Mandatorily Redeemable Convertible Preferred Units

3 Months Ended

Mar. 31, 2012

Mandatorily Redeemable Convertible Preferred Units

Mandatorily Redeemable Convertible Preferred Units

7. Mandatorily Redeemable Convertible Preferred Units

Pursuant to the Company’s amended and restated limited liability company agreement, as further amended in March 2012, the Company was permitted to issue up to 65,000 in Preferred Units, or $65.0 million in aggregate value, between December 15, 2011 and June 10, 2015. The Preferred Units had a liquidation value of $1,000 per unit and bore interest, compounded quarterly, at a rate of 8% plus the greater of LIBOR or 1.5%. The Preferred Units were convertible on or after the one year anniversary of the date of issuance into a number of common units with a fair market value (as determined by the Board of Directors) equal to the liquidation value plus any accrued interest and were redeemable for cash at any time at the option of the Company, but were mandatorily redeemable for cash on June 10, 2015, unless otherwise converted. In addition, a fixed interest charge of 1.5% of the aggregate capital invested in the Preferred Units was payable upon redemption or conversion.

On January 4, 2012, and again on February 9, 2012, the Company issued 20,000 Preferred Units (for a total of 40,000 Preferred Units) to FR Midstates for aggregate cash proceeds of $40.0 million.

At March 31, 2012, these issuances remain outstanding. Due to the mandatory redemption feature, these Preferred Units are classified as a liability in the Company’s condensed consolidated balance sheet as of March 31, 2012. The Company recorded $0.8 million related to interest expense associated with these Preferred Units for the three months ended March 31, 2012, which is included in “Mandatorily redeemable convertible preferred units” in the Company’s condensed consolidated balance sheets.

The Company believes the carrying amount of the Preferred Units approximates its fair value (Level 2) due to the recent issuance date and the variable component of the applicable interest rate.

On April 3, 2012, the Company issued an additional 25,000 preferred units to FR Midstates for aggregate cash proceeds of $25.0 million.

Our initial public offering closed on April 25, 2012. On April 26, 2012, using a portion of the $215.6 million in proceeds from our initial public offering, we redeemed the Preferred Units in full in the amount of $67.1 million, including interest and other charges.