Quarterly report pursuant to Section 13 or 15(d)

Cash Distributions and Net Income (Loss) per Common Unit

v2.4.0.8
Cash Distributions and Net Income (Loss) per Common Unit
 9 Months Ended
Sep. 30, 2013
CASH DISTRIBUTIONS AND NET INCOME (LOSS) PER COMMON UNIT [Abstract]  
Cash Distributions and Net Income (Loss) per Common Unit
CASH DISTRIBUTIONS AND NET INCOME (LOSS) PER COMMON UNIT

Cash Distributions

Our partnership agreement requires that, within 45 days after the end of each quarter, we distribute all of our available cash (as defined in our partnership agreement). Generally, our available cash is our cash on hand at the end of a quarter less the amount of any reserves established by our general partner. All distributions paid to date have been made from operating surplus as defined in the partnership agreement. The following provides a summary of distributions paid by us during the nine months ended September 30, 2013:
 
 
 
 
 
 
 
 
Total Distribution (in thousands)
Date Paid
 
Period Covered by Distribution
 
Distribution Per Common Unit
 
Distribution Per Subordinated Unit
 
Common Units
 
Class B Units
 
Subordinated Units
 
General Partner Units
February 14, 2013
 
October 1 - December 31, 2012
 
$
0.425

 
$
—

 
$
16,783

 
—

 
—

 
$
342

May 15, 2013
 
January 1 - March 31, 2013
 
0.425

 
—

 
24,259

 
—

 
—

 
495

August 15, 2013
 
April 1 - June 30, 2013
 
0.425

 
—

 
24,259

 
—

 
—

 
495


The subordinated units will receive distributions only to the extent we have available cash above the initial quarterly distribution requirement for our common unitholders and general partner and certain reserves. 

In 2012, we issued and sold 133.3 million Class B units to Blackstone and Cheniere at a price of $15.00 per Class B unit, resulting in total gross proceeds of $2.0 billion. In connection with our purchase of the Creole Trail Pipeline Business in May 2013, we issued and sold 12.0 million Class B units to Cheniere at a price of $15.00 per Class B unit. The Class B units were issued at a discount to the market price of the common units into which they are convertible.  This discount totaling $2,130.0 million represents a beneficial conversion feature and is reflected as an increase in common and subordinated unitholders’ equity and a decrease in Class B unitholders’ equity to reflect the fair value of the Class B units at issuance on our consolidated statement of partners’ and owners' equity (deficit).  The beneficial conversion feature is considered a dividend that will be distributed ratably with respect to any Class B unit from its issuance date through its conversion date, resulting in an increase in Class B unitholders’ equity and a decrease in common and subordinated unitholders’ equity. We amortize the beneficial conversion feature assuming a conversion date of June 2017 and August 2017 for Cheniere’s and Blackstone’s Class B units, respectively, although actual conversion may occur prior to or after these assumed dates. We are amortizing the beneficial conversion feature over the original 60 month conversion schedule using the effective yield method with a weighted average effective yield of 943.1% per year and 958.0% per year for Cheniere’s and Blackstone’s Class B units, respectively. The impact of the beneficial conversion feature is also included in earnings per unit for the three and nine months ended September 30, 2013 and 2012.

The following is a schedule by years, based on the capital structure as of September 30, 2013, of the anticipated impact to the capital accounts in connection with the amortization of the beneficial conversion feature (in thousands):
 
Common Units
 
Class B Units
 
Subordinated Units
2013
$
—

 
$
—

 
$
—

2014
(2
)
 
6

 
(4
)
2015
(241
)
 
813

 
(572
)
2016
(32,023
)
 
107,979

 
(75,955
)
2017
(538,538
)
 
1,815,883

 
(1,277,345
)


The Class B units will mandatorily convert into common units on the first business day following the record date with respect to Cheniere Partners’ first distribution (the "Mandatory Conversion Date") after the earlier of the substantial completion date of Train 3 or August 9, 2017, although if a notice to proceed is given to Bechtel for Train 3 prior to August 9, 2017, the Mandatory Conversion Date will be the substantial completion date of Train 3. The notice to proceed was given to Bechtel on May 28, 2013. If the Class B units are not mandatorily converted by July 2019, the holders of the Class B units have the option to convert the Class B units into common units at that time.

Net Income (Loss) per Common Unit
 
Net income (loss) per common unit for a given period is based on the distributions that will be made to the unitholders with respect to the period 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 available cash that will be distributed with respect to that period and that any residual amount representing undistributed net income be allocated to common unitholders and other participating unitholders to the extent that each unit may share in net income as if all of the net income for the period had been distributed in accordance with the partnership agreement. Undistributed income is allocated to participating securities based on the distribution waterfall for available cash specified in the partnership agreement. Undistributed losses (including those resulting from distributions in excess of net income) are allocated to common units and other participating securities on a pro rata basis based on provisions of the partnership agreement. Distributions 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.     
Under our partnership agreement, the incentive distribution rights ("IDRs") participate in net income (loss) only to the extent of the amount of cash distributions actually declared, thereby excluding the IDRs from participating in undistributed net income (loss). We did not allocate earnings or losses to IDR holders for the purpose of the two class method earnings per unit calculation for any of the periods presented. The following table provides a reconciliation of net income (loss) and the allocation of net income (loss) to the common units and the subordinated units for purposes of computing net income (loss) per unit (in thousands, except per unit data):
 
 
 
 
Limited Partner Units
 
 
 
 
 
 
Total
 
Common Units
 
Class B Units
 
Subordinated Units
 
General Partner
 
Creole Trail Pipeline Business
Three Months Ended September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(98,109
)
 
 
 
 
 
 
 
 
 
 
Declared distributions
 
24,754

 
24,259

 
—

 
—

 
495

 
 
Assumed allocation of undistributed net loss
 
$
(122,863
)
 
(35,780
)
 
—

 
(84,865
)
 
(2,462
)
 
244

Assumed allocation of net loss
 
 
 
$
(11,521
)
 
$
—

 
$
(84,865
)
 
$
(1,967
)
 
$
244

 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average units outstanding
 
 
 
57,079

 
—

 
135,384

 
 
 
 
Net loss per unit
 
 
 
$
(0.20
)
 
$
—

 
$
(0.63
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(51,370
)
 
 
 
 
 
 
 
 
 
 
Declared distributions
 
17,125

 
16,783

 
—

 
—

 
342

 
 
Amortization of beneficial conversion feature of Class B units
 
—

 
(2,971
)
 
14,888

 
(11,917
)
 
—

 
 
Assumed allocation of undistributed net loss
 
$
(68,495
)
 
(12,467
)
 
—

 
(42,744
)
 
(4,336
)
 
(8,948
)
Assumed allocation of net income (loss)
 
 
 
$
1,345

 
$
14,888

 
$
(54,661
)
 
$
(3,994
)
 
$
(8,948
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average units outstanding
 
 
 
31,997

 
54,710

 
135,384

 
 
 
 
Net income (loss) per unit
 
 
 
$
0.04

 
$
0.27

 
$
(0.40
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(196,851
)
 
 
 
 
 
 
 
 
 
 
Declared distributions
 
74,261

 
72,776

 
—

 
—

 
1,485

 
 
Assumed allocation of undistributed net loss
 
$
(271,112
)
 
(73,521
)
 
—

 
(174,382
)
 
(5,059
)
 
(18,150
)
Assumed allocation of net income (loss)
 
 
 
$
(745
)
 
$
—

 
$
(174,382
)
 
$
(3,574
)
 
$
(18,150
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average units outstanding
 
 
 
53,277

 
—

 
135,384

 
 
 
 
Net income (loss) per unit
 
 
 
$
(0.01
)
 
$
—

 
$
(1.29
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(106,818
)
 
 
 
 
 
 
 
 
 
 
Declared distributions
 
44,376

 
43,488

 
—

 
—

 
888

 
 
Amortization of beneficial conversion feature of Class B units
 
—

 
(3,863
)
 
19,625

 
(15,762
)
 
—

 
 
Assumed allocation of undistributed net loss
 
$
(151,194
)
 
(28,278
)
 
—

 
(96,948
)
 
(5,765
)
 
(20,203
)
Assumed allocation of net income (loss)
 
 
 
$
11,347

 
$
19,625

 
$
(112,710
)
 
$
(4,877
)
 
$
(20,203
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average units outstanding
 
 
 
31,449

 
19,181

 
135,384

 
 
 
 
Net income (loss) per unit
 
 
 
$
0.36

 
$
1.02

 
$
(0.83
)