opening of business on February 3, 2020. On February 18, 2020, the Partnership paid the total cash distribution of approximately $1.7 million.