15. PARTNERS’ CAPITAL

Outstanding Units

As of March 31, 2017, we had 31,000,887 Class B Preferred Units outstanding, and 14,153,061 common units outstanding.

Common Unit Issuances

In March 2016, the Partnership converted all remaining outstanding Class A Preferred Units into common units of the Partnership on a one for one basis, adjusted for the 1-for-10 unit split in August 2015.

In November 2016, we completed a public offering and private placement of common units. The public offering consisted of 6,745,107 common units (which includes partial exercise of the underwriters’ overallotment of 194,305 common units) for net proceeds of approximately $69.7 million, after deducting customary offering expenses. The private placement consisted of 2,272,727 common units issued to the Purchaser for net proceeds of approximately $25.0 million.

Class B Preferred Unit Offering

On October 14, 2015, pursuant to that certain Class B Preferred Unit Purchase Agreement dated September 25, 2015 between the Partnership and Stonepeak Catarina Holdings LLC (“Stonepeak”), the Partnership sold and Stonepeak purchased 19,444,445 of the Partnership’s newly created Class B Preferred Units (the “Class B Preferred Units”) in a privately negotiated transaction for an aggregate cash purchase price of $18.00 per Class B Preferred Unit, which resulted in gross proceeds to the Partnership of approximately $350.0 million. The Partnership used the net proceeds to pay a portion of the consideration for the acquisition of the Western Catarina gathering system, along with the payment to Stonepeak of a fee equal to 2.25% of the consideration paid for the Class B Preferred Units.

Under the terms of our partnership agreement, commencing with the quarter ended on December 31, 2015, the Class B Preferred Units received a quarterly distribution, at the election of the board of directors of our general partner, of 10.0% per annum if paid in full in cash or 12.0% per annum if paid in part cash (8.0% per annum) and in part paid-in-kind units (4.0% per annum). In the event the Partnership did not raise at least $75.0 million through the issuance of additional common units prior to September 30, 2016 (with the conversion of the Class A Preferred Units of the Partnership counting toward such amount), the cash portion of the distribution rate was to have increased by 4.0% per annum until consummation of such issuance, as applicable. The Partnership did not raise at least $75.0 million through the issuance of additional common units prior to September 30, 2016 and an aggregate 14% per annum cash distribution was paid related to the three months ended September 30, 2016. As a result of the common unit issuance in November 2016 the $75.0 million common unit issuance threshold was met and the increased distribution rate was not paid for the three months ended December 31, 2016. Distributions are to be paid on or about the last day of each of February, May, August and November after the end of each quarter.

In accordance with the partnership agreement, on December 6, 2016, we issued an additional 9,851,996 Class B preferred units to Stonepeak. On January 25, 2017, the Partnership and Stonepeak entered into a Settlement Agreement and Mutual Release (the “Settlement Agreement”) to settle a dispute arising from the calculation of an adjustment to the number of Class B Preferred Units pursuant to Section 5.10(g) of the Second Amended and Restated Agreement of Limited Partnership of the Partnership (the “Amended Partnership Agreement”). Pursuant to the Settlement Agreement, and in accordance with Section 5.4 of the Amended Partnership Agreement, the Partnership issued 1,704,446 Class B Preferred Units to Stonepeak in a privately negotiated transaction as partial consideration for the Settlement Agreement, with the “Class B Preferred Unit Price” being established at $11.29 per Class B Preferred Unit. Pursuant to the terms of the Amended Partnership Agreement, the Class B Preferred Units are convertible at any time, at the option of Stonepeak, into common units of the Partnership, subject to the requirement to convert a minimum of $17.5 million of Class B Preferred Units. The issuance of the Class B Preferred Units pursuant to the Settlement Agreement was made in reliance upon an exemption from the registration requirements of the Securities Act of 1933 pursuant to Section 4(a)(2) thereof.

The Class B Preferred Units are accounted for as mezzanine equity in the consolidated balance sheet consisting of the following (in thousands):


	March 31,		December 31,
	2017		2016
Mezzanine equity beginning balance	$	342,991	$	172,111
Discount		—		(87)
Amortization of discount		404		23,477
Distributions		9,625		39,375
Distributions paid		(9,625)		(37,168)
Transfer embedded derivative to Class B		—		145,283
Total mezzanine equity	$	343,395	$	342,991

Earnings per Unit

Net income (loss) per common unit for the period is based on any distributions that are made to the unitholders (common units) plus an allocation of undistributed net income (loss) based on provisions of the partnership agreement, divided by the weighted average number of common units outstanding. The two-class method dictates that net income (loss) for a period be reduced by the amount of distributions and that any residual amount representing undistributed net income (loss) be allocated to common unitholders and other participating unitholders to the extent that each unit may share in net income (loss) as if all of the net income for the period had been distributed in accordance with the partnership agreement. Unit-based awards granted but unvested are eligible to receive distributions. The underlying unvested restricted unit awards are considered participating securities for purposes of determining net income (loss) per unit. Undistributed income (loss) is allocated to participating securities based on the proportional relationship of the weighted average number of common units and unit-based awards outstanding. Undistributed losses (including those resulting from distributions in excess of net income) are allocated to common units based on provisions of the partnership agreement. Undistributed losses are not allocated to unvested restricted unit awards as they do not participate in net losses. Distributions declared and paid in the period are treated as distributed earnings in the computation of earnings per common unit even though cash distributions are not necessarily derived from current or prior period earnings.

Our general partner does not have an economic interest in the Partnership and, therefore, does not participate in the Partnership’s net income. The following table presents the weighted average basic and diluted units outstanding for the periods indicated:


	Three Months Ended
	March 31,
	2017	2016
Common units - Basic and Diluted	13,400,138	2,743,419
Weighted Common units - Basic and Diluted	13,400,138	2,743,419

At March 31, 2017, we had 390,375 common units that were restricted unvested common units granted and outstanding. No losses were allocated to participating restricted unvested units because such securities do not have a contractual obligation to share in the Partnership’s losses.

The following table presents our basic and diluted loss per unit for the three months ended March 31, 2017 (in thousands, except for per unit amounts):

The following table presents our basic and diluted loss per unit for the three months ended March 31, 2016 (in thousands, except for per unit amounts):

Common Units

Assumed net loss to be allocated

Basic and diluted loss per unit