S-1/A
Table of Contents

As filed with the Securities and Exchange Commission on June 11, 2015

Registration No. 333-204279

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1

to

Form S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Green Plains Partners LP

(Exact name of Registrant as Specified in its Charter)

 

 

 

Delaware    4610   

47-3822258

(State or Other Jurisdiction

of Incorporation or Organization)

  

(Primary Standard Industrial

Classification Code Number)

  

(I.R.S. Employer

Identification Number)

450 Regency Parkway, Suite 400

Omaha, Nebraska 68114

(402) 884-8700

(Address, including Zip Code, and Telephone Number, including Area Code, of Registrant’s Principal Executive Offices)

Todd A. Becker

President and Chief Executive Officer

Green Plains Holdings LLC

450 Regency Parkway, Suite 400

Omaha, Nebraska 68114

(402) 884-8700

(Name, Address, including Zip Code, and Telephone Number, including Area Code, of Agent for Service)

 

 

Copies to:

 

G. Michael O’Leary

Stephanie Beauvais

Andrews Kurth LLP

600 Travis St., Suite 4200

Houston, Texas 77002

(713) 220-4200

  

Ryan J. Maierson

Thomas G. Brandt

Latham & Watkins LLP

811 Main Street, Suite 3700

Houston, Texas 77002

(713) 546-5400

 

 

Approximate date of commencement of proposed sale to the public:

As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated filer  ¨   Accelerated filer  ¨    Non-accelerated filer  x   Smaller reporting company  ¨
  (Do not check if a smaller reporting company)  

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these securities in any state or jurisdiction where the offer or sale is not permitted.

 

Subject to Completion, dated June 11, 2015

PROSPECTUS

 

 

LOGO

 

         Common Units

Representing Limited Partner Interests

 

 

This is an initial public offering of common units representing limited partner interests of Green Plains Partners LP. We are offering             common units in this offering. We expect that the initial public offering price will be between $         and $         per common unit. We were recently formed by Green Plains Inc., or our parent, and no public market currently exists for our common units. We have applied to list our common units on the NASDAQ Global Market under the symbol “GPP.” We are an “emerging growth company” as that term is defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.

Investing in our common units involves a high degree of risk. Before buying any common units, you should carefully read the discussion of risks of investing in our common units in “Risk Factors” beginning on page 23.

These risks include the following:

 

 

We may not have sufficient cash from operations following the establishment of cash reserves and payment of fees and expenses, including cost reimbursements to our general partner and its affiliates, to enable us to pay the minimum quarterly distribution to our unitholders.

 

 

Our pro forma financial data are not necessarily representative of the results of what we would have achieved and may not be a reliable indicator of our future results.

 

 

The assumptions underlying the forecast of distributable cash flow that we include in “Our Cash Distribution Policy and Restrictions on Distributions” are inherently uncertain and are subject to significant business, economic, financial, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those forecasted.

 

 

The services we provide under commercial agreements with Green Plains Trade Group LLC, or Green Plains Trade, a subsidiary of our parent, will initially account for a substantial portion of our revenues. Therefore, we will be subject to the business risks of Green Plains Trade and, as a result of its direct ownership by our parent, to the business risks of our parent. If Green Plains Trade is unable to satisfy its obligations under the commercial agreements with us for any reason, our revenues would decline and our financial condition, results of operations, cash flows and ability to make distributions to our unitholders would be adversely affected.

 

 

Green Plains Trade may suspend, reduce or terminate its obligations under the commercial agreements with us in certain circumstances, which could have a material adverse effect on our financial condition, results of operations, cash flows and ability to make distributions to our unitholders.

 

 

Our parent will own and control our general partner, which has sole responsibility for conducting our business and managing our operations. Our general partner and its affiliates, including our parent and Green Plains Trade, have conflicts of interest with us and limited duties to us and our unitholders, and they may favor their own interests to our detriment and that of our unitholders.

 

 

Our partnership agreement restricts the remedies available to holders of our common units and our subordinated units for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty.

 

 

Our unitholders have limited voting rights and are not entitled to elect our general partner or the board of directors of our general partner, which could reduce the price at which our common units will trade.

 

 

Immediately effective upon the closing of this offering, unitholders will experience substantial dilution of $         in tangible net book value per common unit.

 

 

Our tax treatment depends on our status as a partnership for U.S. federal income tax purposes. If the Internal Revenue Service were to treat us as a corporation for U.S. federal income tax purposes, which would subject us to entity-level taxation, or if we were otherwise subjected to a material amount of additional entity-level taxation, then our distributable cash flow to our unitholders would be substantially reduced.

 

 

Even if our unitholders do not receive any cash distributions from us, our unitholders will be required to pay taxes on their share of our taxable income.

 

     Per Common Unit      Total  

Initial public offering price

   $                    $                

Underwriting discounts and commissions(1)

   $         $     

Proceeds to Green Plains Partners LP, before expenses

   $         $     

 

(1) Excludes an aggregate structuring fee equal to     % of the gross proceeds of this offering payable to Barclays Capital Inc. and XMS Capital Partners, LLC. Please read “Underwriting.”

The underwriters may also purchase up to an additional             common units from us at the initial public offering price, less the underwriting discounts and commissions and a structuring fee payable by us, within 30 days from the date of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the common units on or about                     , 2015.

 

 

Barclays      BofA Merrill Lynch
Credit Suisse   Macquarie Capital    RBC Capital Markets

 

 

 

Baird   Raymond James  

Stephens Inc.

  Stifel

Prospectus dated                     , 2015


Table of Contents

Table of Contents

 

     Page  

PROSPECTUS SUMMARY

     1   

Overview

     1   

Competitive Strengths

     5   

Business Strategies

     6   

Our Parent

     7   

Our Assets and Operations

     8   

Our Emerging Growth Company Status

     9   

Risk Factors

     10   

The Transactions

     11   

Organizational Structure After the Transactions

     12   

Management of Green Plains Partners LP

     13   

Principal Executive Offices and Internet Address

     13   

Summary of Conflicts of Interest and Duties

     13   

The Offering

     15   

SUMMARY HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED FINANCIAL AND OPERATING DATA

     20   

RISK FACTORS

     23   

Risks Related to Our Business and Industry

     23   

Risks Related to an Investment in Us

     41   

Tax Risks to Our Unitholders

     52   

USE OF PROCEEDS

     57   

CAPITALIZATION

     58   

DILUTION

     59   

OUR CASH DISTRIBUTION POLICY AND RESTRICTIONS ON DISTRIBUTIONS

     60   

General

     60   

Our Minimum Quarterly Distribution

     62   

Unaudited Pro Forma Distributable Cash Flow for the Year Ended December  31, 2014 and the Twelve Months Ended March 31, 2015

     64   

Estimated Distributable Cash Flow for the Twelve Months Ending June 30, 2016

     66   

PROVISIONS OF OUR PARTNERSHIP AGREEMENT RELATING TO CASH DISTRIBUTIONS

     75   

Distributions of Available Cash

     75   

Operating Surplus and Capital Surplus

     76   

Capital Expenditures

     78   

Subordinated Units and Subordination Period

     78   

Distributions of Available Cash from Operating Surplus During the Subordination Period

     80   

Distributions of Available Cash from Operating Surplus After the Subordination Period

     81   

General Partner Interest and Incentive Distribution Rights

     81   

Percentage Allocations of Available Cash from Operating Surplus

     82   

General Partner’s Right to Reset Incentive Distribution Levels

     82   

Distributions from Capital Surplus

     85   

Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels

     86   

Distributions of Cash Upon Liquidation

     87   

SELECTED HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED FINANCIAL AND OPERATING DATA

     90   

Non-GAAP Financial Measure

     92   

 

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     Page  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     93   

Overview

     93   

How We Generate Revenue

     93   

How We Evaluate Our Results of Operations

     95   

Factors Affecting the Comparability of Our Financial Results

     97   

Factors That May Influence Future Results of Operations

     98   

Predecessor Results of Operations

     101   

Capital Resources and Liquidity

     102   

Off-Balance Sheet Arrangements

     105   

Critical Accounting Policies

     105   

Qualitative and Quantitative Disclosures About Market Risk

     107   

New Accounting Pronouncement

     108   

INDUSTRY OVERVIEW

     109   

Ethanol Value Chain

     109   

Industry Dynamics

     112   

Market Growth

     115   

BUSINESS

     117   

Overview

     117   

Competitive Strengths

     121   

Business Strategies

     122   

Our Parent

     124   

Our Assets and Operations

     126   

Commercial Agreements with Our Parent’s Affiliate

     128   

Other Agreements with Our Parent

     131   

Competition

     132   

Seasonality

     133   

Employees

     133   

Safety and Maintenance Regulation

     133   

Environmental Regulation

     133   

Rail Safety

     135   

Employee Safety

     136   

Security

     136   

Insurance

     136   

Legal Proceedings

     137   

MANAGEMENT

     138   

Management of Green Plains Partners LP

     138   

Directors and Executive Officers of Green Plains Holdings LLC

     139   

Board Leadership Structure

     141   

Board Role in Risk Oversight

     142   

Compensation of Our Officers and Directors

     142   

Our Long-Term Incentive Plan

     142   

SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     146   

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     148   

Distributions and Payments to Our General Partner and Its Affiliates

     148   

Agreements with Affiliates in Connection with the Transactions

     150   

 

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     Page  

CONFLICTS OF INTEREST AND DUTIES

     155   

Conflicts of Interest

     155   

Duties of the General Partner

     161   

DESCRIPTION OF THE COMMON UNITS

     165   

The Units

     165   

Transfer Agent and Registrar

     165   

Transfer of Common Units

     165   

Exchange Listing

     166   

OUR PARTNERSHIP AGREEMENT

     167   

Organization and Duration

     167   

Purpose

     167   

Cash Distributions

     167   

Capital Contributions

     167   

Voting Rights

     168   

Limited Liability

     169   

Issuance of Additional Securities

     170   

Amendment of Our Partnership Agreement

     170   

Termination and Dissolution

     173   

Liquidation and Distribution of Proceeds

     174   

Withdrawal or Removal of Our General Partner

     174   

Transfer of General Partner Interest

     175   

Transfer of Ownership Interests in Our General Partner

     175   

Transfer of Incentive Distribution Rights

     175   

Change of Management Provisions

     175   

Limited Call Right

     176   

Non-Taxpaying Holders; Redemption

     176   

Non-Citizen Assignees; Redemption

     176   

Meetings; Voting

     177   

Status as Limited Partner

     177   

Indemnification

     178   

Reimbursement of Expenses

     178   

Books and Reports

     178   

Right to Inspect Our Books and Records

     179   

Registration Rights

     179   

Applicable Law; Exclusive Forum

     179   

Reimbursement of Partnership Litigation Costs

     180   

UNITS ELIGIBLE FOR FUTURE SALE

     182   

Rule 144

     182   

Our Partnership Agreement and Registration Rights

     182   

Lock-up Agreements

     183   

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

     184   

Partnership Status

     185   

Limited Partner Status

     186   

Tax Consequences of Unit Ownership

     186   

Tax Treatment of Operations

     192   

Disposition of Common Units

     193   

Uniformity of Units

     195   

Tax-Exempt Organizations and Other Investors

     196   

Administrative Matters

     197   

 

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     Page  

Recent Legislative Developments

     199   

State, Local, Foreign and Other Tax Considerations

     199   

INVESTMENT IN GREEN PLAINS PARTNERS LP BY EMPLOYEE BENEFIT PLANS

     201   

UNDERWRITING

     203   

Commissions and Expenses

     203   

Option to Purchase Additional Common Units

     204   

Lock-Up Agreements

     204   

Offering Price Determination

     204   

Indemnification

     205   

Stabilization, Short Positions and Penalty Bids

     205   

Electronic Distribution

     206   

Listing on the NASDAQ

     206   

Discretionary Sales

     206   

Stamp Taxes

     206   

Other Relationships

     206   

Directed Unit Program

     207   

Direct Participation Program Requirements

     207   

Selling Restrictions

     207   

VALIDITY OF THE COMMON UNITS

     208   

EXPERTS

     208   

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     208   

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

     209   

INDEX TO FINANCIAL STATEMENTS

     F-1   

APPENDIX A—AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF GREEN PLAINS PARTNERS LP

     A-1   

APPENDIX B—GLOSSARY OF TERMS

     B-1   

 

 

You should rely only on the information contained in this prospectus or in any free writing prospectus we may authorize to be delivered to you. We have not, and the underwriters have not, authorized any other person to provide you with information different from that contained in this prospectus and any free writing prospectus. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of the common units. Our business, financial condition, results of operations and prospects may have changed since that date. We will update this prospectus as required by federal securities laws.

This prospectus contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control. Please read “Risk Factors” and “Cautionary Note Concerning Forward-Looking Statements.”

 

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Industry and Market Data

The market data and certain other statistical information used throughout this prospectus are derived from a variety of sources, including independent industry publications, government publications or other published independent sources, which we did not participate in preparing, as well as our good faith estimates, which have been derived from management’s knowledge and experience in the areas in which our business operates. Although we have not independently verified the accuracy or completeness of the third-party information included in this prospectus, based on management’s knowledge and experience, we believe that the third-party sources are reliable and that the third-party information included in this prospectus or in our estimates is accurate and complete. Estimates of market size and relative positions in a market are difficult to develop and are inherently uncertain and subject to change based on various factors, including those discussed under the section entitled “Risk Factors.” Accordingly, investors should not place undue weight on the industry and market share data presented in this prospectus.

 

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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. It does not contain all of the information that you should consider before purchasing our common units. You should carefully read the entire prospectus, including “Risk Factors” and the historical and unaudited pro forma financial statements and related notes included elsewhere in this prospectus before making an investment decision. Unless otherwise indicated, the information in this prospectus assumes (1) an initial public offering price of $         per common unit (the midpoint of the price range set forth on the cover page of this prospectus) and (2) that the underwriters do not exercise their option to purchase additional common units. You should read “Risk Factors” beginning on page 23 for more information about important factors that you should consider before purchasing our common units.

Unless the context otherwise requires, references in this prospectus to “our partnership,” “we,” “our,” “us” or like terms, when used in a historical context, refer to BlendStar LLC and its subsidiaries, our predecessor for accounting purposes, also referred to as “our Predecessor,” and when used in the present tense or prospectively, refer to Green Plains Partners LP and its subsidiaries. References to (i) “our general partner” and “Green Plains Holdings” refer to Green Plains Holdings LLC; (ii) “our parent” and “Green Plains” refer to Green Plains Inc. or, as the context may require, Green Plains Inc. and its subsidiaries, other than us, our subsidiaries and our general partner; and (iii) “Green Plains Trade” refers to Green Plains Trade Group LLC, a wholly-owned subsidiary of our parent.

Green Plains Partners LP

Overview

We are a fee-based Delaware limited partnership recently formed by our parent, Green Plains Inc., to provide ethanol and fuel storage, terminal and transportation services by owning, operating, developing and acquiring ethanol and fuel storage tanks, terminals, transportation assets and other related assets and businesses. We expect to be our parent’s primary downstream logistics service provider in support of its approximately 1.2 billion gallons per year, or bgy, ethanol marketing and distribution business because our assets are the principal method of storing and delivering the ethanol our parent produces for its customers. Our parent believes that this vertical integration will enable it to better capture the economic value of these operations within the ethanol value chain and continue to develop downstream logistics assets while pursuing growth opportunities. The ethanol that our parent produces is fuel grade, principally from the starch extracted from corn, and is primarily used in the blending of gasoline. Ethanol currently comprises approximately 10% of the U.S. gasoline market and is an economical source of octane and oxygenate for blending into the fuel supply. We generate a substantial portion of our revenues under fee-based commercial agreements with Green Plains Trade for receiving, storing, transferring and transporting ethanol and other fuels. We do not take ownership of, or receive any payments based on the value of, the ethanol or other fuels we handle; as a result, we will not have any direct exposure to fluctuations in commodity prices.

Our initial assets include:

 

   

Ethanol Storage Facilities. We own 27 ethanol storage facilities located at or near our parent’s twelve ethanol production plants located in Indiana, Iowa, Michigan, Minnesota, Nebraska and Tennessee and which have a current combined ethanol production capacity of approximately 1.0 bgy. Our ethanol storage assets currently have a combined storage capacity of approximately 26.6 million gallons, or mmg, and have the ability to efficiently and effectively store and load railcars and tanker trucks with all of the ethanol produced at our parent’s ethanol production plants. For the years ended December 31, 2014 and 2013, our ethanol storage assets had annual throughput of approximately 966.2 million gallons per year, or mmgy, and 729.2 mmgy, respectively, which represents 95.6% and 94.0%, respectively, of the combined daily average production capacity of our parent’s ethanol production plants. For the three

 

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months ended March 31, 2015, our ethanol storage assets had aggregate throughput of approximately 232.5 mmg, which represents 92.4% of the combined daily average production capacity of our parent’s ethanol production plants.

 

   

Fuel Terminal Facilities. We provide terminal services and logistics solutions through our fuel terminal facilities that we own and operate through our wholly-owned subsidiary, BlendStar LLC. These fuel terminal facilities, at eight locations in seven south-central U.S. states, have fuel holding tanks and access to major rail lines for transporting ethanol or other fuels. Additionally, our Birmingham, Alabama-unit train terminal, or our Birmingham facility, is one of 20 facilities in the United States capable of efficiently receiving and offloading ethanol and other fuels from unit trains. Our fuel terminal facilities have a current combined total storage capacity of approximately 7.4 mmg and for the year ended December 31, 2014 and the three months ended March 31, 2015 had an aggregate throughput of approximately 324.8 mmg and 80.4 mmg, respectively.

 

   

Transportation Assets. Our transportation assets include a leased railcar fleet of approximately 2,200 railcars with an aggregate capacity of 66.3 mmg as of March 31, 2015 that is dedicated to transporting products under commercial agreements with our parent, including ethanol and other fuels, from our fuel terminal facilities or third-party production facilities to refineries throughout the United States and international export terminals.

We intend to seek opportunities to grow our business by pursuing organic projects and acquisitions of complementary assets from third parties in cooperation with our parent and on our own. For example, our parent has announced that it is expanding production at its ethanol production plants by approximately 100 mmgy and will explore certain other expansion projects at its ethanol production plants in the future. These expansion projects, when implemented, will enable us to utilize the strategic location and capacity of our assets and will increase annual throughput at our ethanol storage facilities with minimal capital.

A substantial portion of our revenues and cash flows will initially be derived from commercial agreements with Green Plains Trade. At the closing of this offering, we will (1) enter into (i) a ten-year fee-based storage and throughput agreement, (ii) a six-year fee-based rail transportation services agreement and (iii) a one-year fee-based trucking transportation agreement and (2) assume (i) an approximately 2.5-year fee-based terminaling agreement for our Birmingham facility, which we refer to as our Birmingham terminaling agreement, and (ii) various other terminaling agreements for our other fuel terminal facilities, each with Green Plains Trade. Our storage and throughput agreement and certain of our terminaling agreements, including the Birmingham terminaling agreement, will be supported by minimum volume commitments, and our rail transportation services agreement will be supported by minimum take-or-pay capacity commitments. We believe that the nature of these agreements will provide stable and predictable cash flows over time. The following table sets forth additional information regarding our storage and throughput agreement, our Birmingham terminaling agreement and our rail transportation services agreement with Green Plains Trade at the closing of this offering:

 

Agreement

   Remaining
Primary
Term

(years)
     Minimum
Commitment
     Actual
Year
Ended
December 31,

2014
     Rate
(per gallon)
 

Storage and Throughput

     10(1)         850.0 mmgy(2)         966.2 mmgy         $0.05 (3)   

Birmingham Terminaling(4)

     2.5(5)         33.2 mmgy(5)         40.6 mmgy(5)         $0.0355         

Rail Transportation Services

     6(6)         66.3 mmg(7)         60.4 mmg(8)         $0.0361(9)   

 

(1) After the end of the remaining primary term, our storage and throughput agreement will automatically renew for successive one-year terms unless either party provides notice of termination at least 360 days prior to the end of the applicable term.
(2) Represents the annualized minimum volume commitment under our storage and throughput agreement.

 

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(3) The rate of $0.05 per gallon is effective through the last day of the fifth year of the primary term of the storage and throughout agreement. As of the first day of the sixth year of the primary term of the storage and throughout agreement, the rate will be increased by an amount equal to the percentage change, if any, in the Producer Price Index, or PPI, since the closing of this offering, and such increased rate will be in effect for the remainder of the primary term.
(4) In addition to our Birmingham terminaling agreement, at the closing of this offering, we will assume all of our Predecessor’s other terminaling agreements with Green Plains Trade for our other fuel terminal facilities. These agreements have terms ranging from month-to-month up to six months.
(5) Represents the annualized minimum volume commitment under our Birmingham terminaling agreement. Our Birmingham terminaling agreement was amended on February 27, 2015 to, among other things, increase the minimum monthly charge to $0.0355 per gallon on Green Plains Trade’s minimum throughput of approximately 2.8 mmg at our Birmingham facility. Upon the expiration of the remaining primary term, our Birmingham terminaling agreement will automatically renew for successive one-year terms unless either party provides notice of termination 90 days prior to the end of the applicable term.
(6) At the closing of this offering, the remaining primary term of our rail transportation services agreement will last for six years. Our leased railcars are subject to lease agreements with various terms. The weighted average term of the railcar lease agreements as of December 31, 2014 was 3.5 years. Please read “Business—Our Assets and Operations—Transportation Assets” for further discussion of the railcar lease agreements.
(7) Represents the volumetric capacity leased by us subject to our rail transportation services agreement upon completion of this offering. Our rail transportation services agreement will be supported by minimum take-or-pay capacity commitments. As our railcar lease agreements expire, Green Plains Trade’s minimum take-or-pay capacity commitment will be reduced by the volumetric capacity of those expired leases. Please read “Business—Commercial Agreements with Our Parent’s Affiliate” for additional information.
(8) Represents the daily weighted average volumetric capacity leased by us subject to our rail transportation services agreement for the twelve months ending December 31, 2014.
(9) Represents the approximate monthly fee per gallon payable to us by Green Plains Trade under our rail transportation services agreement if the railcar volumetric capacity used to transport such volumes is provided by us. In addition, we receive a monthly management fee of approximately $0.0013 per gallon under our rail transportation services agreement for railcar volumetric capacity leased by Green Plains Trade from third parties. Under our rail transportation services agreement, fees will be assessed daily and payable monthly.

For more information related to our commercial agreements with Green Plains Trade, as well as the revenue we expect to receive in connection with these agreements for the twelve months ending June 30, 2016, please read “Our Cash Distribution Policy and Restrictions on Distributions—Significant Forecast Assumptions” and “Business—Commercial Agreements with Our Parent’s Affiliate.”

For the year ended December 31, 2014 and the three months ended March 31, 2015, we had pro forma revenues of approximately $87.3 million and $22.0 million, respectively, pro forma net income of approximately $54.0 million and $13.3 million, respectively, and pro forma Adjusted EBITDA of approximately $60.5 million and $14.8 million, respectively. Our parent and its subsidiaries accounted for approximately 90.3% and 90.5% of our pro forma revenues for such periods, respectively. For the year ended December 31, 2014 and the three months ended March 31, 2015, our Predecessor had revenues of approximately $12.8 million and $3.4 million, respectively, and net income of approximately $2.3 million and $0.8 million, respectively. We use Adjusted EBITDA to measure our financial performance and to internally manage our business; however, Adjusted EBITDA calculations may vary from company to company. Please read “Selected Historical and Pro Forma Condensed Consolidated Financial and Operating Data—Non-GAAP Financial Measure” for a definition of Adjusted EBITDA and a reconciliation of pro forma net income as determined in accordance with U.S. generally accepted accounting principles, or GAAP, to Adjusted EBITDA.

 

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Our parent is a Fortune 1000, vertically-integrated producer, marketer and distributor of ethanol and is the fourth largest ethanol producer in North America. Our parent’s operations extend throughout the ethanol value chain, beginning upstream with grain handling and storage operations, continuing through its ethanol, distillers grains and corn oil production operations, and ending downstream with its marketing, terminal and distribution services. Please read “Industry Overview” for a more-detailed discussion of the ethanol industry.

We benefit significantly from our relationship with our parent. We were formed by our parent to be its primary downstream logistics service provider to support its ethanol marketing and distribution business. Our parent operated at approximately 95.6% and 92.4% of its daily average production capacity for the year ended December 31, 2014 and the three months ended March 31, 2015, respectively. We plan to capitalize on our parent’s production capability because our assets are the principal method of storing and delivering the ethanol our parent produces to its customers. Our commercial agreements with Green Plains Trade will account for a substantial portion of our revenues and Green Plains Trade will be our primary customer. From January 1, 2009 to March 31, 2015, our parent’s quarterly ethanol production increased 217.6%, from 73.2 mmg to 232.5 mmg, primarily from third-party acquisitions. Over the same time period, our parent’s ethanol production averaged 96.3%, and never fell below 86.2%, of its daily average production capacity. Our parent’s quarterly actual production, daily average production capacity and utilization are highlighted by the chart below:

 

LOGO

Following the completion of this offering, our parent will retain a majority ownership interest in us through its sole ownership of our general partner, a     % limited partner interest in us and all of our incentive distribution rights. In addition, we will enter into an omnibus agreement at the closing of this offering under which we will be granted a right of first offer, for a period of five years, on any (1) ethanol storage or terminal assets that our parent may acquire or construct in the future, (2) fuel storage and terminal facilities that our parent may acquire or construct in the future, and (3) ethanol and fuel transportation assets that our parent currently owns or may acquire in the future, if our parent decides to sell any such assets. The consummation and timing of any

 

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acquisition of assets owned by our parent will depend upon, among other things, (1) our parent’s willingness to offer such asset for sale and its ability to obtain any necessary consents, (2) our determination that such asset is suitable for our business at that particular time, and (3) our ability to agree on a mutually acceptable price, negotiate definitive transaction documents and obtain financing. While our parent is not obligated to sell us any assets or promote and support the successful execution of our growth plan and strategy, we believe that our parent will be incentivized to serve as a critical source of our growth and will provide us with various growth opportunities in the future.

Competitive Strengths

We believe that the following competitive strengths position us to successfully execute our business strategies:

 

   

Long-Term Fee-Based Contracts with Minimum Volume or Capacity Commitments. A substantial portion of our revenues and cash flows will initially be derived from our commercial agreements with Green Plains Trade, including our (1) ten-year fee-based storage and throughput agreement, (2) six-year fee-based rail transportation services agreement, (3) Birmingham terminaling agreement and (4) various other terminaling and transportation agreements. Our storage and throughput agreement and certain of our terminaling agreements, including the Birmingham terminaling agreement, will be supported by minimum volume commitments, and our rail transportation services agreement will be supported by minimum take-or-pay capacity commitments.

 

   

Advantageous Relationship with Our Parent. We expect to be our parent’s primary downstream logistics service provider to support our parent’s approximately 1.2 bgy ethanol marketing and distribution business. Our parent has stated that it intends to expand its existing ethanol production plants, continue to pursue potential accretive acquisitions of additional ethanol production plants and further develop its downstream ethanol distribution services. We believe that our parent, as owner of a     % limited partner interest in us, all of our incentive distribution rights and our general partner, is motivated to promote and support the successful execution of our principal business objectives and to pursue projects that directly or indirectly enhance the value of our services business and assets. We expect this may be accomplished through the following means:

 

   

Organic Growth. Certain expansion projects that may be implemented by our parent at its ethanol production plants would enable us to utilize the strategic location and capacity of our assets and would increase annual throughput at our facilities. For example, our parent has announced that it is expanding production at its ethanol production plants by approximately 100 mmgy and will explore certain other expansion projects at its ethanol production plants in the future. We expect that our capital expenditures associated with such potential expansion projects will be minimal since our ethanol storage facilities have available capacity to accommodate growth in our parent’s throughput.

 

   

Accretive Acquisitions. We believe the U.S. ethanol production industry is poised for further consolidation and that our parent has the proven ability to identify, acquire and integrate accretive production assets. We intend to pursue strategic acquisitions independently and jointly with our parent to complement and grow our business. In addition, under our omnibus agreement, we will be granted a five-year right of first offer on any (1) ethanol storage or terminal assets that our parent may acquire or construct in the future, (2) fuel storage or terminal facilities that our parent may acquire or construct in the future, and (3) ethanol and fuel transportation assets that our parent currently owns or may acquire in the future, if our parent decides to sell any such assets.

 

   

Development of Downstream Distribution Services. We believe our parent will continue to use its logistical capabilities and expertise to develop its downstream ethanol distribution services. For example, we believe our parent will explore opportunities with third-party ethanol producers that

 

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would develop additional opportunities for downstream ethanol distribution services. We believe we will benefit from our parent’s marketing and distribution strategy due to the strategic location of our ethanol storage facilities and our fuel terminal facilities.

 

   

Favorable Industry Fundamentals and Growing Demand for Ethanol. Led by the United States, global ethanol production has grown significantly over recent years, as approximately 30 countries either mandate or incentivize ethanol and bio-diesel blending for motor fuels. Annual reported global production has increased from approximately 5.0 billion gallons in 2001 to approximately 24.6 billion gallons in 2014, according to the U.S. Energy Information Administration, or EIA, and the Renewable Fuels Association, or RFA. From 2001 to 2014, U.S. ethanol industry production grew from 1.8 billion gallons to 14.3 billion gallons, and today ethanol comprises approximately 10% of the U.S. gasoline market, according to the EIA. Furthermore, according to the EIA and RFA, the United States and Brazil are the two largest producers and exporters of ethanol in the world, with the United States accounting for approximately 58% of global production as of December 31, 2014. According to the RFA, as of January 2015, there were 213 ethanol plants in the United States, capable of producing an aggregate of 15.9 bgy of ethanol. We believe global demand for ethanol, as a proportion of total transportation fuels demand, will continue to increase due to a continuing focus on reducing reliance on petroleum-based transportation fuels.

 

   

Strategically-Located, Long-Lived Assets with Geographic Diversity and Low Operating and Capital Requirements. We benefit from a portfolio of relatively new storage and logistics assets that have expected remaining weighted average useful lives of over 20 years and are strategically located near major rail lines in seven U.S. states, enabling us to reach a broad and diverse geographic area. Additionally, the geographic diversity of our assets minimizes our exposure to weather-related downtime and transportation congestion. Given the nature of our asset portfolio, we expect to incur only modest operations and maintenance expenses as well as modest maintenance-related capital expenditures in the near future.

 

   

Proven Management Team. Our senior management team averages approximately 25 years of industry experience. We have specific expertise across all aspects of the ethanol supply, production and distribution chain—from agribusiness, to plant operations and management, to commodity markets, to ethanol marketing and distribution. We believe the level of operational and financial expertise of our management team will allow us to successfully execute our business strategies. Each member of our senior management team is an employee of our parent and will devote the portion of such member’s time to our business and affairs that is required to manage and conduct our operations.

 

   

Financial Flexibility. At the closing of this offering, we expect to enter into a 5-year $100 million revolving credit facility, which will remain undrawn at closing. We believe we will have the financial flexibility to execute our growth strategy through the available borrowing capacity under our new revolving credit facility and our ability to access the debt and equity capital markets.

Business Strategies

Our primary business objectives are to maintain stable and predictable cash flows and to increase our quarterly cash distribution per unit over time. We intend to accomplish these objectives by executing the following business strategies:

 

   

Generate Stable, Fee-Based Cash Flows. We intend to generate stable and predictable cash flows over time by providing fee-based logistics services. A substantial portion of our revenues and cash flows will initially be derived from our commercial agreements with Green Plains Trade, including our (1) ten-year fee-based storage and throughput agreement, (2) six-year fee-based rail transportation services agreement, (3) Birmingham terminaling agreement and (4) various other transportation and terminaling agreements. Our storage and throughput agreement and certain of our terminaling agreements, including the Birmingham terminaling agreement, will be supported by minimum volume commitments, and our rail transportation services agreement will be supported by minimum take-or-pay capacity

 

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commitments. Under these agreements, we will not have direct exposure to fluctuations in commodity prices. As we grow our business beyond our current assets and operations, we will seek to enter into similar fee-based contracts with our parent and third parties that generate stable and predictable cash flows.

 

   

Pursue Attractive Organic Growth Opportunities. We intend to enhance the profitability of our initial assets by pursuing, individually or with our parent, organic growth projects. For example, we believe certain expansion projects that may be implemented by our parent at its ethanol production plants would enable us to utilize the strategic location and capacity of our assets and would increase annual throughput at our facilities. We believe our capital expenditures associated with such potential expansion projects would be minimal since our ethanol storage facilities have available capacity to accommodate growth in our parent’s throughput. In addition, we expect to collaborate with our parent and other potential third-party customers to identify other growth opportunities to construct assets and build businesses that will enable them to pursue their business strategies while providing us with stable cash flows through fee-based service agreements.

 

   

Pursue Accretive Acquisitions. We intend to pursue strategic, accretive acquisitions of complementary assets from our parent and third parties. Under our omnibus agreement, we will be granted a five-year right of first offer on any (1) ethanol storage or terminal assets that our parent may acquire or construct in the future, (2) fuel storage or terminal facilities that our parent may acquire or construct in the future, and (3) ethanol and fuel transportation assets that our parent currently owns or may acquire in the future, if our parent decides to sell any such assets. In addition, we intend to continually monitor the marketplace, individually and in conjunction with our parent, to identify and pursue asset acquisitions from third parties that complement or diversify our existing operations. We expect to pursue both ethanol and other fuel storage and terminal assets, initially focusing on assets in close geographic proximity to our existing asset base.

 

   

Conduct Safe, Reliable and Efficient Operations. We are committed to maintaining the safety, reliability, environmental compliance and efficiency of our operations. All of our assets are staffed by experienced industry personnel. We, along with our parent, will also continue to focus on incremental operational improvements to enhance overall production results. We will seek to improve our operating performance through commitment to our preventive maintenance program along with employee training, safety and development programs. We believe these objectives are integral to maintaining stable cash flows and critical to the success of our business.

 

   

Maintain Financial Strength and Flexibility. We intend to maintain financial strength and flexibility, which should enable us to pursue acquisitions and new growth opportunities as they arise. We expect to have $         million of liquidity in the form of $         million of cash on hand and $100 million of undrawn borrowing capacity under our new revolving credit facility at the closing of this offering. We believe that our borrowing capacity and ability to access debt and equity capital markets after this offering will provide us with the financial flexibility necessary to achieve our organic and accretive acquisition growth strategies.

Our Parent

Our parent is a Fortune 1000, vertically-integrated producer, marketer and distributor of ethanol focused on generating stable operating margins through its diversified business segments and its risk management strategy and is the fourth largest ethanol producer in North America. Our parent believes that owning and operating strategically-located assets throughout the ethanol value chain enables it to mitigate changes in commodity prices and differentiates it from companies focused only on ethanol production. Our parent has operations throughout the ethanol value chain, beginning upstream with its grain handling and storage operations, continuing through its ethanol, distillers grains and corn oil production operations, and ending downstream with its marketing, terminal and distribution services.

 

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Our parent reviews its operations within four separate operating segments: (1) production of ethanol and distillers grains, collectively referred to as ethanol production, (2) corn oil production, (3) grain handling and storage and cattle feedlot operations, collectively referred to as agribusiness, and (4) marketing, merchant trading and logistics services for self-produced and third-party ethanol, distillers grains, corn oil and other commodities, collectively referred to as marketing and distribution. Our parent also is a partner in a joint venture to commercialize advanced photo-bioreactor technologies for growing and harvesting algal biomass.

Our parent has announced that it is expanding production at its ethanol production plants by approximately 100 mmgy and will explore certain other expansion projects at its ethanol production plants in the future. These expansion projects, when implemented, will enable us to utilize the strategic location and capacity of our assets and will increase annual throughput at our facilities. We expect that our capital expenditures associated with such potential expansion projects will be minimal since our ethanol storage facilities have available capacity to accommodate growth in our parent’s throughput. For more information related to our parent, please read “Business—Our Parent.”

While our relationship with Green Plains and its affiliates is a significant strength, it is also a source of potential risks and conflicts. Please read “Risk Factors—Risks Related to an Investment in Us” and “Conflicts of Interest and Duties.”

Our Assets and Operations

Our initial assets consist of the following:

Ethanol Storage Facilities. We own and operate 27 ethanol storage tanks, located at or near our parent’s twelve ethanol production plants, with a combined on-site ethanol storage capacity of approximately 26.6 mmg and aggregate throughput capacity of approximately 1,330 mmgy. For the year ended December 31, 2014 and the three months ended March 31, 2015, our ethanol storage assets had throughput of approximately 966.2 mmg and 232.5 mmg, respectively, which represents 95.6% and 92.4%, respectively, of our parent’s combined daily average production capacity. Our parent’s ethanol production plants are located in Indiana, Iowa, Michigan, Minnesota, Nebraska and Tennessee and have a combined ethanol production capacity of approximately 1.0 bgy. Each of our parent’s ethanol production plants are located adjacent to and have access to major rail lines. Our ethanol storage assets are the principal method of storing and loading the ethanol that our parent produces at its ethanol production plants for delivery to its customers. The chart below summarizes our parent’s ethanol production plant locations, along with our on-site ethanol storage capacity as of March 31, 2015, throughput for the year ended December 31, 2014 and the three months ended March 31, 2015, major rail line access and initial operation or acquisition date for each location:

 

Ethanol Production Plant
Location

  On-Site Ethanol
Storage  Capacity
(thousands of gallons)
    Throughput
Year  Ended
December 31, 2014

(mmg)(1)
    Throughput
Three Months  Ended

March 31, 2015
(mmg)(1)
    Major Rail Line
Access
  Initial Operation or
Acquisition Date(2)

Atkinson, Nebraska

    2,074        47        11      BNSF   Jun. 2013

Bluffton, Indiana

    3,000        113        28      Norfolk Southern   Sep. 2008

Central City, Nebraska

    2,250        106        26      Union Pacific   Jul. 2009

Fairmont, Minnesota

    3,124        101        23      Union Pacific   Nov. 2013

Lakota, Iowa

    2,500        106        26      Union Pacific   Oct. 2010

Obion, Tennessee

    3,000        116        27      Canadian National   Nov. 2008

Ord, Nebraska

    1,550        59        14      Union Pacific   Jul. 2009

Otter Tail, Minnesota

    2,000        44        12      BNSF   Mar. 2011

Riga, Michigan

    1,239        54        13      Norfolk Southern   Oct. 2010

Shenandoah, Iowa

    1,524        69        16      BNSF   Aug. 2007

Superior, Iowa

    1,238        54        12      Union Pacific   Jul. 2008

Wood River, Nebraska

    3,124        98        24      Union Pacific   Nov. 2013
 

 

 

   

 

 

   

 

 

     

Total (subject to rounding)

    26,623        966        232       
 

 

 

   

 

 

   

 

 

     

 

(1) Throughput for our storage facilities is equal to plant production at our parent’s ethanol production plants.
(2) The Bluffton, Obion, Shenandoah and Superior ethanol production plants were constructed by our parent. All other ethanol production plants were acquired by our parent.

 

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Fuel Terminal Facilities. We provide terminal services and logistics solutions through our fuel terminal facilities that we own and operate. These fuel terminal facilities, at eight locations in seven south-central U.S. states, have fuel holding tanks and access to major rail lines for transporting ethanol or other fuels. Additionally, the Birmingham facility is one of 20 facilities in the United States capable of efficiently receiving and offloading ethanol and other fuels from unit trains. Our fuel terminal facilities have a combined total storage capacity of approximately 7.4 mmg and, for the year ended December 31, 2014 and the three months ended March 31, 2015, had an aggregate throughput of approximately 324.8 mmg and 80.4, respectively. The chart below summarizes our fuel terminal facilities, along with our on-site storage capacity as of March 31, 2015, throughput for the year ended December 31, 2014 and the three months ended March 31, 2015, and major rail line access for each location:

 

Fuel Terminal Facility Location

   On-Site Storage
Capacity
(thousands of gallons)
     Throughput
Year Ended
December 31, 2014

(mmg)
     Throughput
Three Months
Ended March 31, 2015
(mmg)
     Major
Rail Line  Access
 

Birmingham, Alabama—Unit Train Terminal

     6,542         215         51         BNSF   

Other Fuel Terminal Facilities

     880         110         30         (1

 

(1) Major rail line access to our seven other fuel terminal facilities is available from BNSF, KCS, Canadian National, Union Pacific, Norfolk Southern and CSX.

Transportation Assets. Our transportation assets include a leased railcar fleet of approximately 2,200 railcars with an aggregate capacity of 66.3 mmg as of March 31, 2015 that is dedicated to transporting products under commercial agreements with our parent, including ethanol and other fuels, to refineries throughout the United States and international export terminals from our fuel terminal facilities or third-party production facilities. The remaining lease contract terms for our railcars range from less than one year to approximately six years, with a weighted average remaining term of 3.5 years as of December 31, 2014. We also operate three trucks dedicated to transporting ethanol and other fuels from receipt points identified by Green Plains Trade to nominated delivery points.

Our Emerging Growth Company Status

With less than $1.0 billion in revenue during our most recent fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may, for up to five years, take advantage of specified exemptions from reporting and other regulatory requirements that are otherwise applicable generally to public companies. These exemptions include:

 

   

presentation of only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations in the registration statement of which this prospectus is a part;

 

   

exemption from the auditor attestation requirement on the effectiveness of our system of internal control over financial reporting;

 

   

exemption from the adoption of new or revised financial accounting standards until they would apply to private companies;

 

   

exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer; and

 

   

reduced disclosure about executive compensation arrangements.

 

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We may take advantage of these provisions until we are no longer an emerging growth company, which will occur on the earliest of (i) the last day of the fiscal year following the fifth anniversary of this offering, (ii) the last day of the fiscal year in which we have more than $1 billion in annual revenue, (iii) the date on which we have more than $700 million in market value of our common units held by non-affiliates or (iv) the date on which we have issued more than $1 billion of non-convertible debt over a three-year period.

We have elected to take advantage of all of the applicable JOBS Act provisions, except that we will elect to opt out of the exemption that allows emerging growth companies to extend the transition period for complying with new or revised financial accounting standards. This election is irrevocable.

Accordingly, the information that we provide you may be different than what you may receive from other public companies in which you hold equity interests.

Risk Factors

An investment in our common units involves risks associated with our business, our partnership structure and the tax characteristics of our common units. You should carefully consider the following risk factors, the risks described in “Risk Factors” and the other information in this prospectus before investing in our common units. Please also read “Cautionary Note Concerning Forward-Looking Statements.”

 

   

We may not have sufficient cash from operations following the establishment of cash reserves and payment of fees and expenses, including cost reimbursements to our general partner and its affiliates, to enable us to pay the minimum quarterly distribution to our unitholders.

 

   

Our pro forma financial data are not necessarily representative of the results of what we would have achieved and may not be a reliable indicator of our future results.

 

   

The assumptions underlying the forecast of distributable cash flow that we include in “Our Cash Distribution Policy and Restrictions on Distributions” are inherently uncertain and are subject to significant business, economic, financial, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those forecasted.

 

   

The services we provide under commercial agreements with Green Plains Trade will initially account for a substantial portion of our revenues. Therefore, we will be subject to the business risks of Green Plains Trade and, as a result of its direct ownership by our parent, to the business risks of our parent. If Green Plains Trade is unable to satisfy its obligations under the commercial agreements with us for any reason, our revenues would decline and our financial condition, results of operations, cash flows and ability to make distributions to our unitholders would be adversely affected.

 

   

Green Plains Trade may suspend, reduce or terminate its obligations under the commercial agreements with us in certain circumstances, which could have a material adverse effect on our financial condition, results of operations, cash flows and ability to make distributions to our unitholders.

 

   

Our parent will own and control our general partner, which has sole responsibility for conducting our business and managing our operations. Our general partner and its affiliates, including our parent and Green Plains Trade, have conflicts of interest with us and limited duties to us and our unitholders, and they may favor their own interests to our detriment and that of our unitholders.

 

   

Our partnership agreement restricts the remedies available to holders of our common units and our subordinated units for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty.

 

   

Our unitholders have limited voting rights and are not entitled to elect our general partner or the board of directors of our general partner, which could reduce the price at which our common units will trade.

 

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Immediately effective upon the closing of this offering, unitholders will experience substantial dilution of $             in tangible net book value per common unit.

 

   

Our tax treatment depends on our status as a partnership for U.S. federal income tax purposes. If the Internal Revenue Service were to treat us as a corporation for U.S. federal income tax purposes, which would subject us to entity-level taxation, or if we were otherwise subjected to a material amount of additional entity-level taxation, then our distributable cash flow to our unitholders would be substantially reduced.

 

   

Even if our unitholders do not receive any cash distributions from us, our unitholders will be required to pay taxes on their share of our taxable income.

The Transactions

We were formed in March 2015 by our parent to provide ethanol and fuel storage, terminal and transportation services by owning, operating, developing and acquiring ethanol and fuel storage tanks, terminals, transportation assets and other related assets and businesses. In connection with this offering, our parent will contribute our Predecessor and our other initial assets and operations to us.

Additionally, each of the following transactions have occurred or will occur in connection with this offering:

 

   

we will issue             common units and             subordinated units to our parent, representing an aggregate     % limited partner interest in us, and a 2% general partner interest in us and all of our incentive distribution rights to our general partner;

 

   

we will issue             common units to the public in this offering, representing a     % limited partner interest in us, and will apply the net proceeds as described in “Use of Proceeds”;

 

   

we will enter into a new $100 million revolving credit facility;

 

   

we will enter into a storage and throughput agreement and two transportation services agreements with Green Plains Trade and assume terminaling agreements and leases for our railcars; and

 

   

we will enter into an omnibus agreement and an operational services and secondment agreement with our parent.

We have granted the underwriters a 30-day option to purchase up to an aggregate of             additional common units. If and to the extent the underwriters exercise their option to purchase additional common units, the number of common units purchased by the underwriters pursuant to such exercise will be issued to the public and the remainder of the          additional common units, if any, will be issued to our parent. Accordingly, any exercise of the underwriters’ option will not affect the total number of units outstanding or the amount of cash needed to pay the minimum quarterly distribution on all units. Any such common units issued to our parent will be issued for no additional consideration. The net proceeds from any exercise by the underwriters of their option to purchase additional common units from us will be distributed to our parent.

 

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Organizational Structure After the Transactions

After giving effect to the transactions described above under “—The Transactions,” assuming the underwriters’ option to purchase additional common units from us is not exercised, our ownership will be held as follows:

 

Public common units

         

Parent common units

         

Parent subordinated units

         

General partner interest

     2.0
  

 

 

 

Total

     100.0
  

 

 

 

The following diagram depicts our simplified organizational structure after giving effect to the transactions described above under “—The Transactions,” assuming the underwriters’ option to purchase additional common units from us is not exercised.

 

LOGO

 

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Management of Green Plains Partners LP

We are managed and operated by the board of directors and executive officers of Green Plains Holdings LLC, our general partner. Green Plains is the sole owner of our general partner and has the right to appoint the entire board of directors of our general partner, including the independent directors appointed in accordance with the listing standards of The NASDAQ Stock Market LLC, or NASDAQ. Unlike shareholders in a publicly-traded corporation, our unitholders will not be entitled to elect our general partner or the board of directors of our general partner. Many of the executive officers and directors of our general partner also currently serve as executive officers of Green Plains. For more information about the directors and executive officers of our general partner, please read “Management—Directors and Executive Officers of Green Plains Holdings LLC.”

In order to maintain operational flexibility, our operations will be conducted through, and our operating assets will be owned by, various operating subsidiaries. We may, in certain circumstances, contract with third parties to provide personnel in support of our operations. However, neither we nor our subsidiaries will have any employees. Our general partner is responsible for providing the personnel necessary to conduct our operations, whether through directly hiring employees or by obtaining the services of personnel employed by Green Plains, its affiliates or third parties. In addition, pursuant to the operational services and secondment agreement that will be entered into at the closing of this offering, certain of Green Plains’ employees (including our Chief Executive Officer) will be seconded to our general partner to provide management, maintenance and operational services with respect to our business under the direction and control of our general partner. Substantially all of the personnel that will conduct our business immediately following the closing of this offering will be employed or contracted by our general partner, but we sometimes refer to these individuals in this prospectus as our employees because they provide services directly to us. Please read “Management.”

Principal Executive Offices and Internet Address

Our principal executive offices are located at 450 Regency Parkway, Suite 400, Omaha, Nebraska 68114, and our telephone number is (402) 884-8700. Following the completion of this offering, our website will be located at www.greenplainspartners.com. We expect to make our periodic reports and other information filed with or furnished to the Securities and Exchange Commission, or SEC, available, free of charge, through our website, as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the SEC. Information on our website or any other website is not incorporated by reference into this prospectus and does not constitute a part of this prospectus.

Summary of Conflicts of Interest and Duties

Under our partnership agreement, our general partner has a duty to manage us in a manner it believes is in the best interests of our partnership. However, because our general partner is a wholly-owned subsidiary of Green Plains, the officers and directors of our general partner also have a duty to manage the business of our general partner in a manner that they believe is in the best interests of Green Plains. As a result of this relationship, conflicts of interest may arise in the future between us and our unitholders, on the one hand, and our general partner and its affiliates, including Green Plains, on the other hand. For example, our general partner will be entitled to make determinations that affect the amount of cash distributions we make to the holders of common units, which in turn has an effect on whether our general partner receives incentive distributions. In addition, our general partner may determine to manage our business in a way that directly benefits Green Plains’ businesses, rather than indirectly benefitting Green Plains solely through its ownership interests in us. All of these actions are permitted under our partnership agreement and will not be a breach of any duty (fiduciary or otherwise) of our general partner.

 

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Delaware law provides that Delaware limited partnerships may, in their partnership agreements, expand, restrict or eliminate the fiduciary duties otherwise owed by the general partner to limited partners and the partnership, provided that partnership agreements may not eliminate the implied contractual covenant of good faith and fair dealing. Our partnership agreement contains various provisions replacing the fiduciary duties that would otherwise be owed by our general partner with contractual standards governing the duties of the general partner and contractual methods of resolving conflicts of interest. The effect of these provisions is to restrict the remedies available to our unitholders for actions that might otherwise constitute breaches of our general partner’s fiduciary duties. Our partnership agreement also provides that affiliates of our general partner, including Green Plains, are not restricted from competing with us, and neither our general partner nor its affiliates have any obligation to present business opportunities to us. By purchasing a common unit, the purchaser agrees to be bound by the terms of our partnership agreement and consents to various actions and potential conflicts of interest contemplated in our partnership agreement that might otherwise be considered a breach of fiduciary or other duties under Delaware law. Please read “Conflicts of Interest and Duties—Duties of the General Partner” for a description of the fiduciary duties imposed on our general partner by Delaware law, the replacement of those duties with contractual standards under our partnership agreement and certain legal rights and remedies available to holders of our common units and subordinated units. For a description of our other relationships with our affiliates, please read “Certain Relationships and Related Party Transactions.”

 

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The Offering

 

Common units offered to the public

             common units.

 

               common units if the underwriters exercise in full their option to purchase additional common units from us.

 

Units outstanding after this offering

             common units and              subordinated units, representing an aggregate     % limited partner interest in us. The general partner will own a 2% general partner interest in us.

 

  The number of common units outstanding after this offering includes              common units that are available to be issued to the underwriters pursuant to their option to purchase additional common units from us. The number of common units purchased by the underwriters pursuant to any exercise of the option will be sold to the public. If the underwriters do not exercise their option to purchase additional common units, in whole or in part, any remaining common units not purchased by the underwriters pursuant to the option will be issued to our parent at the expiration of the option for no additional consideration. Accordingly, any exercise of the underwriters’ option, in whole or in part, will not affect the total number of common units outstanding or the amount of cash needed to pay the minimum quarterly distribution on all units.

 

Use of proceeds

We expect to receive net proceeds of approximately $             million from the sale of common units offered by this prospectus, based on an assumed initial public offering price of $             per common unit (the midpoint of the price range set forth on the cover page of this prospectus), after deducting underwriting discounts, structuring fees and estimated offering expenses. We intend to use the net proceeds from this offering as follows:

 

   

$             million will be distributed to our parent, in part, as a reimbursement for certain capital expenditures incurred with respect to our assets;

 

   

$             million will be used to pay origination fees under our new revolving credit facility; and

 

   

$             million will be retained by us for general partnership purposes.

 

  If the underwriters exercise their option to purchase additional common units in full, the additional net proceeds to us would be approximately $             million. The net proceeds from any exercise by the underwriters of their option to purchase additional common units from us will be distributed to our parent.

 

Cash distributions

We intend to make a minimum quarterly distribution of $             per unit for each whole quarter, or $             per unit on an annualized basis, to the extent we have sufficient cash at the end of each quarter after establishment of cash reserves and payment of fees and

 

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expenses, including payments to our general partner. We refer to the amount of such cash as “available cash.” Our ability to pay the minimum quarterly distribution is subject to various restrictions and other factors described in more detail under the caption “Our Cash Distribution Policy and Restrictions on Distributions.”

 

  In general, we will pay any cash distributions we make each quarter in the following manner:

 

   

first, 98% to the holders of common units and 2% to our general partner, until each common unit has received a minimum quarterly distribution of $             plus any arrearages from prior quarters;

 

   

second, 98% to the holders of subordinated units, and 2% to our general partner until each subordinated unit has received a minimum quarterly distribution of $             ; and

 

   

third, 98% to all unitholders, pro rata, and 2% to our general partner until each unit has received a distribution of $            .

 

  If cash distributions to our unitholders exceed              per unit in any quarter, our general partner will receive, in addition to its 2% general partner interest, increasing percentages, up to 48%, of the cash we distribute in excess of that amount. We refer to these distributions as “incentive distributions.” In certain circumstances, our general partner, as the initial holder of our incentive distribution rights, has the right to reset the target distribution levels described above to higher levels based on our cash distributions at the time of the exercise of this reset election. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions.”

 

  If we do not have sufficient available cash at the end of each quarter, we may, but are under no obligation to, borrow funds to pay the minimum quarterly distribution to our unitholders.

 

  We believe, based on our financial forecast and related assumptions included in “Our Cash Distribution Policy and Restrictions on Distributions—Estimated Distributable Cash Flow for the Twelve Months Ending June 30, 2016,” that we will generate sufficient distributable cash flow for the twelve months ending June 30, 2016 to support the payment of the minimum quarterly distribution of $             per unit on all of our common units and subordinated units and the corresponding distributions on our general partner’s 2% general partner interest. However, we do not have a legal obligation to pay distributions at our minimum quarterly distribution rate or at any other rate, subject to the requirement in our partnership agreement to distribute all of our available cash, and there is no guarantee that we will make quarterly cash distributions to our unitholders. Please read “Our Cash Distribution Policy and Restrictions on Distributions.”

 

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Subordinated units

Our parent will initially own all of our subordinated units. The principal difference between our common units and subordinated units is that for any quarter during the subordination period, the subordinated units will not be entitled to receive any distribution until the common units have received the minimum quarterly distribution for such quarter plus any arrearages in the payment of the minimum quarterly distribution from prior quarters during the subordination period. Subordinated units will not accrue arrearages.

 

Conversion of subordinated units

The subordination period will end on the first business day after the date that we have earned and paid distributions of at least (1) $             (the annualized minimum quarterly distribution) on each of the outstanding common units and subordinated units and the corresponding distribution on our general partner’s 2% general partner interest for each of three consecutive, non-overlapping four quarter periods ending on or after                     , 2018, or (2) $             (150% of the annualized minimum quarterly distribution) on each of the outstanding common units and subordinated units and the corresponding distribution on our general partner’s 2% general partner interest and the related distributions on the incentive distribution rights for any four-quarter period ending on or after                     , 2016, in each case provided there are no arrearages in payment of the minimum quarterly distributions on our common units at that time.

 

  The subordination period also will end upon the removal of our general partner other than for cause if no subordinated units or common units held by the holders of subordinated units or their affiliates are voted in favor of that removal.

 

  When the subordination period ends, each outstanding subordinated unit will convert into one common unit, and common units will no longer be entitled to arrearages. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—Subordinated Units and Subordination Period.”

 

Issuance of additional partnership interests

Our partnership agreement authorizes us to issue an unlimited number of additional partnership interests and the options, rights, warrants and appreciation rights relating to partnership interests on such terms and conditions as our general partner shall determine, in its sole distribution, without the approval of our unitholders. Our unitholders will not have preemptive or participation rights to purchase their pro rata share of any additional partnership interests issued. Please read “Units Eligible for Future Sale” and “Our Partnership Agreement—Issuance of Additional Securities.”

 

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Limited voting rights

Our general partner will manage and operate us. Unlike the holders of common stock in a corporation, our unitholders will have only limited voting rights on matters affecting our business. Our unitholders will have no right to elect our general partner or its directors on an annual or other continuing basis. Our general partner may not be removed except by a vote of the holders of at least 66 2/3% of the outstanding units, including any units owned by our general partner and its affiliates, voting together as a single class. Upon consummation of this offering, our parent will own     % of our total outstanding common units and subordinated units on an aggregate basis (or     % of our total outstanding common units and subordinated units on an aggregate basis, if the underwriters exercise in full their option to purchase additional common units). This will give our parent the ability to prevent the removal of our general partner. Please read “Our Partnership Agreement—Voting Rights.”

 

Limited call right

If at any time our general partner and its affiliates own more than 80% of the outstanding common units, our general partner has the right, but not the obligation, to purchase all of the remaining common units at a price equal to the greater of (1) the average of the daily closing price of our common units over the 20 trading days preceding the date that is three business days before notice of exercise of the call right is first mailed and (2) the highest per-unit price paid by our general partner or any of its affiliates for common units during the 90-day period preceding the date such notice is first mailed. At the completion of this offering and assuming the underwriters’ option to purchase additional common units from us is not exercised, our general partner and its affiliates will own approximately     % of our common units (excluding any common units purchased by directors, director nominees and executive officers of our general partner or of Green Plains Inc. under our directed unit program). At the end of the subordination period (which could occur as early as within the quarter ending                     , 2016), assuming no additional issuances of common units by us (other than upon the conversion of the subordinated units) and the underwriters’ option to purchase additional common units from us is not exercised, our general partner and its affiliates will own     % of our outstanding common units (excluding any common units purchased by directors, director nominees and executive officers of our general partner or of Green Plains Inc. under our directed unit program) and therefore would not be able to exercise the call right at that time. Please read “Our Partnership Agreement—Limited Call Right.”

 

Estimated ratio of taxable income to distributions

We estimate that if our unitholders own their common units purchased in this offering through the record date for distributions for the period ending December 31, 2017, our unitholders will be allocated, on a cumulative basis, an amount of federal taxable income for that period that will be 20% or less of the cash distributed to our unitholders with respect to that period. For example, if our

 

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unitholders receive an annual distribution of $1.00 per unit, we estimate that the average allocable federal taxable income per year will be no more than approximately $0.20 per unit. Thereafter, the ratio of allocable taxable income to cash distributions to our unitholders could substantially increase. Please read “Material U.S. Federal Income Tax Consequences—Tax Consequences of Unit Ownership—Ratio of Taxable Income to Distributions” for the basis of this estimate.

 

Material U.S. federal income tax consequences

Subject to the discussion under “Material U.S. Federal Income Tax Consequences—Partnership Status” and the limitations set forth therein, it is the opinion of Andrews Kurth LLP that we will be classified as a partnership for federal income tax purposes. As a result, we generally will incur no federal income tax liability. Instead, each of our unitholders will be required to take into account his share of items of our income, gain, loss and deduction in computing his federal income tax liability, regardless of whether cash distributions are made to him by us. Consequently, a unitholder may be liable for federal income taxes as a result of ownership of our units even if he has not received a cash distribution from us. Cash distributions by us to a unitholder generally will not give rise to income or gain.

 

  For a discussion of the material U.S. federal income tax consequences that may be relevant to prospective unitholders who are individual citizens or residents of the United States, please read “Material U.S. Federal Income Tax Consequences.”

 

Directed unit program

At our request, the underwriters have reserved for sale, at the initial public offering price, up to 6% of the common units being offered by this prospectus for sale to certain directors, director nominees, executive officers and employees of our general partner or of Green Plains Inc., and certain other persons. We do not know if these persons will choose to purchase all or any portion of these reserved common units, but any purchases they do make will reduce the number of common units available to the general public. Please read “Underwriting—Directed Unit Program.”

 

Exchange listing

We have applied to list our common units on the NASDAQ Global Market under the symbol “GPP.”

 

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SUMMARY HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED FINANCIAL AND OPERATING DATA

The following table shows summary historical condensed consolidated financial and operating data of BlendStar LLC and its subsidiaries, our predecessor for accounting purposes, or our Predecessor, and summary unaudited pro forma condensed consolidated financial and operating data of Green Plains Partners LP for the periods and as of the dates indicated. The summary historical condensed consolidated financial data of our Predecessor as of and for the years ended December 31, 2014 and 2013 are derived from the audited consolidated financial statements of our Predecessor appearing elsewhere in this prospectus. The summary historical interim condensed consolidated financial data of our Predecessor as of, and for the three months ended, March 31, 2015 and 2014, are derived from the unaudited interim consolidated financial statements of our Predecessor appearing elsewhere in this prospectus. The following tables should be read together with, and are qualified in their entirety by reference to, the historical consolidated and unaudited pro forma consolidated financial statements and the accompanying notes included elsewhere in this prospectus. The table should also be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The summary unaudited pro forma condensed consolidated financial and operating data presented in the following table for the year ended December 31, 2014, and as of, and for the three months ended, March 31, 2015 are derived from the unaudited pro forma consolidated financial statements included elsewhere in this prospectus. The unaudited pro forma consolidated balance sheet assumes the offering and the related transactions occurred as of March 31, 2015, and the unaudited pro forma consolidated statement of operations for the year ended December 31, 2014 and the three months ended March 31, 2015 assumes the offering and the related transactions occurred as of January 1, 2014.

The unaudited pro forma consolidated financial statements give effect to the following:

 

   

our parent’s contribution of our Predecessor and our other initial assets and operations;

 

   

our issuance of             common units and             subordinated units to our parent;

 

   

our issuance of             common units to the public in this offering, and application of the net proceeds as described in “Use of Proceeds;”

 

   

our entry into a new $100 million revolving credit facility;

 

   

our entry into a storage and throughput agreement and two transportation agreements with Green Plains Trade and our assumption of our terminaling agreements and our leases for our railcars; and

 

   

our entry into an omnibus agreement and an operational services and secondment agreement with our parent.

For the years ended December 31, 2014 and 2013 and the three months ended March 31, 2015, our assets were part of the integrated operations of our parent and our Predecessor’s affiliates generally recognized only the costs, but not the revenue, associated with certain of the services provided to our parent on an intercompany basis. The unaudited pro forma consolidated financial statements do not give effect to (i) an estimated $2.0 million of annual incremental general and administrative expenses that we expect to incur as a result of being a separate publicly-traded partnership or (ii) $0.4 million of annual incremental allocated general and administrative expenses and $2.9 million of annual incremental operations and maintenance expenses that we will incur under the omnibus agreement and the operational services and secondment agreement, respectively, that we will enter into with our parent as of the closing of this offering. For this reason, as well as the other factors described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting the Comparability of Our Financial Results,” our future results of operations will not be comparable to our Predecessor’s historical results.

 

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     BlendStar LLC Historical     Partnership
Pro Forma
 
     Three Months Ended
March 31,
    Year Ended
December 31,
    Three  Months
Ended
March 31,

2015
    Year Ended
December 31,

2014
 
         2015             2014             2014             2013          

(in thousands, except per unit and operating data)        

   (unaudited)                 (unaudited)  

Statements of Operations

            

Revenues

            

Affiliate revenues

   $ 1,311      $ 807      $ 4,359      $ 3,853      $ 19,957      $ 78,798   

Non-affiliate revenues

     2,085        2,069        8,484        7,179        2,085        8,484   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     3,396        2,876        12,843        11,032        22,042        87,282   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

            

Operations and maintenance expenses

     1,446        1,157        5,216        4,738        7,057        25,477   

General and administrative expenses

     196        265        1,403        1,296        196        1,403   

Depreciation and amortization expense

     557        656        2,568        2,731        1,335        5,596   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     2,199        2,078        9,187        8,765        8,588        32,476   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     1,197        798        3,656        2,267        13,454        54,806   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense)

            

Interest income

     21        20        75        50        21        75   

Interest expense

     (20     (28     (138     (768     (195     (840
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     1        (8     (63     (718     (174     (765
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     1,198        790        3,593        1,549        13,280        54,041   

Income tax expense

     446        300        1,339        587        —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     752        490        2,254        962        13,280        54,041   

Net income attributable to noncontrolling interests

     29        26        121        48        —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to the Partnership

   $ 723      $ 464      $ 2,133      $ 914        13,280      $ 54,041   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

General partner interest in net income

             $     

Common unitholders’ interest in net income

             $     

Subordinated unitholders’ interest in net income

             $     

Net income (loss) per common unit

             $     

Net income (loss) per subordinated unit

             $     

Balance Sheet Data (at period end)

            

Property and equipment, net

   $ 18,161        $ 18,568      $ 20,691      $ 39,380      $ 39,943   

Total assets

     43,704          45,980        44,350       

Total liabilities

     10,743          10,287        11,175        12,657        12,252   

Total member’s equity

     32,961          35,693        33,175       

Cash Flows Data

            

Net cash provided by (used in)

            

Operating activities

   $ 1,301      $ 1,211      $ 4,284      $ 2,474       

Investing activities

     (150     (385     (547     818       

Financing activities

     (3,484     224        264        (1,941    

Other Financial Data

            

Adjusted EBITDA

   $ 1,775      $ 1,474      $ 6,299      $ 5,048      $ 14,810      $ 60,477   

Operating Data

            

Product throughput (mmg)

            

Ethanol

     78.2        73.0        326.6        287.6        310.7        1,292.7   

Other fuels

     7.7        6.1        28.7        20.7        7.7        28.7   

Other products

     1.7        1.4        7.5        5.5        1.7        7.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     87.6        80.5        362.8        313.8        320.1        1,328.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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The following table presents the non-GAAP financial measure of Adjusted EBITDA, which we use in evaluating the performance of our business, and a reconciliation to our most directly-comparable financial measure calculated and presented in accordance with GAAP. For a definition of Adjusted EBITDA, please read “Selected Historical and Pro Forma Condensed Consolidated Financial and Operating Data—Non-GAAP Financial Measure.”

 

     BlendStar LLC Historical      Partnership
Pro Forma
 
     Three Months Ended
March 31,
     Year Ended
December 31,
     Three Months
Ended
March 31,

2015
     Year Ended
December 31,
2014
 
         2015              2014          2014      2013        

(in thousands)

   (unaudited)                    (unaudited)  

Reconciliation of Net Income to Adjusted EBITDA

                 

Net income

   $ 752       $ 490       $ 2,254       $ 962       $ 13,280       $ 54,041   

Add:

                 

Interest expense

     20         28         138         768         195         840   

Depreciation and amortization expense

     557         656         2,568         2,731      

 

1,335

  

     5,596   

Income tax expense

     446         300         1,339         587         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 1,775       $ 1,474       $ 6,299       $ 5,048       $ 14,810       $ 60,477   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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RISK FACTORS

Investing in our common units involves a high degree of risk. You should carefully consider the risks described below together with the other information set forth in this prospectus before making an investment decision. Any of the following risks and uncertainties could have a material adverse effect on our financial condition, results of operations, cash flows and ability to make distributions to our unitholders. If that occurs, we might not be able to pay distributions on our common units, the trading price of our common units could decline materially, and you could lose all or part of your investment. Although many of our business risks are comparable to those faced by a corporation engaged in a similar business, limited partner interests are inherently different from the capital stock of a corporation and involve additional risks described below. The risks discussed below are not the only risks we face. We may experience additional risks and uncertainties not currently known to us or as a result of developments occurring in the future. Conditions that we currently deem to be immaterial may also materially and adversely affect our financial condition, results of operations, cash flows and ability to make distributions to our unitholders.

Risks Related to Our Business and Industry

We may not have sufficient cash from operations following the establishment of cash reserves and payment of fees and expenses, including cost reimbursements to our general partner and its affiliates, to enable us to pay the minimum quarterly distribution to our unitholders.

In order to pay the minimum quarterly distribution of $         per unit per quarter, or $         per unit on an annualized basis, we will require available cash of approximately $         million per quarter, or approximately $         million per year, based on the 2% general partner interest and the number of common units and subordinated units to be outstanding immediately after completion of this offering. We may not have sufficient available cash each quarter to enable us to pay the minimum quarterly distribution. The amount of cash we can distribute on our units principally depends upon the amount of cash we generate from our operations, which will fluctuate from quarter to quarter based on, among other things:

 

   

the volume of ethanol and other fuels that we handle;

 

   

the fees with respect to the volumes and capacity that we handle;

 

   

our entitlement to payments associated with the minimum commitments under our commercial agreements with Green Plains Trade;

 

   

timely payments under the commercial agreements by Green Plains Trade and other third parties; and

 

   

prevailing economic conditions.

In addition, the actual amount of cash we will have available for distribution will also depend on other factors, some of which are beyond our control, including:

 

   

the amount of our operating expenses and general and administrative expenses, including reimbursements to our general partner in respect of those expenses;

 

   

the level of capital expenditures we make;

 

   

the cost of acquisitions and organic growth projects, if any;

 

   

our debt service requirements and other liabilities;

 

   

fluctuations in our working capital needs;

 

   

our ability to borrow funds and access capital markets;

 

   

restrictions that are expected to be contained in our new revolving credit facility and other debt service requirements;

 

   

the amount of cash reserves established by our general partner; and

 

   

other business risks affecting our cash levels.

 

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Our pro forma financial data are not necessarily representative of the results of what we would have achieved and may not be a reliable indicator of our future results.

Our pro forma financial data included in this prospectus may not reflect what our financial condition would have been had we been a standalone company during the periods presented or what our financial condition will be in the future. The pro forma financial data we have included in this prospectus are based in part upon a number of estimates and assumptions. These estimates and assumptions may prove not to be accurate, and accordingly, our pro forma financial data should not be assumed to be indicative of what our financial condition actually would have been as a standalone company and may not be a reliable indicator of what our financial condition actually may be in the future.

The assumptions underlying the forecast of distributable cash flow that we include in “Our Cash Distribution Policy and Restrictions on Distributions” are inherently uncertain and are subject to significant business, economic, financial, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those forecasted.

The forecast of distributable cash flow set forth in “Our Cash Distribution Policy and Restrictions on Distributions” includes our forecasted results of operations, Adjusted EBITDA and distributable cash flow for the twelve months ending June 30, 2016. Our ability to pay the full minimum quarterly distribution in the forecast period is based upon a number of assumptions that are discussed in “Our Cash Distribution Policy and Restrictions on Distributions” that may not prove to be correct. The forecast has been prepared by our management. Neither our independent registered public accounting firm nor any other independent accountants have examined, compiled or performed any procedures with respect to the forecast nor have they expressed any opinion or any other form of assurance on such information or its achievability, and they assume no responsibility for the forecast. The assumptions underlying the forecast are inherently uncertain and are subject to significant business, economic, financial, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those forecasted. If we do not achieve the forecasted results, we may not be able to pay the full minimum quarterly distribution or any amount on our common units or subordinated units, in which event the market price of our common units may decline materially. Please read “Our Cash Distribution Policy and Restrictions on Distributions.”

The services we provide under commercial agreements with Green Plains Trade will initially account for a substantial portion of our revenues. Therefore, we will be subject to the business risks of Green Plains Trade and, as a result of its direct ownership by our parent, to the business risks of our parent. If Green Plains Trade is unable to satisfy its obligations under the commercial agreements with us for any reason, our revenues would decline and our financial condition, results of operations, cash flows and ability to make distributions to our unitholders would be adversely affected.

We will enter into a storage and throughput agreement and two transportation services agreements with Green Plains Trade in connection with this offering. Green Plains Trade’s obligations under such commercial agreements will be guaranteed by our parent. Additionally, upon the contribution of BlendStar LLC to us at the closing of this offering, we will assume all of our Predecessor’s terminaling agreements with Green Plains Trade. The services we provide under commercial agreements with Green Plains Trade will initially account for a substantial portion of our revenues for the foreseeable future and therefore we will be subject to the risk of nonpayment or nonperformance by Green Plains Trade and our parent under the commercial agreements. Any event, whether related to our operations or otherwise, that materially and adversely affects Green Plains Trade’s or our parent’s financial condition, results of operations or cash flows may adversely affect our ability to sustain or increase cash distributions to our unitholders. Accordingly, we will be indirectly subject to the following operational and business risks of our parent and its subsidiaries (including Green Plains Trade), among others:

 

   

the price volatility of corn, natural gas, ethanol, distillers grains, corn oil and crude oil and our parent’s ability to manage the spread among the prices for such commodities;

 

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our parent’s risk management strategies, including hedging transactions that may limit its gain and expose it to other risks;

 

   

Green Plains Trade’s liquidity could be materially and adversely affected if third parties are unable to make payments for their sales;

 

   

the ethanol industry’s dependency on government usage mandates for blending ethanol with gasoline which influences ethanol production and ethanol prices;

 

   

our parent’s indebtedness may limit its ability to obtain additional financing, and our parent may also face difficulties complying with the terms of its debt agreements;

 

   

covenants and events of default in our parent’s debt agreements could limit its ability to undertake certain types of transactions and adversely affect its liquidity;

 

   

our parent has capital needs and planned and unplanned maintenance expenses for which its internally generated cash flows and other sources of liquidity may not be adequate;

 

   

the dangers inherent in our parent’s operations could cause disruptions and could expose our parent to potentially significant losses, costs or liabilities;

 

   

environmental risks, incidents and violations that could give rise to material remediation costs, fines and other liabilities;

 

   

our parent may incur significant costs to comply with state and federal environmental, economic, health and safety, energy and other laws, policies and regulations and any changes in those laws, policies and regulations;

 

   

a material decrease in the supply of corn available to our parent’s ethanol production plants could significantly reduce its production levels;

 

   

demand for ethanol is uncertain and may be affected by changes to federal mandates, public perception, consumer acceptance and overall consumer demand for transportation fuel which would affect our parent’s results of operations;

 

   

increased federal support of cellulosic ethanol may result in reduced competitiveness of our parent’s corn-derived ethanol production;

 

   

replacement technologies under development may result in the obsolescence of corn-derived ethanol or our parent’s process systems which would materially impact our parent’s operations, cash flow and financial position;

 

   

severe weather, including earthquakes, floods, fire and other natural disasters, could cause damage to our parent’s ethanol production plants, disrupt our parent’s operations or interrupt the supply of our parent’s corn supply for its ethanol production plants and our parent’s ability to distribute ethanol;

 

   

our parent could incur substantial costs or disruptions in its business if it cannot obtain or maintain necessary permits and authorizations on favorable terms;

 

   

Green Plains Trade could incur substantial penalties if it inadvertently traded or trades ethanol with invalid renewable identification numbers, or RINs;

 

   

our parent could incur substantial costs in order to generate or obtain the necessary number of RINs credits in connection with mandates to blend renewable fuels into the petroleum fuels produced and sold in the United States;

 

   

our parent may be required to provide remedies for the delivery of off-specification ethanol, distillers grains or corn oil;

 

   

competition in the ethanol industry is intense, and an increase in competition in the areas in which our parent’s ethanol is sold, or an increase in foreign ethanol production, could adversely affect our parent’s sales and profitability;

 

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general economic conditions;

 

   

our parent’s insurance policies do not cover all losses, costs or liabilities that our parent may experience;

 

   

our parent could be subject to damages based on claims brought by its customers or lose customers as a result of a failure of its products to meet certain quality specifications;

 

   

the loss by our parent of any of its key personnel; and

 

   

terrorist attacks, cyber-attacks, threats of war or actual war.

Any event that materially and adversely affects Green Plains Trade’s financial condition, results of operations or cash flows, including any event that materially and adversely affects our parent, may adversely affect our ability to sustain or increase cash distributions to our unitholders.

Ethanol production and marketing is a highly competitive business subject to changing market demands and regulatory environments. Any change in our parent’s business or financial strategy to meet such demands or requirements may negatively impact our parent’s financial condition, results of operations or cash flows and, in turn, may adversely affect our financial condition, results of operations, cash flows and ability to make distributions to our unitholders.

Ethanol production, storage and transportation, and marketing is highly competitive. In the United States, our parent’s operations compete with other corn processors and refiners. Some of our parent’s competitors are larger than our parent, and there are also many smaller competitors. Farm cooperatives comprised of groups of individual farmers have been able to compete successfully in the ethanol production industry. As of December 31, 2014, the top ten domestic producers accounted for approximately 52% of all production, with production capacities ranging from approximately 300 mmgy to 1,800 mmgy. If our parent’s competitors consolidate or otherwise grow or our parent is unable to similarly increase its size and scope, our parent’s business and prospects may be significantly and adversely affected. Additionally, there is a risk of foreign competition in the ethanol industry. Foreign producers, including those in Brazil, the second largest ethanol producer in the world, may be able to produce ethanol at lower input costs, including costs of feedstock, facilities and personnel, than our parent.

Additionally, our parent may consider opportunities presented by third parties with respect to its assets covering the ethanol value chain, including its ethanol production plants. These opportunities may include offers to purchase assets and joint venture propositions. Our parent may also change the focus of its operations by developing new facilities, suspending or reducing certain operations, modifying or closing facilities or terminating operations. Changes may be considered to meet market demands, to satisfy regulatory requirements or environmental and safety objectives, to improve operational efficiency or for other reasons. Our parent actively manages its assets and operations, and, therefore, changes of some nature, possibly material to its business relationship with us, are likely to occur at some point in the future. No such changes will be subject to our consent.

A change in our parent’s business or financial strategy, contractual obligations or risk profile may negatively impact its financial condition, results of operations, cash flows or creditworthiness. In turn, our cash flows from our commercial agreements with Green Plains Trade and, therefore, our ability to sustain or increase cash distributions to our unitholders may be materially and adversely affected. Moreover, our credit rating may be adversely affected by a decline in our parent’s creditworthiness, increasing our borrowing costs or hindering our ability to access the capital markets. Please read “—Our parent’s existing debt arrangements requiring it to abide by certain restrictive loan covenants may adversely affect our ability to grow our business, our ability to pay cash distributions to our unitholders and our credit ratings and profile. Our ability to obtain credit in the future may also be affected by our parent’s credit ratings.” A third-party purchaser may identify alternative service providers and opt for minimum volume commitments or minimum take-or-pay capacity commitments or decide to allow the commercial agreements to expire at the end of the original term. Such third party may also operate the ethanol production plants in a suboptimal manner, increasing the frequency of turnarounds and reducing capacity utilization.

 

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Furthermore, conflicts of interest may arise between our general partner and its affiliates, including our parent and Green Plains Trade, on the one hand, and us and our unitholders, on the other hand. Please read “—Green Plains Trade may suspend, reduce or terminate its obligations under the commercial agreements with us in certain circumstances, which could have a material adverse effect on our financial condition, results of operations, cash flows and ability to make distributions to our unitholders.”

We have no control over our parent or Green Plains Trade, which are currently our primary source of revenue and primary customers, and our parent and Green Plains Trade may elect to pursue a business strategy that does not favor us and our business. Please read “Risk Factors—Risks Related to an Investment in Us.”

Our substantial dependence on our parent’s ethanol production plants could adversely affect our financial condition, results of operations, cash flows and ability to make distributions to our unitholders.

We believe that a substantial portion of our revenues for the foreseeable future will be derived from operations supporting our parent’s ethanol production plants. Any event that renders these ethanol production plants temporarily or permanently unavailable or that temporarily or permanently reduces production rates at any of these ethanol production plants could adversely affect our financial condition, results of operations, cash flows and ability to make distributions to our unitholders.

Green Plains Trade may suspend, reduce or terminate its obligations under the commercial agreements with us in certain circumstances, which could have a material adverse effect on our financial condition, results of operations, cash flows and ability to make distributions to our unitholders.

All of our commercial agreements with Green Plains Trade include provisions that permit Green Plains Trade to suspend, reduce or terminate its obligations under the agreements if certain events occur. Under all of our commercial agreements, these events include a material breach of such agreements by us, the occurrence of certain force majeure events that would prevent Green Plains Trade or us from performing our respective obligations under the applicable commercial agreement and the minimum commitment, if any, not being available to Green Plains Trade for any reason not resulting from or relating to an action or inaction by Green Plains Trade.

As defined in each of our commercial agreements, force majeure events include any acts or occurrences that prevent services from being performed under the applicable commercial agreement, such as:

 

   

federal, state, county, or municipal orders, rules, legislation, or regulations;

 

   

acts of God, including fires, floods, storms, earthquakes or other severe weather events;

 

   

compliance with orders of courts or any governmental authorities;

 

   

explosions, wars, terrorist acts or riots;

 

   

strikes, lockouts or other industrial disturbances; and

 

   

events or circumstances similar to those above (including disruption of service provided by third parties) that prevent a party’s ability to perform its obligations under the agreement, to the extent that such events or circumstances are beyond the party’s reasonable control.

Accordingly, under the commercial agreements there will be a broad range of events that could result in our no longer being required to store, throughput or transport Green Plains Trade’s minimum commitments and Green Plains Trade no longer being required to pay the full amount of fees that would have been associated with its minimum commitments. Additionally, we have no control over the business decisions of our parent or Green Plains Trade, and conflicts of interest may arise between our general partner and its affiliates, including our parent and Green Plains Trade, on the one hand, and us and our unitholders, on the other hand. Neither our parent nor Green Plains Trade is required to pursue a business strategy that favors us or utilizes our assets and they

 

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could elect to decrease ethanol production or shutdown or reconfigure an ethanol production plant. Furthermore, a single event or business decision relating to one of our parent’s ethanol production plants could have an impact on the commercial agreements with us. These actions, as well the other activities described above, could result in a reduction or suspension of Green Plains Trade’s obligations under the commercial agreements. Any such reduction or suspension would have a material adverse effect on our financial condition, results of operations, cash flows, and ability to make distributions to our unitholders. Please read “Certain Relationships and Related Party Transactions—Agreements with Affiliates in Connection with the Transactions—Commercial Agreements.”

If Green Plains Trade satisfies only its minimum commitments under the commercial agreements between Green Plains Trade and us that provide for minimum commitments, or if we are unable to renew or extend any commercial agreements with Green Plains Trade, our ability to make distributions to our unitholders will be reduced.

Neither our parent nor Green Plains Trade is obligated to use our services with respect to volumes or volumetric capacity of ethanol or other fuels in excess of the applicable minimum commitment under the respective commercial agreements. Our ability to distribute the minimum quarterly distribution to our unitholders will be adversely affected if we do not receive, store, transfer, transport or deliver additional volumes or use volumetric capacity for Green Plains Trade or other third parties at our ethanol storage facilities, at our fuel terminal facilities or on our railcars.

In addition, the remaining primary term of Green Plains Trade’s obligations under each agreement extends for ten years in the case of the storage and throughput agreement, up to approximately 2.5 years in the case of the terminaling agreements that provide for minimum commitments, six years in the case of the rail transportation services agreement and one year in the case of the trucking transportation agreement, from the completion of this offering. If, at the end of the remaining primary term, our parent and Green Plains Trade elect not to extend these agreements and, as a result, fail to use our assets and we are unable to generate additional revenues from third parties, our ability to pay cash distributions to our unitholders will be reduced. Furthermore, any renewal of the commercial agreements with Green Plains Trade may not be on favorable commercial terms. For example, depending on prevailing market conditions at the time of contract renewal, Green Plains Trade may desire to enter into contracts under different fee arrangements. To the extent we are unable to renew the commercial agreements with Green Plains Trade on terms that are favorable to us, our revenue and cash flows could decline and our ability to pay cash distributions to our unitholders could be materially and adversely affected.

We do not own our railcar fleet and our railcar assets are subject to lease agreements with several lessors. As our railcar leases expire, Green Plains Trade’s minimum take-or-pay capacity commitment will be reduced proportionately. If we do not enter into new commercial arrangements with respect to rail transportation services, our ability to make distributions to our unitholders may be reduced.

Our fleet of railcars is leased by us from several lessors pursuant to lease agreements with remaining terms ranging from less than one year to approximately six years with a weighted average term of 3.5 years as of December 31, 2014. As our railcar lease agreements expire, the respective volumetric capacity of those expired leases will no longer be subject to the rail transportation services agreement, and Green Plains Trade’s minimum take-or-pay capacity commitment will be reduced proportionately. 4.6%, 41.4%, 5.1% and 10.4% of the railcar volumetric capacity of our current leased railcar fleet have terms that will expire in the years ended December 31, 2015, 2016, 2017 and 2018, respectively, or approximately 61.5% of our total current railcar volumetric capacity during that time frame. If at the end of the terms under the lease agreements we do not enter into new commercial arrangements with respect to rail transportation services, our revenues and cash flows could decline and our ability to pay cash distributions to our unitholders could be materially and adversely affected.

 

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Railcars used to transport ethanol and other fuels may need to be retrofitted or replaced to meet new rail safety standards.

The U.S. ethanol industry has long relied on railroads to deliver its product to market. We have approximately 2,200 leased railcars. On May 1, 2015, the U.S. Department of Transportation (“DOT”), through its Pipeline and Hazardous Materials Safety Administration (“PHMSA”) and Federal Railroad Administration (“FRA”), and in coordination with Transport Canada, announced the final rule, “Enhanced Tank Car Standards and Operational Controls for High-Hazard Flammable Trains”. The rule calls for an enhanced tank car standard known as the DOT specification 117, or DOT-117 tank car, and establishes a schedule for retrofitting or replacing older tank cars carrying crude oil and ethanol. The rule also establishes new braking standards that are intended to reduce the severity of accidents and the so-called “pile-up effect”. Under prescribed circumstances, new operational protocols apply including reduced speed, routing requirements and local government notifications. In addition, persons that offer hazardous material for transportation must develop more accurate classification protocols. These regulations will result in upgrades or replacements of our railcars, and will likely have an adverse effect on our operations as lease costs for railcars will likely increase. Additionally, existing railcars could be out of service for a period of time while such upgrades are made, tightening supply in an industry that is highly dependent on such railcars to transport its product.

Rail logistical problems may cause delays in the transportation of our products which could negatively impact our financial performance.

There has been an increase in rail traffic congestion throughout the United States primarily due to the increase in cargo trains carrying crude oil from shale plays. High demand and an unusually harsh winter resulted in rail delays and rail logistical problems during the year ended December 31, 2014. Rail delays have caused some ethanol plants to slow or suspend production. Due to the location of our parent’s ethanol production plants, we were not materially affected by these logistical problems. However, if inadequate rail logistics continue to persist, we may face delays in returning railcars to our parent’s ethanol production plants, which may affect our ability to transport product, which in turn could have a negative effect on our financial performance.

The ethanol industry is dependent on government usage mandates affecting ethanol production and any changes to such regulation could adversely affect the market for ethanol and our results of operations.

The domestic market for ethanol is impacted by federal mandates for blending ethanol with gasoline. The RFS II statutory mandate level for conventional biofuels for 2014 was 14.4 billion gallons. Future demand will be largely dependent upon the economic incentives to blend based upon the relative value of gasoline versus ethanol, taking into consideration the relative octane value of ethanol, environmental requirements and the RFS II mandate. Any significant increase in production capacity beyond the RFS II mandated level may have an adverse impact on ethanol prices.

Due primarily to drought conditions in 2012 and claims that the blending of ethanol into the motor fuel supply would be constrained by the market’s unwillingness to accept greater than ten percent ethanol blends, or the blend wall, legislation aimed at reducing or eliminating the renewable fuel use required by RFS II was introduced in Congress. On April 10, 2013 the Renewable Fuel Standard Elimination Act was introduced as H.R. 1461. The bill was intended to repeal RFS II. Also introduced on April 10, 2013 was the RFS Reform Bill, H.R. 1462, which would have prohibited more than ten percent ethanol in gasoline and reduced the RFS II mandated volume of renewable fuel. On May 14, 2013, the Domestic Alternatives Fuels Act of 2013 was introduced in the U.S. House of Representatives as H.R. 1959 to allow ethanol produced from natural gas to be used to meet the RFS II mandate. These bills failed to make it out of congressional committee and were not enacted into law. We believe RFS II is a significant component of national energy policy that reduces dependence on foreign oil by the United States. Our parent’s operations could be adversely impacted if legislation reducing the RFS II mandate is enacted, which could in turn adversely impact our business.

 

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Additionally, under the provisions of the Energy Independence and Security Act of 2007, or EISA, the U.S. Environmental Protection Agency, or EPA, has the authority to waive the mandated RFS II requirements in whole or in part. To grant the waiver, the EPA administrator must determine, in consultation with the Secretaries of Agriculture and Energy, that one of two conditions has been met: (1) there is inadequate domestic renewable fuel supply or (2) implementation of the requirement would severely harm the economy or environment of a state, region or the United States.

On November 21, 2014, the EPA announced that it would not finalize 2014 applicable percentage standards under the RFS II before the end of 2014. In light of this delay in issuing the 2014 RFS standards, the compliance demonstration deadline for the 2013 RFS standards will take place in 2015. The EPA will be making modifications to ensure that RINs generated in 2012 are valid for demonstrating compliance with the 2013 applicable standards. The EPA recently reached a settlement in connection with a lawsuit filed against the agency in March 2015 by the American Petroleum Institute and the American Fuel and Petrochemical Manufacturers alleging that the EPA failed to meet congressionally-mandated RFS deadlines. On May 29, 2015, the EPA proposed volume requirements for 2014, 2015 and 2016. The proposed renewable volume obligations of conventional ethanol to be blended into the U.S. fuel supply are 13.2 billion gallons for 2014, 13.4 billion gallons for 2015 and 14.0 billion gallons for 2016. There is a comment period open until July 27, 2015, with a public hearing in Kansas City on June 25, 2015. The EPA is obligated by consent decree to finalize the renewable volume obligations by November 30, 2015.

To measure compliance with RFS II, Renewable Identification Numbers (“RINs”) are generated and are attached to renewable fuels, such as the ethanol our parent produces and that we store, and detached when the renewable fuel is blended into the transportation fuel supply. Detached RINs may be retired by obligated parties to demonstrate compliance with RFS II or may be separately traded in the market. The market price of detached RINs may affect the price of ethanol in certain U.S. markets as obligated parties may factor these costs into their purchasing decisions. Moreover, at certain price levels for various types of RINs, it becomes more economical to import foreign sugar cane ethanol. If changes to RFS II result in significant changes in the price of various types of RINs, it could negatively affect the price of ethanol, which could adversely affect our parent’s operations, which could in turn adversely impact our business.

Federal law mandates the use of oxygenated gasoline in the winter in areas that do not meet Clean Air Act standards for carbon monoxide. If these mandates are repealed, the market for domestic ethanol could be diminished. Additionally, flexible-fuel vehicles receive preferential treatment in meeting corporate average fuel economy standards, or CAFE standards. However, high blend ethanol fuels such as E85, a blend of ethanol and gasoline composed of up to 85% ethanol, result in lower fuel efficiencies. Absent the CAFE preferences, it may be unlikely that auto manufacturers would build flexible-fuel vehicles. Any change in these CAFE preferences could reduce the growth of E85 markets and result in lower ethanol prices, which could adversely impact our parent’s, and consequently our, operating results.

To the extent that such federal or state laws or regulations are modified, the demand for ethanol may be reduced, which could negatively and materially affect our ability to operate profitably.

We may not be able to increase our third-party revenues significantly or at all due to competition and other factors, which could limit our ability to grow and extend our dependence on our parent.

Part of our growth strategy includes diversifying our customer base by acquiring or developing new assets independently from our parent. Our ability to increase our third-party revenue is subject to numerous factors beyond our control, including competition from third parties and the extent to which we lack available capacity when third parties require it.

We can provide no assurance that we will be able to attract any material third-party service opportunities. Our efforts to attract new unaffiliated customers may be adversely affected by (1) our relationship with our

 

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parent, (2) our desire to provide services pursuant to fee-based contracts, (3) our parent’s operational requirements at its ethanol production plants and (4) our expectation that our parent will continue to utilize substantially all of the available capacity of our assets. Our potential customers may prefer to obtain services under other forms of contractual arrangements under which we would be required to assume direct commodity exposure. In addition, we will need to establish a reputation among our potential customer base for providing high-quality service in order to successfully attract unaffiliated third parties.

If we are unable to make acquisitions on economically acceptable terms from third parties, our future growth would be limited, and any acquisitions we may make may reduce, rather than increase, our cash flows and ability to make distributions to our unitholders.

A portion of our strategy to grow our business and increase distributions to our unitholders is dependent on our ability to acquire businesses or assets that increase our cash flows. The acquisition component of our growth strategy is based, in large part, on our expectation of ongoing divestitures of complementary assets by industry participants, including in conjunction with acquisitions by our parent. A material decrease in such divestitures would limit our opportunities for future acquisitions and could adversely affect our ability to grow our operations and increase cash distributions to our unitholders. If we are unable to make acquisitions from third parties because we are unable to identify attractive acquisition candidates, negotiate acceptable purchase contracts, obtain financing for these acquisitions on economically acceptable terms or we are outbid by competitors, our future growth and ability to increase distributions will be limited. Furthermore, even if we do consummate acquisitions that we believe will be accretive, they may in fact result in a decrease in cash flows. Any acquisition involves potential risks, including, among other things:

 

   

mistaken assumptions about revenues and costs, including synergies;

 

   

an inability to integrate successfully the businesses or assets we acquire;

 

   

the assumption of unknown liabilities;

 

   

limitations on rights to indemnity from the seller;

 

   

mistaken assumptions about the overall costs of equity or debt financing;

 

   

the diversion of management’s attention from other business concerns;

 

   

unforeseen difficulties operating in new product areas or new geographic areas; and

 

   

customer or key employee losses at the acquired businesses.

If we consummate any future acquisitions, our capitalization and results of operations may change significantly, and our unitholders will not have the opportunity to evaluate the economic, financial and other relevant information that we will consider in determining the application of these funds and other resources.

Our right of first offer to acquire any of our parent’s new ethanol storage assets, fuel terminal facilities or ethanol or transportation fuel assets is subject to risks and uncertainty, and ultimately we may not acquire any of those assets.

Under our omnibus agreement we will be granted a five-year right of first offer on any (1) ethanol storage or terminal assets that our parent may acquire or construct in the future, (2) on any fuel storage or terminal facilities that our parent may acquire or construct in the future, and (3) ethanol and fuel transportation assets that our parent currently owns or may acquire in the future, before selling or transferring any of those assets to any third party. We do not have a current agreement or understanding with our parent to purchase any assets covered by our right of first offer. The consummation and timing of any future acquisitions of these assets will depend upon, among other things, our parent’s willingness to offer these assets for sale, our ability to negotiate acceptable purchase agreements and commercial agreements with respect to the assets and our ability to obtain financing on acceptable terms. We can offer no assurance that we will be able to successfully consummate any future acquisitions pursuant to our right of first offer. In addition, certain of the assets may require substantial capital

 

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expenditures in order to maintain compliance with applicable regulatory requirements or otherwise make them suitable for our commercial needs. For these or a variety of other reasons, we may decide not to exercise our right of first offer if and when any assets are offered for sale. Our decision will not be subject to unitholder approval. Please read “Certain Relationships and Related Party Transactions—Agreements with Affiliates in Connection with the Transactions—Omnibus Agreement.”

Any inability to maintain required regulatory permits may impede or completely prohibit our parent’s and our operations. Additionally, any change in environmental and safety regulations, or violations thereof, could impede each of our parent’s and our ability to successfully operate our respective businesses.

Our and our parent’s operations are subject to extensive air, water and other environmental regulation. Our parent has had to obtain a number of environmental permits to construct and operate its ethanol production plants. Ethanol production involves the emission of various airborne pollutants, including particulate, carbon dioxide, oxides of nitrogen, hazardous air pollutants and volatile organic compounds. In addition, the governing state agencies could impose conditions or other restrictions in the permits that are detrimental to our parent and us or which increase our parent’s costs above those required for profitable operations. Any such event could have a material adverse effect on our operations, cash flows and financial position.

Environmental laws and regulations, both at the federal and state level, are subject to change and changes can be made retroactively. It is possible that more stringent federal or state environmental rules or regulations could be adopted, which could increase our operating costs and expenses. Consequently, even if we and our parent have the proper permits at the present time, each of us may be required to invest or spend considerable resources to comply with future environmental regulations. Furthermore, ongoing operations are governed by the U.S. Occupational Safety and Health Administration, or OSHA. OSHA regulations may change in a way that increases each of our costs of operations. If any of these events were to occur, they could have an adverse impact on our operations, cash flows and financial position.

Part of our business is regulated by environmental laws and regulations governing the labeling, use, storage, discharge and disposal of hazardous materials. Because we use and handle hazardous substances in our businesses, changes in environmental requirements or an unanticipated significant adverse environmental event could have an adverse effect on our business. While we strive to ensure compliance, we cannot assure you that we have been, or will at all times be, in compliance with all environmental requirements, or that we will not incur material costs or liabilities in connection with these requirements. Private parties, including current and former employees, could bring personal injury or other claims against us due to the presence of, or exposure to, hazardous substances used, stored or disposed of by us, or contained in its products. We are also exposed to residual risk because some of our facilities and land may have environmental liabilities arising from their prior use. In addition, changes to environmental regulations may require us to modify existing facilities and could significantly increase the cost of those operations.

Restrictions in our new revolving credit facility could adversely affect our business, results of operations, ability to make distributions to our unitholders and the value of our units.

We will be dependent upon the earnings and cash flow generated by our operations in order to meet our debt service obligations and to allow us to pay cash distributions to our unitholders. The operating and financial restrictions and covenants in our new revolving credit facility or in any future financing agreements could restrict our ability to finance future operations or capital needs or to expand or pursue our business activities, which may, in turn, limit our ability to pay cash distributions to our unitholders. For example, we expect our new revolving credit facility will restrict our ability to, among other things:

 

   

make certain cash distributions;

 

   

incur certain indebtedness;

 

   

create certain liens;

 

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make certain investments;

 

   

merge or sell certain of our assets; and

 

   

expand the nature of our business.

Furthermore, we expect that our new revolving credit facility will contain covenants requiring us to maintain certain financial ratios. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources and Liquidity—Credit Facility” for additional information about our new revolving credit facility.

The provisions of our new revolving credit facility may affect our ability to obtain future financing and pursue attractive business opportunities and our flexibility in planning for, and reacting to, changes in business conditions. In addition, a failure to comply with the provisions of our new revolving credit facility could result in an event of default that could enable our lenders, subject to the terms and conditions of our new revolving credit facility, to declare the outstanding principal of that debt, together with accrued interest, to be immediately due and payable and/or to proceed against the collateral granted to them to secure such debt. If there is a default or event of default under our debt the payment of our debt is accelerated, defaults under our other debt instruments, if any, may be triggered, and our assets may be insufficient to repay such debt in full. Therefore, the holders of our units could experience a partial or total loss of their investment. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources and Liquidity.”

Debt we incur in the future may limit our flexibility to obtain financing and to pursue other business opportunities.

Our future level of debt could have important consequences to us, including the following:

 

   

our ability to obtain additional financing, if necessary, for working capital, capital expenditures or other purposes may be impaired, or such financing may not be available on favorable terms;

 

   

our funds available for operations, future business opportunities and distributions to our unitholders will be reduced by that portion of our cash flow required to service our debt;

 

   

we may be more vulnerable to competitive pressures or a downturn in our business or the economy generally; and

 

   

our flexibility in responding to changing business and economic conditions may be limited.

Our ability to service our debt will depend upon, among other things, our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control. If our operating results are not sufficient to service any future debt, we will be forced to take actions such as reducing distributions, reducing or delaying our business activities, acquisitions, organic growth projects, investments or capital expenditures, selling assets or issuing equity. We may not be able to effect any of these actions on satisfactory terms or at all.

Our parent’s existing debt arrangements requiring it to abide by certain restrictive loan covenants may adversely affect our ability to grow our business, our ability to pay cash distributions to our unitholders and our credit ratings and profile. Our ability to obtain credit in the future may also be affected by our parent’s credit ratings.

Our parent must devote a portion of its cash flows from operating activities to service its indebtedness. A higher level of indebtedness at our parent in the future increases the risk that its subsidiary, Green Plains Trade, may default on its obligations under the commercial agreements with us. As of March 31, 2015, our parent had long-term indebtedness and capitalized lease obligations (including current portion) of approximately $460 million. Despite its current debt levels, our parent and its subsidiaries may incur additional debt in the future, including secured debt. Our parent and certain of its subsidiaries (including Green Plains Trade) are not currently

 

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restricted under the terms of its debt from incurring additional debt, pledging assets, recapitalizing its debt or taking a number of other actions that are not limited by the terms of the debt but that could diminish its ability to make payments thereunder.

Our parent’s existing and future debt arrangements, as applicable, may limit its ability to, among other things, incur additional indebtedness, make capital expenditures above certain limits, pay dividends or distributions, merge or consolidate, or dispose of substantially all of its assets, and may directly or indirectly impact our operations in a similar manner. Our parent is also required to maintain specified financial ratios, including minimum cash flow coverage, minimum working capital and minimum net worth. Some of its loan agreements require it to utilize a portion of any excess cash flow generated by operations to prepay the respective term debt. A breach of any of these covenants or requirements could result in a default under its loan agreements. If any of its subsidiaries default, and if such default is not cured or waived, our parent’s lenders could, among other remedies, accelerate their debt and declare that debt immediately due and payable. If this occurs, our parent may not be able to repay such debt or borrow sufficient funds to refinance. Even if new financing is available, it may not be on terms that are acceptable. No assurance can be given that the future operating results of our parent’s subsidiaries will be sufficient to achieve compliance with such covenants and requirements, or in the event of a default, to remedy such default.

Furthermore, our parent granted liens on substantially all of its assets as part of the terms of its outstanding indebtedness. Thus, in the event that our parent was to default under certain of its debt obligations, there is a risk that our parent’s creditors would assert claims against us with respect to our contracts with Green Plains Trade, our parent’s assets, and Green Plains Trade’s ethanol and other product we throughput and handle during the litigation of their claims. The defense of any such claims could be costly and could materially impact our financial condition, even absent any adverse determination. In the event these claims were successful, Green Plains Trade’s ability to meet its obligations under our commercial agreements and our ability to make distributions and finance our operations could be materially adversely affected.

If rating agencies downgrade our parent’s credit rating or if disruptions in credit markets were to occur, the cost of debt under its existing financing arrangements, as well as future financing arrangements and borrowings, could increase. Access to capital markets could become unavailable or may only be available under less favorable terms. A downgrade of our parent’s credit ratings may also affect its ability to trade with various commercial counterparties, including us, or cause its counterparties, including us, to require other forms of credit support. In addition, although we will not have any indebtedness rated by any credit rating agency at the closing of this offering, we may have rated debt in the future. Credit rating agencies will likely consider our parent’s debt ratings when assigning ours because of the significant commercial relationship between our parent and us, and our reliance on our parent for a substantial portion of our revenues. If one or more credit rating agencies were to downgrade the outstanding indebtedness of our parent, we could experience an increase in our borrowing costs or difficulty accessing the capital markets. Such a development could adversely affect our financial condition, results of operations, cash flows and ability to make distributions to our unitholders.

Our assets and operations are subject to federal, state, and local laws and regulations relating to environmental protection and safety that could require us to make substantial expenditures which could have a material adverse effect on our financial condition, results of operations, cash flows and ability to make distributions to our unitholders.

Our assets and operations involve the receipt, storage, transfer, transportation and delivery of ethanol and other fuels, which is subject to increasingly stringent federal, state and local laws and regulations governing operational safety and the discharge of materials into the environment. Our business involves the risk that ethanol and other fuels may gradually or suddenly be released into the environment. To the extent not covered by insurance or an indemnity, responding to the release of regulated substances, including releases caused by third parties, into the environment may cause us to incur potentially material expenditures related to response actions,

 

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government penalties, natural resources damages, personal injury or property damage claims from third parties and business interruption.

Our operations are also subject to increasingly strict federal, state and local laws and regulations related to protection of the environment that require us to comply with various safety requirements regarding the design, installation, testing, construction and operational management of our assets. Compliance with such laws and regulations may cause us to incur potentially material capital expenditures associated with the construction, maintenance and upgrading of equipment and facilities. Environmental laws and regulations, in particular, are subject to frequent change, and many of them have become and will continue to become more stringent.

We could incur potentially significant additional expenses should we determine that any of our assets are not in compliance with applicable laws and regulations. Our failure to comply with these or any other environmental or safety-related regulations could result in the assessment of administrative, civil or criminal penalties, the imposition of investigatory and remedial liabilities and the issuance of injunctions that may subject us to additional operational constraints. Any such penalties or liabilities could have a material adverse effect on our financial condition, results of operations, cash flows and ability to make distributions. For a further discussion of the environmental regulations to which our operations are subject and the potential effects of noncompliance, please read “Business—Environmental Regulation.”

Meeting the requirements of evolving environmental, health and safety laws and regulations, and in particular those related to climate change, could adversely affect our financial performance.

Our parent’s ethanol production plants emit carbon dioxide as a by-product of the ethanol production process. In 2007, the U.S. Supreme Court classified carbon dioxide as an air pollutant under the Clean Air Act in a case seeking to require the EPA to regulate carbon dioxide in vehicle emissions. On February 3, 2010, the EPA released its final regulations on RFS II. Our parent believes that these final regulations grandfather its ethanol production plants at their current authorized capacity, though expansion of its ethanol production plants may need to meet a threshold of a 20% reduction in greenhouse gas, or GHG, emissions from a 2005 baseline measurement for the ethanol over current capacity to be eligible for the RFS II mandate. In order to expand capacity at our parent’s ethanol production plants, our parent may be required to obtain additional permits, achieve EPA “efficient producer” status under the pathway petition program, which has been achieved at two of its ethanol production plants and is in process at one other ethanol production plant, install advanced technology, or reduce drying of certain amounts of distillers grains.

Separately, the California Air Resources Board, or CARB, has adopted a low carbon fuel standard program, or LCFS, requiring a 10% reduction in average carbon intensity of gasoline and diesel transportation fuels from 2010 to 2020. After a series of rulings that temporarily prevented CARB from enforcing these regulations, the State of California Office of Administrative Law approved the LCFS on November 26, 2012, and revised LCFS regulations took effect in January 2013. An indirect land use charge, or ILUC, component is included in this lifecycle GHG emissions calculation which may have an adverse impact on the market for corn-based ethanol in California.

These federal and state regulations may require our parent to apply for additional permits for its ethanol plants. In order to expand capacity at its ethanol production plants, our parent may have to apply for additional permits, achieve EPA “efficient producer” status under the pathway petition program, which has been achieved at two of its ethanol production plants and is in process at one other ethanol production plant, install advanced technology, or reduce drying of certain amounts of distillers grains. Our parent may also be required to install carbon dioxide mitigation equipment or take other steps unknown to our parent at this time in order to comply with other future law or regulation. Compliance with future law or regulation of carbon dioxide, or if our parent chooses to expand capacity at certain of its ethanol production plants, compliance with then-current regulation of carbon dioxide, could be costly and may prevent our parent from operating its ethanol production plants as profitably, which may have an adverse impact on their operations, cash flows and financial position.

 

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These developments could have an indirect adverse effect on our business if our parent’s operations are adversely affected due to increased regulation of our parent’s facilities or reduced demand for ethanol, and a direct adverse effect on our business from increased regulation at our fuel terminal facilities. For a further discussion of environmental laws and regulations and their potential impacts on our business and operations, please read “Business—Environmental Regulation—Air Emissions” and “Business—Environmental Regulation—Climate Change.”

Our business is impacted by environmental risks inherent in our operations.

The operation of ethanol assets and ethanol transportation is inherently subject to the risks of spills, discharges or other inadvertent releases of ethanol and other hazardous substances. If any of these events have previously occurred or occur in the future in connection with any of our parent’s operations or our operations, we could be liable for costs and penalties associated with the remediation of such events under federal, state and local environmental laws or the common law. We may also be liable for personal injury or property damage claims from third parties alleging contamination from spills or releases from our assets or our operations. Even if we are insured or indemnified against such risks, we may be responsible for costs or penalties to the extent our insurers or indemnitors do not fulfill their obligations to us. The payment of such costs or penalties could be significant and have a material adverse effect on our financial condition, results of operations, cash flows, and ability to make distributions to our unitholders.

We are subject to regulation by multiple governmental agencies, which could have a material adverse effect on our financial condition, results of operations, cash flows and ability to make distributions to our unitholders.

Our business activities are subject to regulation by multiple federal, state, and local governmental agencies. Our projected operating costs reflect the recurring costs resulting from compliance with these regulations, and we do not anticipate material expenditures in excess of these amounts in the absence of future acquisitions, or changes in regulation, or discovery of existing but unknown compliance issues. Additional proposals and proceedings that affect the ethanol industry are regularly considered by Congress, as well as by state legislatures and federal and state regulatory commissions and agencies and courts. We cannot predict when or whether any such proposals may become effective or the magnitude of the impact changes in laws and regulations may have on our business; however, additions or enhancements to the regulatory burden on our industry generally increase the cost of doing business and affect our profitability.

Replacement technologies that are under development might result in the obsolescence of corn-derived ethanol, which could adversely affect our financial results.

Ethanol is primarily an additive and oxygenate for blended gasoline. Although use of oxygenates is currently mandated, there is always the possibility that a preferred alternative product will emerge and eclipse the current market. Critics of ethanol blends argue that ethanol decreases fuel economy, causes corrosion of ferrous components and damages fuel pumps. Any alternative oxygenate product would likely be a form of alcohol (like ethanol) or ether (like methyl tertiary butyl ether, or MTBE). Prior to federal restrictions and ethanol mandates, MTBE was the dominant oxygenate. It is possible that other ether products could enter the market and prove to be environmentally or economically superior to ethanol. It is also possible that alternative biofuel alcohols such as methanol and butanol could evolve into ethanol replacement products.

Research is currently underway to develop other products that could directly compete with ethanol and may have more potential advantages than ethanol. Advantages of such competitive products may include, but are not limited to: lower vapor pressure, making it easier to add gasoline; energy content closer to or exceeding that of gasoline, such that any decrease in fuel economy caused by the blending with gasoline is reduced; an ability to blend at a higher concentration level for use in standard vehicles; reduced susceptibility to separation when water is present; and suitability for transportation in petroleum pipelines. Such products could have a competitive advantage over ethanol, making it more difficult for our parent to market its ethanol, which could reduce our ability to generate revenue and profits.

 

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New ethanol process technologies may emerge that require less energy per gallon produced. The development of such process technologies would result in lower ethanol production costs. Our parent’s process technologies may become outdated and obsolete, placing it at a competitive disadvantage against competitors in the industry. The development of replacement technologies may have a material adverse effect on our parent’s, and consequently our, operations, cash flows and financial position.

Future demand for ethanol is uncertain and may be affected by changes to federal mandates, public perception, consumer acceptance and overall consumer demand for transportation fuel, any of which could negatively affect demand for ethanol and our results of operations.

Ethanol production from corn has not been without controversy. Although many trade groups, academics and governmental agencies have supported ethanol as a fuel additive that promotes a cleaner environment, others have criticized ethanol production as consuming considerably more energy and emitting more greenhouse gases than other biofuels and potentially depleting water resources. Some studies have suggested that corn-based ethanol is less efficient than ethanol produced from switchgrass or wheat grain and that it negatively impacts consumers by causing prices for dairy, meat and other foodstuffs from livestock that consume corn to increase. Additionally, ethanol critics contend that corn supplies are redirected from international food markets to domestic fuel markets. If negative views of corn-based ethanol production gain acceptance, support for existing measures promoting use and domestic production of corn-based ethanol could decline, leading to reduction or repeal of federal mandates, which would adversely affect the demand for ethanol. These views could also negatively impact public perception of the ethanol industry and acceptance of ethanol as an alternative fuel.

Beyond the federal mandates, there are limited markets for ethanol. Discretionary blending and E85 blending are important secondary markets. Discretionary blending is often determined by the price of ethanol versus the price of gasoline. In periods when discretionary blending is financially unattractive, the demand for ethanol may be reduced. Also, the demand for ethanol is affected by the overall demand for transportation fuel, which peaked in 2007, was declining until early 2013 but has been increasing modestly since then. Demand for transportation fuel is affected by the number of miles traveled by consumers and the fuel economy of vehicles. Market acceptance of E15 may partially offset the effects of decreases in transportation fuel demand. A reduction in the demand for our products may depress the value of our products, erode our margins, and reduce our ability to generate revenue or to operate profitably. Consumer acceptance of E15 and E85 fuels is one factor that may be needed before ethanol can achieve any significant growth in market share.

Increased federal support of cellulosic ethanol may result in increased competition to corn-derived ethanol producers.

Recent legislation, such as the American Recovery and Reinvestment Act of 2009 and the EISA, provides numerous funding opportunities in support of cellulosic ethanol, which is obtained from other sources of biomass such as switchgrass and fast growing poplar trees. In addition, the RFS II mandates an increasing level of production of biofuels that are not derived from corn. Federal policies suggest a long-term political preference for cellulosic processes using alternative feedstocks such as switchgrass, silage, wood chips or other forms of biomass. Cellulosic ethanol may have a smaller carbon footprint because the feedstock does not require energy-intensive fertilizers and industrial production processes. Additionally, cellulosic ethanol is favored because it is unlikely that foodstuff is being diverted from the market. Several cellulosic ethanol plants are under development. As research and development programs persist, there is the risk that cellulosic ethanol could displace corn ethanol. In addition, any replacement of federal mandates from corn-based to cellulosic-based ethanol production may reduce our parent’s, and consequently our, profitability.

Our parent’s ethanol production plants, where the majority of our ethanol storage facilities are located, are designed as single-feedstock facilities and would require significant additional investment to convert to the production of cellulosic ethanol. Additionally, our parent’s ethanol production plants are strategically located in high-yield, low-cost corn production areas. At present, there is limited supply of alternative feedstocks near our

 

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parent’s facilities. As a result, the adoption of cellulosic ethanol and its use as the preferred form of ethanol could have a significant adverse impact on our parent’s, and consequently our, business.

Pursuant to the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 for so long as we are an emerging growth company.

We will be required to disclose changes made in our internal control over financial reporting on a quarterly basis, and we will be required to assess the effectiveness of our controls annually. However, for as long as we are an “emerging growth company” under the JOBS Act, we may take advantage of certain exemptions from various requirements that are applicable to other public companies that are not emerging growth companies, including not being required to provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, and reduced disclosure obligations regarding executive compensation in our periodic reports. We could be an emerging growth company for up to five years. Please read “Prospectus Summary—Our Emerging Growth Company Status.” Effective internal controls are necessary for us to provide reliable and timely financial reports, prevent fraud and to operate successfully as a publicly-traded partnership. We prepare our consolidated financial statements in accordance with GAAP, but our internal accounting controls may not meet all standards applicable to companies with publicly-traded securities. Our efforts to develop and maintain our internal controls may not be successful, and we may be unable to maintain effective controls over our financial processes and reporting in the future or to comply with our obligations under Section 404. For example, Section 404 will require us, among other things, to annually review and report on the effectiveness of our internal control over financial reporting. We must comply with Section 404 (except for the requirement for an auditor’s attestation report) beginning with our fiscal year ending December 31, 2016. Any failure to develop, implement or maintain effective internal controls or to improve our internal controls could harm our operating results or cause us to fail to meet our reporting obligations. Even if we conclude that our internal controls over financial reporting are effective, once our independent registered public accounting firm is required to attest to our assessment they may decline to attest or may issue a report that is qualified if it is not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us.

Given the difficulties inherent in the design and operation of internal controls over financial reporting, in addition to our limited accounting personnel and management resources, we can provide no assurance as to our, or our independent registered public accounting firm’s, future conclusions about the effectiveness of our internal controls, and we may incur significant costs in our efforts to comply with Section 404. Any failure to implement and maintain effective internal controls over financial reporting will subject us to regulatory scrutiny and a loss of confidence in our reported financial information, which could have an adverse effect on our business and would likely have a negative effect on the trading price of our common units.

We may take advantage of these exemptions until we are no longer an “emerging growth company.” We cannot predict if investors will find our common units less attractive because we will rely on these exemptions. If some investors find our common units less attractive as a result, there may be a less active trading market for our common units, and our trading price may be more volatile.

Our insurance policies do not cover all losses, costs or liabilities that we may experience, and insurance companies that currently insure companies in the energy industry may cease to do so or substantially increase premiums.

We intend to secure our own insurance policies, but initially we will be insured under the property, liability and business interruption policies of our parent, subject to the deductibles and limits under those policies. Our parent has acquired insurance that we and our parent believe to be adequate to prevent loss from material foreseeable risks. However, events may occur for which no insurance is available or for which insurance is not

 

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available on terms that are acceptable to our parent. Loss from such an event, such as, but not limited to war, riot, terrorism or other risks, may not be insured and such a loss may have a material adverse effect on our and our parent’s operations, cash flows and financial position.

Our parent’s Obion, Tennessee ethanol production plant and our related storage tanks are located within a recognized seismic zone as are certain of our fuel terminals. We believe that the design of the Obion facility has been modified to fortify it to meet structural requirements for that region of the country. Our parent has also obtained additional insurance coverage specific to earthquake risk for this plant and the nearby fuel terminals. However, there is no assurance that any such facility would remain in operation if a seismic event were to occur.

Additionally, our ability to obtain and maintain adequate insurance may be adversely affected by conditions in the insurance market over which we have no control. In addition, if we experience insurable events, our annual premiums could increase further or insurance may not be available at all. If significant changes in the number or financial solvency of insurance underwriters for the ethanol industry occur, we may be unable to obtain and maintain adequate insurance at a reasonable cost. We cannot assure our unitholders that we will be able to renew our insurance coverage on acceptable terms, if at all, or that we will be able to arrange for adequate alternative coverage in the event of non-renewal. The occurrence of an event that is not fully covered by insurance, the failure by one or more insurers to honor its commitments for an insured event or the loss of insurance coverage could have a material adverse effect on our financial condition, results of operations, cash flows and ability to make distributions to our unitholders.

The loss of key personnel could adversely affect our ability to operate.

We depend on the leadership, involvement and services of a relatively small group of our general partner’s key management personnel, including its Chief Executive Officer and other executive officers and key technical and commercial personnel. The services of these individuals may not be available to us in the future. Because competition for experienced personnel in our industry is intense, we may not be able to find acceptable replacements with comparable skills and experience. Accordingly, the loss of the services of one or more of these individuals could have a material adverse effect on our ability to operate our business.

Additionally, our success depends, in part, on our parent’s ability to attract and retain competent personnel. For each of our parent’s ethanol production plants, qualified managers, engineers, operations and other personnel must be hired. Competition for both managers and plant employees in the ethanol industry can be intense, and our parent may not be able to attract and retain qualified personnel. If our parent is unable to hire and retain productive and competent personnel, the amount of ethanol our parent produces may decrease and our parent may not be able to efficiently operate its ethanol production plants and execute its business strategy, which could negatively impact the volumes of ethanol handled by us, which could have a material adverse effect on our financial condition, results of operations, cash flows and ability to make distributions to our unitholders.

We do not have any employees and rely solely on employees of our parent and its affiliates.

We do not have any employees and rely solely on employees of our parent and its affiliates, including our parent. Affiliates of our parent conduct businesses and activities of their own in which we have no economic interest. As a result, there could be material competition for the time and efforts of the employees who provide services to us and to our parent and its affiliates. If the employees of our parent and its affiliates do not devote sufficient attention to the operation of our business, our financial results may suffer and our ability to make distributions to our unitholders may be reduced.

Increases in interest rates could adversely affect our business.

We will have exposure to increases in interest rates. Borrowings under our new revolving credit facility are expected to bear interest at LIBOR, plus an applicable margin. As a result, if we make any borrowings in the

 

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future our financial condition, results of operations, cash flows and ability to make distributions to our unitholders could be materially adversely affected by significant increases in interest rates.

Additionally, as with other yield-oriented securities, our unit price is impacted by the level of our cash distributions and implied distribution yield. The distribution yield is often used by investors to compare and rank related yield-oriented securities for investment decision-making purposes. Therefore, changes in interest rates, either positive or negative, may affect the yield requirements of investors who invest in our units, and a rising interest rate environment could have an adverse impact on our unit price and our ability to issue additional equity, to incur debt to expand or for other purposes or to pay cash distributions at our intended levels.

Terrorist attacks, cyber-attacks, threats of war or actual war, or failure of our or our parent’s internal computer network and applications to operate as designed may negatively affect our and our parent’s financial condition, results of operations, cash flows and ability to make distributions to our unitholders.

Terrorist attacks in the United States, as well as events occurring in response to or in connection with them, including threats of war or actual war, may adversely affect our and our parent’s financial condition, results of operations, cash flows, and ability to make distributions to our unitholders. Ethanol-related assets (including ethanol production plants, such as those owned and operated by our parent on which we are substantially dependent, and storage facilities, fuel terminal facilities and railcars such as those owned and operated by us or our parent) may be at greater risk of future terrorist attacks than other possible targets. A direct attack on our assets or assets used by us could have a material adverse effect on our financial condition, results of operations, cash flows and ability to make distributions to our unitholders. In addition, any terrorist attack could have an adverse impact on ethanol prices, including prices for our parent’s ethanol. Disruption or significant increases in ethanol prices could result in government imposed price controls.

We and our parent rely on network infrastructure and enterprise applications, and internal technology systems for operational, marketing support and sales, and product development activities. The hardware and software systems related to such activities are subject to damage from earthquakes, floods, lightning, tornados, fire, power loss, telecommunication failures, and other similar events. They are also subject to acts such as computer viruses, physical or electronic vandalism or other similar disruptions that could cause system interruptions and loss of critical data, and could prevent us or our parent from fulfilling customers’ orders. We cannot assure our unitholders that any of our or our parent’s backup systems would be sufficient. Any event that causes failures or interruption in such hardware or software systems could result in disruption of our or our parent’s business operations, have a negative impact on our parent’s and our operating results, and damage each of our reputations, which could negatively affect our financial condition, results of operation, cash flows and ability to make distributions to our unitholders.

 

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Risks Related to an Investment in Us

Our parent will own and control our general partner, which has sole responsibility for conducting our business and managing our operations. Our general partner and its affiliates, including our parent and Green Plains Trade, have conflicts of interest with us and limited duties to us and our unitholders, and they may favor their own interests to our detriment and that of our unitholders.

Following this offering, our parent will own and control our general partner and will appoint all of the directors of our general partner. Some of the directors and all of the executive officers of our general partner are also directors or officers of our parent. Although our general partner has a duty to manage us in a manner it believes to be in our best interests, the directors and officers of our general partner also have a duty to manage our general partner in a manner that is in the best interests of its owner, our parent. Conflicts of interest may arise between our general partner and its affiliates, including our parent and Green Plains Trade, on the one hand, and us and our unitholders, on the other hand. In resolving these conflicts of interest, our general partner may favor its own interests and the interests of its affiliates, including our parent and Green Plains Trade, over the interests of our unitholders. These conflicts include, among others, the following situations:

 

   

neither our partnership agreement nor any other agreement requires our parent to pursue a business strategy that favors us or utilizes our assets, which could involve decisions by our parent, which also controls Green Plains Trade, to increase or decrease their ethanol production, shutdown or reconfigure its ethanol facilities, enter into commercial agreements with us, undertake acquisition opportunities for itself, or pursue and grow particular markets. Our parent’s directors and officers have a fiduciary duty to make these decisions in the best interests of our parent and its stockholders, which may be contrary to our interests and those of our unitholders;

 

   

our parent may be constrained by the terms of its debt instruments from taking actions, or refraining from taking actions, that may be in our best interests;

 

   

our parent has an economic incentive to cause us not to seek higher storage and service fees, even if such fees would reflect fees that could be obtained in arm’s-length, third-party transactions, because Green Plains Trade, an indirect subsidiary of our parent, is our primary customer;

 

   

our general partner will determine the amount and timing of asset purchases and sales, borrowings, issuance of additional partnership securities, and the creation, reduction or increase of cash reserves, each of which can affect the amount of cash that is distributed to our unitholders;

 

   

our general partner may cause us to borrow funds in order to permit the payment of cash distributions, even if the purpose or effect of the borrowing is to make a distribution on the subordinated units, to make incentive distributions or to accelerate the expiration of the subordination period;

 

   

our general partner will determine which costs incurred by it are reimbursable by us;

 

   

our partnership agreement permits us to distribute up to $         million as operating surplus, even if it is generated from asset sales, non-working capital borrowings or other sources that would otherwise constitute capital surplus. This cash may be used to fund distributions on our subordinated units or the incentive distribution rights;

 

   

our general partner is allowed to take into account the interests of parties other than us in exercising certain rights under our partnership agreement;

 

   

our partnership agreement replaces the duties that would otherwise be owed by our general partner with contractual standards governing its duties, limiting our general partner’s liabilities and restricting the remedies available to our unitholders for actions that, without the limitations, might constitute breaches of fiduciary duty;

 

   

except in limited circumstances, our general partner has the power and authority to conduct our business and transfer its incentive distribution rights without unitholder approval;

 

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our general partner will determine the amount and timing of many of our cash expenditures and whether a cash expenditure is classified as an expansion capital expenditure, which would not reduce operating surplus, or a maintenance capital expenditure, which would reduce our operating surplus. This determination can affect the amount of available cash from operating surplus that is distributed to our unitholders and to our general partner, the amount of adjusted operating surplus generated in any given period and the ability of the subordinated units to convert into common units;

 

   

our general partner may exercise its right to call and purchase all of the common units not owned by it and its affiliates if it and its affiliates own more than     % of the common units;

 

   

our general partner controls the enforcement of obligations owed to us by our general partner and its affiliates, including our commercial agreements with its subsidiary, Green Plains Trade;

 

   

our general partner decides whether to retain separate counsel, accountants or others to perform services for us; and

 

   

our general partner, as the holder of our incentive distribution rights, may elect to cause us to issue common units to it in connection with a resetting of target distribution levels related to our general partner’s incentive distribution rights without the approval of the conflicts committee of the board of directors of our general partner or our unitholders. This election may result in lower distributions to our unitholders in certain situations.

Except as provided in our omnibus agreement, affiliates of our general partner, including our parent and Green Plains Trade, may compete with us, and neither our general partner nor its affiliates have any obligations to present business opportunities to us.

Except as provided in our omnibus agreement, affiliates of our general partner, including our parent and Green Plains Trade, may compete with us. Pursuant to the terms of our partnership agreement, the doctrine of corporate opportunity, or any analogous doctrine, will not apply to our general partner or any of its affiliates, including our parent and Green Plains Trade, and their respective executive officers and directors. Any such person or entity that becomes aware of a potential transaction, agreement, arrangement or other matter that may be an opportunity for us will not have any duty to communicate or offer such opportunity to us. Any such person or entity will not be liable to us or to any limited partner for breach of any fiduciary duty or other duty by reason of the fact that such person or entity pursues or acquires such opportunity for itself, directs such opportunity to another person or entity or does not communicate such opportunity or information to us. This may create actual and potential conflicts of interest between us and affiliates of our general partner, including our parent and Green Plains Trade, and result in less than favorable treatment of us and our common unitholders. Please read “Conflicts of Interest and Duties.”

Our general partner intends to limit its liability regarding our obligations.

Our general partner intends to limit its liability under contractual arrangements between us and third parties so that the counterparties to such arrangements have recourse only against our assets and not against our general partner or its assets. Our general partner may therefore cause us to incur indebtedness or other obligations that are nonrecourse to our general partner. Our partnership agreement provides that any action taken by our general partner to limit its liability is not a breach of our general partner’s duties, even if we could have obtained more favorable terms without the limitation on liability. In addition, we are obligated to reimburse or indemnify our general partner to the extent that it incurs obligations on our behalf. Any such reimbursement or indemnification payments would reduce the amount of cash otherwise available for distribution to our unitholders.

Ongoing cost reimbursements and fees due to our general partner and its affiliates for services provided, which will be determined by our general partner in its sole discretion, will be substantial and will reduce the amount of cash that we have available for distribution to our unitholders.

Prior to making distributions on our common units, we will reimburse our general partner and its affiliates for all expenses they incur on our behalf. These expenses will include all costs incurred by our general partner

 

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and its affiliates in managing and operating us, including costs for rendering certain management, maintenance and operational services to us, reimbursable pursuant to the operational services and secondment agreement that we will enter into in connection with the closing of this offering. Our partnership agreement provides that our general partner will determine the expenses that are allocable to us in good faith. Under the omnibus agreement that we will enter into in connection with the closing of this offering, we will agree to reimburse our parent for certain direct or allocated costs and expenses incurred by our parent in providing general and administrative services in support of our business. In addition, under Delaware partnership law, our general partner has unlimited liability for our obligations, such as our debts and environmental liabilities, except for our contractual obligations that are expressly made without recourse to our general partner. To the extent our general partner incurs obligations on our behalf, we are obligated to reimburse or indemnify it. If we are unable or unwilling to reimburse or indemnify our general partner, our general partner may take actions to cause us to make payments of these obligations and liabilities. Payments to our general partner and its affiliates, including our parent, will be substantial and will reduce the amount of cash otherwise available for distribution to our unitholders.

Our partnership agreement requires that we distribute all of our available cash, which could limit our ability to grow and make acquisitions.

Our partnership agreement requires that we distribute all of our available cash to our unitholders. As a result, we expect to rely primarily upon external financing sources, including commercial bank borrowings and the issuance of debt and equity securities, to fund our expansion capital expenditures and acquisitions. Therefore, to the extent that we are unable to finance growth externally, our cash distribution policy will significantly impair our ability to grow.

In addition, because we distribute all of our available cash, our growth may not be as fast as businesses that reinvest their available cash to expand ongoing operations. To the extent we issue additional partnership interests in connection with any acquisitions or expansion capital expenditures or as in-kind distributions, our current unitholders will experience dilution and the payment of distributions on those additional partnership interests may increase the risk that we will be unable to maintain or increase our per unit distribution level. There are no limitations in our partnership agreement, and we do not anticipate that there will be limitations in our new revolving credit facility, on our ability to issue additional partnership securities, including units ranking senior to the common units. The incurrence of additional commercial borrowings or other debt to finance our growth strategy would result in increased debt service costs which, in turn, may impact the available cash that we have to distribute to our unitholders.

Our partnership agreement replaces our general partner’s fiduciary duties to holders of our common units with contractual standards governing its duties.

As permitted by Delaware law, our partnership agreement contains provisions that eliminate the fiduciary standards that our general partner would otherwise be held to by state fiduciary duty law and replaces those duties with several different contractual standards. For example, our partnership agreement permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner, or otherwise, free of any duties to us and our unitholders. This entitles our general partner to consider only the interests and factors that it desires, and it has no duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or our limited partners. Examples of decisions that our general partner may make in its individual capacity include:

 

   

how to allocate business opportunities among us and its other affiliates;

 

   

whether to exercise its call rights;

 

   

how to exercise its voting rights with respect to the units it owns;

 

   

whether to exercise its registration rights;

 

   

whether to elect to reset target distribution levels;

 

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whether or not to consent to any merger or consolidation of the partnership or amendment to the partnership agreement; and

 

   

whether or not the general partner should elect to seek the approval of the conflicts committee or the unitholders, or neither, of any conflicted transaction.

By purchasing a common unit, a unitholder is treated as having consented to the provisions in our partnership agreement, including the provisions discussed above. Please read “Conflicts of Interest and Duties—Duties of the General Partner.”

Our partnership agreement restricts the remedies available to holders of our common units and our subordinated units for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty.

Our partnership agreement contains provisions that restrict the remedies available to our unitholders for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty under state fiduciary duty law. For example, our partnership agreement provides that:

 

   

whenever our general partner makes a determination or takes, or declines to take, any other action in its capacity as our general partner, our general partner is required to make such determination, or take or decline to take such other action, in good faith, and will not be subject to any higher standard imposed by our partnership agreement, Delaware law, or any other law, rule or regulation, or at equity;

 

   

our general partner will not have any liability to us or our unitholders for decisions made in its capacity as a general partner so long as it acted in good faith;

 

   

our general partner and its officers and directors will not be liable for monetary damages to us or our limited partners resulting from any act or omission unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that our general partner or its officers and directors, as the case may be, acted in bad faith or engaged in fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that the conduct was unlawful; and

 

   

our general partner will not be in breach of its obligations under the partnership agreement or its duties to us or our limited partners if a transaction with an affiliate or the resolution of a conflict of interest is:

 

   

approved by the conflicts committee of the board of directors of our general partner, although our general partner is not obligated to seek such approval;

 

   

approved by the vote of a majority of the outstanding common units, excluding any common units owned by our general partner and its affiliates; or

 

   

otherwise meets the standards set forth in our partnership agreement.

In connection with a situation involving a transaction with an affiliate or a conflict of interest, our partnership agreement provides that any determination by our general partner must be made in good faith, and that our conflicts committee and the board of directors of our general partner are entitled to a presumption that they acted in good faith. In any proceeding brought by or on behalf of any limited partner or the partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. Please read “Conflicts of Interest and Duties.”

 

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Our partnership agreement designates the Court of Chancery of the State of Delaware as the exclusive forum for certain types of actions and proceedings that may be initiated by our unitholders, which limits our unitholders’ ability to choose the judicial forum for disputes with us or our general partner’s directors, officers or other employees.

Our partnership agreement provides that, with certain limited exceptions, the Court of Chancery of the State of Delaware will be the exclusive forum for any claims, suits, actions or proceedings (1) arising out of or relating in any way to our partnership agreement (including any claims, suits or actions to interpret, apply or enforce the provisions of our partnership agreement or the duties, obligations or liabilities among limited partners or of limited partners to us, or the rights or powers of, or restrictions on, the limited partners or us), (2) brought in a derivative manner on our behalf, (3) asserting a claim of breach of a duty owed by any director, officer or other employee of us or our general partner, or owed by our general partner, to us or the limited partners, (4) asserting a claim arising pursuant to any provision of the Delaware Revised Uniform Limited Partnership Act, or the Delaware Act, or (5) asserting a claim against us governed by the internal affairs doctrine, each referred to as a unitholder action. By purchasing a common unit, a limited partner is irrevocably consenting to these limitations and provisions regarding unitholder actions and submitting to the exclusive jurisdiction of the Court of Chancery of the State of Delaware (or such other court) in connection with any such unitholder actions. These provisions may have the effect of discouraging lawsuits against us and our general partner’s directors and officers that may otherwise benefit us and our unitholders. For additional information about the exclusive forum provision of our partnership agreement, please read “Our Partnership Agreement—Applicable Law; Exclusive Forum.”

Our partnership agreement provides that any unitholder bringing certain unsuccessful unitholder actions will be obligated to reimburse us for any costs we have incurred in connection with such unsuccessful unitholder action.

If any unitholder brings any unitholder action and such person does not obtain a judgment on the merits that substantially achieves, in substance and amount, the full remedy sought, then such person shall be obligated to reimburse us and our affiliates for all fees, costs and expenses of every kind and description, including but not limited to all reasonable attorneys’ fees and other litigation expenses, that the parties may incur in connection with such unitholder action. For purposes of these provisions, “our affiliates” means any person that directly or indirectly controls, is controlled by or is under common control with us, and “control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such person. Examples of “our affiliates,” as used in these provisions, include Green Plains, our general partner, and the directors and officers of our general partner, and, depending on the situation, other third parties that fit within the definition of “our affiliates” described above.

A limited partner or any person holding a beneficial interest in us (whether through a broker, dealer, bank, trust company or clearing corporation or an agent of any of the foregoing or otherwise) will become subject to these provisions. By purchasing a common unit, a limited partner is irrevocably consenting to these potential reimbursement obligations regarding unitholder actions. These provisions may have the effect of discouraging lawsuits against us and our general partner’s directors and officers that might otherwise benefit us and our unitholders.

The reimbursement provision in our partnership agreement is not limited to specific types of unitholder action but is rather potentially applicable to the fullest extent permitted by law. Such reimbursement provisions are relatively new and untested. The case law and potential legislative action on these types of reimbursement provisions are evolving and there exists considerable uncertainty regarding the validity of, and potential judicial and legislative responses to, such provisions. For example, it is unclear whether our ability to invoke such reimbursement in connection with unitholder actions under the federal securities laws, including unitholder actions related to this offering, would be pre-empted by federal law. Similarly, it is unclear how courts might apply the standard that a claiming party must obtain a judgment that substantially achieves, in substance and amount, the full remedy sought. For example, in the event the claiming party were to allege multiple claims and

 

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does not receive a favorable judgment for the full remedy sought for each of its alleged claims, it is unclear how courts would apportion our fees, costs and expenses, and whether courts would require the claiming party to reimburse us and our affiliates in full for all fees, costs and expenses relating to each of the claims, including those for which the claiming party received the remedy it sought. The application of our reimbursement provision in connection with such unitholder actions, if any, will depend in part on future developments of the law. This uncertainty may have the effect of discouraging lawsuits against us and our general partner’s directors and officers that might otherwise benefit us and our unitholders. In addition, given the unsettled state of the law related to reimbursement provisions, such as ours, we may incur significant additional costs associated with resolving disputes with respect to such provision, which could adversely affect our business and financial condition.

For additional information about the potential obligation to reimburse us for all fees, costs and expenses incurred in connection with unsuccessful unitholder actions, please read “Our Partnership Agreement—Reimbursement of Partnership Litigation Costs.”

Our general partner, or any transferee holding incentive distribution rights, may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to its incentive distribution rights, without the approval of the conflicts committee or the holders of our common units, which could result in lower distributions to holders of our common units.

Our general partner has the right, as the initial holder of our incentive distribution rights, at any time when there are no subordinated units outstanding and our general partner has received incentive distributions at the highest level to which it is entitled (48%, in addition to distributions paid on its 2% general partner interest) for each of the prior four consecutive fiscal quarters and the amount of each such distribution did not exceed the adjusted operating surplus for such quarter, to reset the initial target distribution levels at higher levels based on our distributions at the time of the exercise of the reset election. Following a reset election by our general partner, the minimum quarterly distribution will be adjusted to equal the reset minimum quarterly distribution and the target distribution levels will be reset to correspondingly higher levels based on percentage increases above the reset minimum quarterly distribution.

If our general partner elects to reset the target distribution levels, it will be entitled to receive a number of common units. The number of common units to be issued to our general partner will equal the number of common units that would have entitled the holder to an aggregate quarterly cash distribution in the quarter prior to the reset election equal to the distribution to our general partner on the incentive distribution rights in the quarter prior to the reset election. Our general partner will also be issued the number of general partner interests necessary to maintain our general partner’s interest in us at the level that existed immediately prior to the reset election. We anticipate that our general partner would exercise this reset right in order to facilitate acquisitions or internal growth projects that would not be sufficiently accretive to cash distributions per common unit without such reset. It is possible, however, that our general partner could exercise this reset election at a time when it is experiencing, or expects to experience, declines in the cash distributions it receives related to its incentive distribution rights and may, therefore, desire to be issued common units rather than retain the right to receive incentive distributions based on the initial target distribution levels. This risk could be elevated if our incentive distribution rights have been transferred to a third party. As a result, a reset election may cause our common unitholders to experience a reduction in the amount of cash distributions that our common unitholders would have otherwise received had we not issued new common units and general partner interests to our general partner in connection with resetting the target distribution levels. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—General Partner’s Right to Reset Incentive Distribution Levels.”

Our general partner has a limited call right that may require our unitholders to sell their common units at an undesirable time or price.

If at any time our general partner and its affiliates own more than     % of our then-outstanding common units, our general partner will have the right, but not the obligation, which it may assign to any of its affiliates or

 

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to us, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price equal to the greater of (1) the average of the daily closing price of the common units over the 20 trading days preceding the date three business days before notice of exercise of the call right is first mailed and (2) the highest per-unit price paid by our general partner or any of its affiliates for common units during the 90-day period preceding the date such notice is first mailed. As a result, our unitholders may be required to sell their common units at an undesirable time or price and may not receive any return, or may receive a negative return, on their investment. Our unitholders may also incur a tax liability upon a sale of their common units. Our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon exercise of the limited call right. There is no restriction in our partnership agreement that prevents our general partner from issuing additional common units and exercising its call right. Upon consummation of this offering, and assuming no exercise of the underwriters’ option to purchase additional common units, our general partner and its affiliates will own an aggregate of approximately     % of our outstanding common units (excluding any common units purchased by directors, director nominees and executive officers of our general partner or of Green Plains Inc. under our directed unit program). At the end of the subordination period (which could occur as early as             ), assuming no additional issuances of common units (other than upon the conversion of the subordinated units), and assuming no exercise of the underwriters’ option to purchase additional common units, our general partner and its affiliates will own an aggregate of approximately     % of our outstanding common units (excluding any common units purchased by directors, director nominees and executive officers of our general partner or of Green Plains Inc. under our directed unit program) and therefore would not be able to exercise the call right at that time. For additional information about the limited call right, please read “Our Partnership Agreement—Limited Call Right.”

Our unitholders have limited voting rights and are not entitled to elect our general partner or the board of directors of our general partner, which could reduce the price at which our common units will trade.

Unlike the holders of common stock in a corporation, unitholders have only limited voting rights on matters affecting our business and, therefore, limited ability to influence management’s decisions regarding our business. For example, unlike holders of stock in a public corporation, unitholders will not have “say-on-pay” advisory voting rights. Our unitholders did not elect our general partner or the board of directors of our general partner, and will have no right to elect our general partner or the board of directors of our general partner on an annual or other continuing basis. The board of directors of our general partner, including its independent directors, will be chosen by the member of our general partner. Furthermore, if our unitholders are dissatisfied with the performance of our general partner, they will have little ability to remove our general partner. Our partnership agreement also contains provisions limiting the ability of our unitholders to call meetings or to acquire information about our operations, as well as other provisions limiting our unitholders’ ability to influence the manner or direction of management. As a result of these limitations, the price at which our common units will trade could be diminished because of the absence or reduction of a takeover premium in the trading price.

Even if our unitholders are dissatisfied, they cannot initially remove our general partner without its consent.

Our unitholders will be unable initially to remove our general partner without its consent because our general partner and its affiliates will own sufficient units upon completion of this offering to be able to prevent its removal. The vote of the holders of at least 66 2/3% of all outstanding common units and subordinated units voting together as a single class is required to remove the general partner. Following the closing of this offering, our general partner and its affiliates will own     % of our total outstanding common units and subordinated units on an aggregate basis (or     % of our total outstanding common units and subordinated units on an aggregate basis if the underwriters’ option to purchase additional common units is exercised in full) (excluding any common units purchased by directors, director nominees and executive officers of our general partner or of Green Plains Inc. under our directed unit program). Also, if our general partner is removed without cause during the subordination period and common units and subordinated units held by our general partner and its affiliates are not voted in favor of that removal, all remaining subordinated units will automatically convert into common units and any existing arrearages on our common units will be extinguished. A removal of our general partner under these circumstances would adversely affect our common units by prematurely eliminating their distribution and

 

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liquidation preference over our subordinated units, which would otherwise have continued until we had met certain distribution and performance tests. Cause is narrowly defined under our partnership agreement to mean that a court of competent jurisdiction has entered a final, non-appealable judgment finding the general partner liable for actual fraud or willful misconduct in its capacity as our general partner. Cause does not include most cases of charges of poor management of the business.

Our partnership agreement eliminates the voting rights of certain of our unitholders owning 20% or more of our common units.

Our unitholders’ voting rights are further restricted by the partnership agreement provision providing that any units held by a person that owns 20% or more of any class of units then outstanding, other than our general partner, its affiliates, including our parent, their transferees and persons who acquired such units with the prior approval of the board of directors of our general partner, cannot vote on any matter.

Our general partner’s interest in us or the control of our general partner may be transferred to a third party without unitholder consent.

Our general partner may transfer its general partner interest to a third party in a merger or in a sale of all or substantially all of its assets without the consent of our unitholders. Furthermore, our partnership agreement does not restrict the ability of our parent from transferring all or a portion of its ownership interest in our general partner to a third party. The new owner of our general partner would then be in a position to replace the board of directors and officers of our general partner with its own choices and thereby exert significant control over the decisions made by the board of directors and officers. This effectively permits a “change of control” without the vote or consent of our unitholders. Please read “Our Partnership Agreement—Transfer of General Partner Interest.”

The incentive distribution rights held by our general partner may be transferred to a third party without unitholder consent.

Our general partner may transfer all or a portion of its incentive distribution rights to a third party at any time without the consent of our unitholders, and such transferee shall have the same rights as the general partner relative to resetting target distributions if our general partner concurs that the test for resetting target distributions have been fulfilled. If our general partner transfers the incentive distribution rights to a third party it may not have the same incentive to grow our partnership and increase quarterly distributions to our unitholders over time as it would if it had retained ownership of the incentive distribution rights. For example, a transfer of incentive distribution rights by our general partner could reduce the likelihood of our parent accepting offers made by us relating to assets owned by it and our parent would have less of an economic incentive to grow our business, which in turn would impact our ability to grow our asset base. Please read “Our Partnership Agreement—Transfer of Incentive Distribution Rights.”

Immediately effective upon the closing of this offering, unitholders will experience substantial dilution of $         in tangible net book value per common unit.

The assumed initial public offering price of $         per common unit (the midpoint of the price range set forth on the cover page of this prospectus) exceeds our pro forma net tangible book value of $         per common unit. Based on the assumed initial public offering price of $         per common unit, unitholders will incur immediate and substantial dilution of $         per common unit after giving effect to this offering of common units and the application of the related net proceeds. Dilution results primarily because the assets contributed by our general partner and its affiliates are recorded in accordance with GAAP at their historical cost, and not their fair value. Please read “Dilution.”

 

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We may issue additional partnership interests, including units that are senior to the common units, without unitholder approval, which would dilute our unitholders’ existing ownership interests.

Our partnership agreement does not limit the number of additional limited partner interests or general partner interests that we may issue at any time without the approval of our unitholders. The issuance by us of additional common units, general partner interests or other equity securities of equal or senior rank to our common units as to distributions or in liquidation or that have special voting rights or other rights, will have the following effects:

 

   

each unitholder’s proportionate ownership interest in us will decrease;

 

   

the amount of distributable cash flow on each unit may decrease;

 

   

because a lower percentage of total outstanding units will be subordinated units, the risk that a shortfall in the payment of the minimum quarterly distribution will be borne by our common unitholders will increase;

 

   

because the amount payable to holders of incentive distribution rights is based on a percentage of the total distributable cash flow, the distributions to holders of incentive distribution rights will increase even if the per unit distribution on common units remains the same;

 

   

the ratio of taxable income to distributions may increase;

 

   

the relative voting strength of each previously outstanding unit may be diminished;

 

   

the claims of the common unitholders to our assets in the event of our liquidation may be subordinated; and

 

   

the market price of the common units may decline.

The issuance by us of additional general partner interests may have the following effects, among others, if such general partner interests are issued to a person that is not an affiliate of our parent:

 

   

management of our business may no longer reside solely with our current general partner; and

 

   

affiliates of the newly admitted general partner may compete with us, and neither that general partner nor such affiliates will have any obligation to resent business opportunities to us.

Common units eligible for future sale may cause the price of our common units to decline.

Sales of substantial amounts of our common units in the public market, or the perception that these sales may occur, could cause the market price of our common units to decline. This could also impair our ability to raise additional capital through the sale of our equity interests. After the sale of the common units offered hereby, our parent will hold common units and             subordinated units (or             common units and              subordinated units if the underwriters exercise in full their option to purchase additional units). All of the subordinated units will convert into common units at the end of the subordination period and some may convert earlier under certain circumstances. Additionally, we have agreed to provide our parent with certain registration rights under applicable securities laws. Please read “Units Eligible for Future Sale.” The sale of these common units in public or private markets could have an adverse impact on the price of the common units or on any trading market that may develop.

Our general partner’s discretion in establishing cash reserves may reduce the amount of distributable cash flow to our unitholders.

Our partnership agreement requires our general partner to deduct from operating surplus the cash reserves that it determines are necessary to fund our future operating expenditures. In addition, our partnership agreement permits the general partner to reduce available cash by establishing cash reserves for the proper conduct of our business, to comply with applicable law or agreements that we are a party to, or to provide funds for future distributions to partners. These cash reserves will affect the amount of distributable cash flow to our unitholders.

 

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If we distribute available cash from capital surplus, which is analogous to a return of capital, our minimum quarterly distribution will be proportionately reduced, and the target distribution relating to our general partner’s incentive distributions will be proportionately decreased.

Our distributions of available cash will be characterized as derived from either operating surplus or capital surplus. Operating surplus as defined in our partnership agreement generally means amounts we have received from operations or “earned,” less operating expenditures and cash reserves to provide funds for our future operations. Capital surplus is defined in our partnership agreement as any distribution of available cash in excess of our cumulative operating surplus, and generally would result from cash received from non-operating sources such as sales of other dispositions of assets and issuances of debt and equity securities.

Our partnership agreement treats a distribution of capital surplus as the repayment of the initial unit price from this initial public offering, which is analogous to a return of capital. Each time a distribution of capital surplus is made, the minimum quarterly distribution and the target distribution levels will be proportionately reduced. Because distributions of capital surplus will reduce the minimum quarterly distribution after any of these distributions are made, the effects of distributions of capital surplus may make it easier for our general partner to receive incentive distributions and for the subordinated units to convert into common units. For a more detailed description of operating surplus, capital surplus and the effect of distributions from capital surplus, please read “Provisions of Our Partnership Agreement Relating to Cash Distributions”.

Unitholder liability may not be limited if a court finds that unitholder action constitutes control of our business.

A general partner of a partnership generally has unlimited liability for the obligations of the partnership, except for those contractual obligations of the partnership that are expressly made without recourse to the general partner. Our partnership is organized under Delaware law, and we will own assets and conduct business throughout the United States, except Hawaii and Alaska. Our unitholders could be liable for any and all of our obligations as if they were a general partner if:

 

   

a court or government agency determines that we were conducting business in a state but had not complied with that particular state’s partnership statute; or

 

   

unitholder rights to act with other unitholders to remove or replace the general partner, to approve some amendments to our partnership agreement or to take other actions under our partnership agreement constitute “control” of our business.

For a discussion of the implications of the limitations of liability on our unitholders, please read “Our Partnership Agreement—Limited Liability.”

Our unitholders may have liability to repay distributions that were wrongfully distributed to them.

Under certain circumstances, our unitholders may have to repay amounts wrongfully distributed to them. Under Section 17-607 of the Delaware Act, we may not make a distribution to our unitholders if the distribution would cause our liabilities to exceed the fair value of our assets. Delaware law provides that for a period of three years from the date of the impermissible distribution, limited partners who received the distribution and who knew at the time of the distribution that it violated Delaware law will be liable to the limited partnership for the distribution amount. Substituted limited partners are liable for the obligations of the assignor to make contributions to the partnership that are known to the substituted limited partner at the time it became a limited partner and for unknown obligations if the liabilities could be determined from the partnership agreement. Liabilities to partners on account of their partnership interest and liabilities that are nonrecourse to the partnership are not counted for purposes of determining whether a distribution is permitted.

 

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There is no existing market for our common units, and a trading market that will provide our unitholders with adequate liquidity may not develop. The price of our common units may fluctuate significantly, which could cause our unitholders to lose all or part of their investment.

Prior to this offering, there has been no public market for our common units. After this offering, there will be only              publicly-traded common units (assuming the underwriters’ option to purchase additional common units from us is not exercised). In addition, our parent will own             common units and             subordinated units, representing an aggregate     % limited partner interest in us (or     % limited partner interest in us if the underwriters’ option to purchase additional common units from us is exercised in full). We do not know the extent to which investor interest will lead to the development of a trading market or how liquid that market might be. Our unitholders may not be able to resell their common units at or above the initial public offering price. Additionally, the lack of liquidity may result in wide bid-ask spreads, contribute to significant fluctuations in the market price of the common units and limit the number of investors who are able to buy the common units.

The initial public offering price for the common units will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of the market price of the common units that will prevail in the trading market. The market price of our common units may decline below the initial public offering price. The market price of our common units may also be influenced by many factors, some of which are beyond our control, including:

 

   

our operating and financial performance;

 

   

quarterly variations in our financial indicators, such as net earnings (loss) per unit, net earnings (loss) and revenues;

 

   

the amount of distributions we make and our earnings or those of other companies in our industry or other publicly-traded partnerships;

 

   

the loss of our parent or one of its subsidiaries, such as Green Plains Trade, as a customer;

 

   

events affecting the business and operations of our parent;

 

   

announcements by us or our competitors of significant contracts or acquisitions;

 

   

changes in revenue or earnings estimates, or changes in recommendations or withdrawal of research coverage, by equity research analysts;

 

   

speculation in the press or investment community;

 

   

changes in accounting standards, policies, guidance, interpretations or principles;

 

   

additions or departures of key management personnel;

 

   

actions by our unitholders;

 

   

general market conditions, including fluctuations in commodity prices;

 

   

domestic and international economic, legal and regulatory factors related to our performance;

 

   

future sales of our common units by us or our other unitholders, or the perception that such sales may occur; and

 

   

other factors described in “Risk Factors.”

As a result of these factors, investors in our common units may not be able to resell their common units at or above the initial public offering price. In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies like us. These broad market and industry factors may materially reduce the market price of our common units, regardless of our operating performance.

 

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NASDAQ does not require a publicly-traded partnership like us to comply with certain of its corporate governance requirements.

We have applied to list our common units on the NASDAQ Global Market. Because we will be a publicly-traded partnership, NASDAQ does not require us to have a majority of independent directors on our general partner’s board of directors or to establish a compensation committee or a nominating and corporate governance committee. Accordingly, our unitholders will not have the same protections afforded to certain corporations that are subject to all of NASDAQ’s corporate governance requirements. Please read “Management.”

We will incur increased costs as a result of being a publicly-traded partnership.

We have no history operating as a publicly-traded partnership. As a publicly-traded partnership, we will incur significant legal, accounting and other expenses that we did not incur prior to this offering. In addition, the Sarbanes-Oxley Act of 2002, as well as rules implemented by the SEC and NASDAQ, require publicly-traded entities to adopt various corporate governance practices that will further increase our costs. Before we are able to make distributions to our unitholders, we must first pay or reserve cash for our expenses, including the costs of being a publicly-traded partnership. As a result, the amount of cash we have available for distribution to our unitholders will be affected by the costs associated with being a public company.

Prior to this offering, we have not filed reports with the SEC. Following this offering, we will become subject to the public reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We expect these rules and regulations to increase certain of our legal and financial compliance costs and to make activities more time-consuming and costly. For example, as a result of becoming a publicly-traded company, the board of directors of our general partner is required to have at least three independent directors, create an audit committee and adopt policies regarding internal controls and disclosure controls and procedures, including the preparation of reports on internal controls over financial reporting. In addition, we will incur additional costs associated with our SEC reporting requirements.

We also expect to incur significant expense in order to obtain director and officer liability insurance. Because of the limitations in coverage for directors, it may be more difficult for us to attract and retain qualified persons to serve on the board of directors of our general partner or as executive officers.

We estimate that we will incur $2.0 million of incremental costs per year associated with being a publicly-traded partnership; however, it is possible that our actual incremental costs of being a publicly-traded partnership will be higher than we currently estimate.

Tax Risks to Our Unitholders

In addition to reading the following risk factors, please read “Material U.S. Federal Income Tax Consequences” for a more complete discussion of the expected material U.S. federal income tax consequences of owning and disposing of common units.

Our tax treatment depends on our status as a partnership for U.S. federal income tax purposes. If the Internal Revenue Service were to treat us as a corporation for U.S. federal income tax purposes, which would subject us to entity-level taxation, or if we were otherwise subjected to a material amount of additional entity-level taxation, then our distributable cash flow to our unitholders would be substantially reduced.

The anticipated after-tax benefit of an investment in our units depends largely on our being treated as a partnership for U.S. federal income tax purposes.

Despite the fact that we are a limited partnership under Delaware law, it is possible in certain circumstances for a partnership such as ours to be treated as a corporation for U.S. federal income tax purposes. A change in our business or a change in current law could cause us to be treated as a corporation for U.S. federal income tax purposes or otherwise subject us to taxation as an entity.

 

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If we were treated as a corporation for U.S. federal income tax purposes, we would pay U.S. federal income tax on our taxable income at the corporate tax rate, which is currently a maximum of 35%, and would likely pay state and local income tax at varying rates. Distributions to our unitholders would generally be taxed again as corporate dividends (to the extent of our current and accumulated earnings and profits), and no income, gains, losses, deductions, or credits would flow through to our unitholders. Because a tax would be imposed upon us as a corporation, our distributable cash flow would be substantially reduced. In addition, changes in current state law may subject us to additional entity-level taxation by individual states. Because of widespread state budget deficits and other reasons, several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise and other forms of taxation. Imposition of any such taxes may substantially reduce the distributable cash flow to our unitholders. Therefore, if we were treated as a corporation for U.S. federal income tax purposes or otherwise subjected to a material amount of entity-level taxation, there would be material reduction in the anticipated cash flow and after-tax return to our unitholders, likely causing a substantial reduction in the value of our units.

Our partnership agreement provides that, if a law is enacted or existing law is modified or interpreted in a manner that subjects us to taxation as a corporation or otherwise subjects us to entity-level taxation for U.S. federal, state or local income tax purposes, the minimum quarterly distribution amount and the target distribution levels may be adjusted to reflect the impact of that law on us.

The tax treatment of publicly-traded partnerships or an investment in our units could be subject to potential legislative, judicial or administrative changes or differing interpretations, possibly applied on a retroactive basis.

The present U.S. federal income tax treatment of publicly-traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative or judicial interpretation at any time. For example, the Department of Treasury recently issued proposed regulations that, if finalized in their current form, would restrict the types of natural resource activities that generate qualifying income for publicly-traded partnerships. In addition, from time to time, members of Congress and the President propose and consider substantive changes to the existing U.S. federal income tax laws that affect publicly-traded partnerships, including the elimination of partnership tax treatment for publicly-traded partnerships. Any modification to the U.S. federal income tax laws and interpretations thereof may or may not be retroactively applied and could make it more difficult or impossible to meet the exception for us to be treated as a partnership for U.S. federal income tax purposes. Please read “Material U.S. Federal Income Tax Consequences—Partnership Status.” We are unable to predict whether any such changes will ultimately be enacted. However, it is possible that a change in law could affect us, and any such changes could negatively impact the value of an investment in our common units.

If the Internal Revenue Service were to contest the U.S. federal income tax positions we take, it may adversely impact the market for our common units, and the costs of any such contest would reduce distributable cash flow to our unitholders.

We have not requested a ruling from the Internal Revenue Service, or IRS, with respect to our treatment as a partnership for U.S. federal income tax purposes. The IRS may adopt positions that differ from the conclusions of our counsel expressed in this prospectus or from the positions we take, and the IRS’s positions may ultimately be sustained. It may be necessary to resort to administrative or court proceedings to sustain some or all of our counsel’s conclusions or the positions we take. A court may not agree with some or all of our counsel’s conclusions or the positions we take. Any contest with the IRS may materially and adversely impact the market for our common units and the prices at which they trade. Moreover, the costs of any contest between us and the IRS will result in a reduction in distributable cash flow to our unitholders and thus will be borne indirectly by our unitholders.

 

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Even if our unitholders do not receive any cash distributions from us, our unitholders will be required to pay taxes on their share of our taxable income.

Because our unitholders will be treated as partners to whom we will allocate taxable income that could be different in amount than the cash we distribute, our unitholders’ allocable share of our taxable income will be taxable to our unitholders, which may require the payment of U.S. federal income taxes and, in some cases, state and local income taxes, on our unitholders’ share of our taxable income even if our unitholders receive no cash distributions from us. Our unitholders may not receive cash distributions from us equal to their share of our taxable income or even equal to the actual tax liability that results from that income.

Tax gain or loss on the disposition of our common units could be more or less than expected.

If our unitholders sell common units, they will recognize gain or loss equal to the difference between the amount realized and the tax basis in those common units. Because distributions in excess of their allocable share of our net taxable income decrease their tax basis in their common units, the amount, if any, of such prior excess distributions with respect to the common units they sell will, in effect, become taxable income to them if they sell such common units at a price greater than the tax basis therein, even if the price they receive is less than their original cost. Furthermore, a substantial portion of the amount realized, whether or not representing gain, may be taxed as ordinary income to such unitholder due to potential recapture items, including depreciation recapture. In addition, because the amount realized includes a unitholder’s share of our nonrecourse liabilities, if our unitholders sell common units, they may incur a tax liability in excess of the amount of cash they receive from the sale. Please read “Material U.S. Federal Income Tax Consequences—Disposition of Common Units—Recognition of Gain or Loss” for a further discussion of the foregoing.

Tax-exempt entities and non-U.S. persons owning our common units face unique tax issues that may result in adverse tax consequences to them.

Investment in our common units by tax-exempt entities, such as individual retirement accounts, or IRAs, and non-U.S. persons, raises issues unique to them. For example, virtually all of our income allocated to organizations exempt from U.S. federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. Distributions to non-U.S. persons will be reduced by withholding taxes at the highest applicable effective tax rate, and non-U.S. persons will be required to file U.S. federal income tax returns and pay tax on their share of our taxable income. Tax exempt entities and non-U.S. persons should consult a tax advisor before investing in our common units.

We will treat each purchaser of our common units as having the same tax benefits without regard to the common units purchased. The IRS may challenge this treatment, which could adversely affect the value of our common units.

Because we cannot match transferors and transferees of common units and because of other reasons, we will adopt depreciation and amortization positions that may not conform to all aspects of existing Treasury Regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to our unitholders. Andrews Kurth LLP is unable to opine as to the validity of such filing positions. It also could affect the timing of these tax benefits or the amount of gain from the sale of common units and could have a negative impact on the value of our common units or result in audit adjustments to our unitholders’ tax returns. Please read “Material U.S. Federal Income Tax Consequences—Tax Consequences of Unit Ownership—Section 754 Election” for a further discussion of the effect of the depreciation and amortization positions we will adopt.

 

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We will prorate our items of income, gain, loss, and deduction between transferors and transferees of our common units each month based upon the ownership of our common units on the first day of each month, instead of on the basis of the date a particular common unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss, and deduction among our unitholders.

We will prorate our items of income, gain, loss, and deduction for U.S. federal income tax purposes between transferors and transferees of our common units each month based upon the ownership of our common units on the first day of each month, instead of on the basis of the date a particular common unit is transferred. The use of this proration method may not be permitted under existing Treasury Regulations and, accordingly, our counsel is unable to opine as to the validity of this method. The U.S. Treasury Department has issued proposed Treasury Regulations that provide a safe harbor pursuant to which a publicly-traded partnership may use a similar monthly simplifying convention to allocate tax items among transferor and transferee unitholders. Nonetheless, the proposed regulations do not specifically authorize the use of the proration method we will adopt. If the IRS were to challenge our proration method or new Treasury Regulations were issued, we may be required to change the allocation of items of income, gain, loss, and deduction among our unitholders. Andrews Kurth LLP has not rendered an opinion with respect to whether our monthly convention for allocating taxable income and losses is permitted by existing Treasury Regulations. Please read “Material U.S. Federal Income Tax Consequences—Disposition of Common Units—Allocations Between Transferors and Transferees.”

A unitholder whose common units are the subject of a securities loan (e.g., a loan to a “short seller” to cover a short sale of common units) may be considered as having disposed of those common units. If so, he would no longer be treated for tax purposes as a partner with respect to those common units during the period of the loan and may recognize gain or loss from the disposition.

Because a unitholder whose common units are loaned to a “short seller” to effect a short sale of common units may be considered as having disposed of the loaned common units, he may no longer be treated for U.S. federal income tax purposes as a partner with respect to those common units during the period of the loan to the short seller and the unitholder may recognize gain or loss from such disposition. Moreover, during the period of the loan to the short seller, any of our income, gain, loss or deduction with respect to those common units may not be reportable by the unitholder and any cash distributions received by the unitholder as to those common units could be fully taxable as ordinary income. Andrews Kurth LLP has not rendered an opinion regarding the treatment of a unitholder where common units are loaned to a short seller to effect a short sale of common units; therefore, our unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a loan to a short seller are urged to consult a tax advisor to discuss whether it is advisable to modify any applicable brokerage account agreements to prohibit their brokers from loaning their common units.

We will adopt certain valuation methodologies that may result in a shift of income, gain, loss, and deduction between our unitholders. The IRS may challenge this treatment, which could adversely affect the value of the common units.

When we issue additional common units or engage in certain other transactions, we will determine the fair market value of our assets and allocate any unrealized gain or loss attributable to our assets to the capital accounts of our unitholders and our general partner. Our methodology may be viewed as understating the value of our assets. In that case, there may be a shift of income, gain, loss, and deduction between certain of our unitholders and our general partner, which may be unfavorable to such unitholders. Moreover, under our valuation methods, subsequent purchasers of common units may have a greater portion of their Internal Revenue Code Section 743(b) adjustment allocated to our tangible assets and a lesser portion allocated to our intangible assets. The IRS may challenge our valuation methods, or our allocation of the Section 743(b) adjustment attributable to our tangible and intangible assets, and allocations of income, gain, loss, and deduction between our general partner and certain of our unitholders.

 

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A successful IRS challenge to these methods or allocations could adversely affect the amount of taxable income or loss being allocated to our unitholders. It also could affect the amount of taxable gain from our unitholders’ sale of common units and could have a negative impact on the value of the common units or result in audit adjustments to our unitholders’ tax returns without the benefit of additional deductions.

The sale or exchange of 50% or more of our capital and profits interests within a twelve-month period will result in the termination of us as a partnership for U.S. federal income tax purposes.

We will be considered to have technically terminated our partnership for U.S. federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in our capital and profits within a twelve-month period. For purposes of determining whether the 50% threshold has been met, multiple sales of the same interest will be counted only once. Our technical termination would, among other things, result in the closing of our taxable year for all unitholders, which would result in our filing two tax returns (and our unitholders could receive two Schedule K-1s if relief was not available, as described below) for one fiscal year and could result in a significant deferral of depreciation deductions allowable in computing our taxable income. In the case of a unitholder reporting on a taxable year other than a fiscal year ending December 31, the closing of our taxable year may also result in more than twelve months of our taxable income or loss being includable in taxable income for the unitholder’s taxable year that includes our termination. Our termination currently would not affect our classification as a partnership for U.S. federal income tax purposes, but it would result in our being treated as a new partnership for U.S. federal income tax purposes following the termination. If we were treated as a new partnership, we would be required to make new tax elections, including a new election under Section 754 of the Internal Revenue Code, and could be subject to penalties if we were unable to determine that a termination occurred. The IRS announced a relief procedure whereby if a publicly-traded partnership that has technically terminated requests and the IRS grants special relief, among other things, the partnership may be permitted to provide one Schedule K-1 to unitholders for the year notwithstanding two partnership tax years. Please read “Material U.S. Federal Income Tax Consequences—Disposition of Common Units—Constructive Termination” for a discussion of the consequences of our termination for U.S. federal income tax purposes.

As a result of investing in our common units, our unitholders may be subject to state and local taxes and return filing requirements in jurisdictions where we operate or own or acquire properties.

In addition to U.S. federal income taxes, our unitholders may be subject to other taxes, including foreign, state, and local taxes, unincorporated business taxes, and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we conduct business or control property now or in the future, even if our unitholders do not live in any of those jurisdictions. Our unitholders may be required to file foreign, state, and local income tax returns and pay state and local income taxes in some or all of these various jurisdictions. Further, our unitholders may be subject to penalties for failure to comply with those requirements. We expect to conduct business in multiple states, many of which impose a personal income tax on individuals as well as corporations and other entities. It is the responsibility of our unitholders to file all U.S. federal, foreign, state, and local tax returns. Andrews Kurth LLP has not rendered an opinion on the state or local tax consequences of an investment in our common units.

 

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USE OF PROCEEDS

We expect to receive net proceeds of approximately $         million from the sale of             common units offered by this prospectus, based on an assumed initial public offering price of $         per common unit (the midpoint of the price range set forth on the cover page of this prospectus), after deducting underwriting discounts, structuring fees and estimated offering expenses. We intend to use the net proceeds from this offering as follows:

 

   

$         million will be distributed to our parent, in part, as a reimbursement for certain capital expenditures incurred with respect to our assets;

 

   

$         million will be used to pay origination fees under our new revolving credit facility; and

 

   

$         million will be retained by us for general partnership purposes.

If and to the extent the underwriters exercise their option to purchase additional common units, the number of common units purchased by the underwriters pursuant to such exercise will be issued to the public and the remainder of the                  additional common units, if any, will be issued to our parent. Any such common units issued to our parent will be issued for no additional consideration. If the underwriters exercise in full their option to purchase additional common units from us, we expect to receive additional net proceeds of approximately $             million, after deducting underwriting discounts and structuring fees. The net proceeds from any exercise by the underwriters of their option to purchase additional common units from us will be distributed to our parent.

An increase or decrease in the initial public offering price of $1.00 per common unit would cause the net proceeds from this offering, after deducting underwriting discounts, structuring fees and estimated offering expenses, to increase or decrease by $         million, based on an assumed initial public offering price of $         per common unit (the midpoint of the price range set forth on the cover of this prospectus). If the proceeds increase due to a higher initial public offering price or decrease due to a lower initial public offering price, then the cash distribution to our parent from the proceeds of this offering will increase or decrease, as applicable, by a corresponding amount.

 

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CAPITALIZATION

The following table shows:

 

   

the historical cash and cash equivalents and capitalization of our Predecessor as of March 31, 2015; and

 

   

our pro forma capitalization as of March 31, 2015, giving effect to the pro forma adjustments described in our unaudited pro forma consolidated financial statements included elsewhere in this prospectus, including this offering and the application of the net proceeds of this offering in the manner described under “Use of Proceeds” and the other transactions described under “Prospectus Summary—The Transactions.”

This table is derived from, should be read together with and is qualified in its entirety by reference to the historical consolidated financial statements and the accompanying notes and the unaudited pro forma condensed consolidated financial statements and the accompanying notes included elsewhere in this prospectus.

 

     As of March 31, 2015  

(in thousands)

   Historical      Pro Forma  
            (unaudited)  

Cash and cash equivalents

   $ 3,372       $                
  

 

 

    

 

 

 

Debt

     

Long-term debt(1)

   $ 8,100       $ 8,100   

Revolving credit facility

     —           —     
  

 

 

    

 

 

 

Total long-term debt (including current maturities)

     8,100         8,100   
  

 

 

    

 

 

 

Parent net investment / partners’ equity(2)

     

Non-controlling interest

     228      

Parent net investment

     32,733      

Held by public

     

Common units

     —        

Held by parent

     

Common units

     —        

Subordinated units

     —        

2% General partner interest

     —        
  

 

 

    

 

 

 

Total parent net investment / partners’ equity

     32,961      
  

 

 

    

 

 

 

Total capitalization

   $ 41,061       $     
  

 

 

    

 

 

 

 

(1) Represents $8.1 million of our Predecessor’s 1.0% Qualified Low Income Community Investment Notes, or QLICI Notes, with a maturity date of September 15, 2031.
(2) Assumes the underwriters’ option to purchase additional common units from us is not exercised.

 

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DILUTION

Dilution is the amount by which the initial public offering price per common unit in this offering will exceed the pro forma net tangible book value per common unit after this offering. Based on an assumed initial public offering price of $         per common unit (the mid-point of the price range set forth on the cover page of this prospectus), on a pro forma basis as of March 31, 2015, after giving effect to this offering of common units and the related transactions, our net tangible book value would have been approximately $         million, or $         per common unit. Purchasers of our common units in this offering will experience substantial and immediate dilution in pro forma net tangible book value per common unit for financial accounting purposes, as illustrated in the following table.

 

Assumed initial public offering price per common unit(1) 

      $                

Pro forma net tangible book value per common unit before this offering(2)

   $                   

Increase in net tangible book value per common unit attributable to purchasers in this offering

     
  

 

 

    

Less: Pro forma net tangible book value per common unit after this offering(3)

     
     

 

 

 

Immediate dilution in net tangible book value per common unit to purchasers in this offering(4)(5)

      $     
     

 

 

 

 

(1) The midpoint of the price range set forth on the cover page of this prospectus.
(2) Determined by dividing the pro forma net tangible book value of the contributed assets and liabilities of $         million by the number of units (             common units and             subordinated units and the 2% general partner interest, which has a dilutive effect equivalent to              notional general partner units) to be issued to our general partner and its affiliates for their contribution of assets and liabilities to us.
(3) Determined by dividing the number of units to be outstanding after this offering (             common units and             subordinated units and the 2% general partner interest, which has a dilutive effect equivalent to              notional general partner units) into our pro forma net tangible book value, after giving effect to the application of the net proceeds of this offering, of $         million.
(4) Because the total number of units outstanding following this offering will not be impacted by any exercise of the underwriters’ option to purchase additional common units and any net proceeds from such exercise will not be retained by us, there will be no change to the dilution in net tangible book value per common unit to purchasers in this offering due to any such exercise of the option.
(5) If the initial public offering price were to increase or decrease by $1.00 per common unit, then dilution in net tangible book value per common unit would equal $         and $        , respectively.

The following table sets forth the number of units that we will issue and the total consideration contributed to us by our general partner and its affiliates in respect of their units and by the purchasers of our common units in this offering upon consummation of the transactions contemplated by this prospectus.

 

     Units Acquired     Total Consideration  
     Number    %       Amount            %      
                (in millions)         

General partner and its affiliates(1)(2)(3)

               $                          

Purchasers in this offering

                        
  

 

  

 

 

   

 

 

    

 

 

 

Total

               $               
  

 

  

 

 

   

 

 

    

 

 

 

 

(1) Upon the consummation of the transactions contemplated by this prospectus, our general partner and its affiliates will own common units,             subordinated units and the general partner interest and the 2% general partner interest, which has a dilutive effect equivalent to              notional general partner units.
(2) Assumes the underwriters’ option to purchase additional common units from us is not exercised.
(3) The assets contributed by our general partner and its affiliates were recorded at historical cost in accordance with GAAP. Book value of the consideration provided by our general partner and its affiliates, as of March 31, 2015, was $         million.

 

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OUR CASH DISTRIBUTION POLICY AND RESTRICTIONS ON DISTRIBUTIONS

You should read the following discussion of our cash distribution policy in conjunction with the specific assumptions included in this section. In addition, you should read “Cautionary Note Concerning Forward-Looking Statements” and “Risk Factors” for information regarding statements that do not relate strictly to historical or current facts and certain risks inherent in our business.

General

Rationale for Our Cash Distribution Policy

Our partnership agreement requires that we distribute all of our available cash quarterly. This requirement reflects a basic judgment that our unitholders will be better served if we distribute our available cash rather than retaining it. However, other than the requirement in our partnership agreement to distribute all of our available cash each quarter, we have no legal obligation to pay quarterly cash distributions in any specified amount, and our general partner has considerable discretion to determine the amount of our available cash each quarter. Generally, our available cash is the sum of our (1) cash on hand at the end of a quarter after the payment of our expenses and the establishment of cash reserves and (2) if the board of directors of our general partner so determines, all or any portion of additional cash on hand resulting from working capital borrowings made after the end of the quarter. Because we are not subject to an entity-level federal income tax, we expect to have more cash to distribute than would be the case if we were subject to federal income tax. If we do not generate sufficient available cash from our operations, we may, but are under no obligation to, borrow funds to pay the minimum quarterly distribution to our unitholders.

Limitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy

Although our partnership agreement requires that we distribute all of our available cash quarterly, there is no guarantee that we will pay quarterly cash distributions to our unitholders at our minimum quarterly distribution rate or at any other rate, and we have no legal obligation to do so. In addition, our general partner has considerable discretion in determining the amount of our available cash each quarter. The following factors will affect our ability to pay cash distributions, as well as the amount of any cash distributions we pay:

 

   

Our ability to pay cash distributions may be limited by certain covenants in our new revolving credit facility. Should we be unable to satisfy these financial tests and covenants or otherwise be in default under our new revolving credit facility, we will be prohibited from paying cash distributions. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources and Liquidity—Credit Facility.”

 

   

The amount of cash that we distribute and the decision to pay any distribution is determined by our general partner, taking into consideration the terms of our partnership agreement. Specifically, our general partner will have the authority to establish cash reserves for the prudent conduct of our business, including for future cash distributions to our unitholders, and the establishment of or increase in those reserves could result in a reduction in cash distributions from levels we currently anticipate. Any decision to establish cash reserves made by our general partner in good faith will be binding on our unitholders. Our partnership agreement does not set a limit on the amount of cash reserves that our general partner may establish.

 

   

While our partnership agreement requires us to distribute all of our available cash, our partnership agreement, including the provisions requiring us to pay cash distributions, may be amended. During the subordination period our partnership agreement may not be amended without the approval of our public common unitholders, except in a limited number of circumstances in which our general partner can amend our partnership agreement without any unitholder approval. For a description of these limited circumstances, please read “Our Partnership Agreement—Amendment of Our Partnership Agreement—No Unitholder Approval.” However, after the subordination period has ended, our

 

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partnership agreement may be amended with the consent of our general partner and the approval of a majority of the outstanding common units, including common units owned by our general partner and its affiliates. At the closing of this offering, our parent will own our general partner and will own     % of our total outstanding common units and subordinated units on an aggregate basis (or     % of our total outstanding common units and subordinated units on an aggregate basis if the underwriters’ option to purchase additional common units is exercised in full).

 

   

Under Section 17-607 of the Delaware Act we may not pay a cash distribution if the distribution would cause our liabilities to exceed the fair value of our assets.

 

   

We may lack sufficient cash to pay distributions to our unitholders due to cash flow shortfalls attributable to a number of operational, commercial or other factors as well as increases in our operations and maintenance or general and administrative expenses, principal and interest payments on our debt, tax expenses, working capital requirements and anticipated cash needs. Our available cash is directly impacted by our cash expenses necessary to run our business and will be reduced dollar-for-dollar to the extent such uses of cash increase. Before paying any distributions to our unitholders, we will reimburse our general partner and its affiliates (including our parent) for all direct and indirect expenses they incur on our behalf. Our partnership agreement does not set a limit on the amount of expenses for which our general partner and its affiliates may be reimbursed. These expenses include salary, bonus, incentive compensation and other amounts paid to persons who perform services for us or on our behalf and expenses allocated to our general partner by its affiliates. Our obligation to reimburse our general partner and its affiliates are governed by our partnership agreement, the omnibus agreement and the operational services and secondment agreement that we expect to enter into with our general partner and its affiliates, including our parent. The reimbursement of expenses and payment of fees, if any, to our general partner and its affiliates will reduce the amount of available cash to pay distributions to our unitholders. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—Distributions of Available Cash.”

 

   

Our ability to pay cash distributions to our unitholders depends on the performance of our subsidiaries and their ability to distribute cash to us. The ability of our subsidiaries to pay cash distributions to us may be restricted by, among other things, the provisions of future indebtedness, applicable state partnership and limited liability company laws and other laws and regulations.

 

   

If and to the extent our available cash materially declines from quarter to quarter, we may elect to reduce the amount of our quarterly distributions in order to service or repay our debt or fund expansion capital expenditures.

To the extent that our general partner determines not to distribute the full minimum quarterly distribution on our common units with respect to any quarter during the subordination period, the common units will accrue an arrearage equal to the difference between the minimum quarterly distribution and the amount of the distribution actually paid on the common units with respect to that quarter. The aggregate amount of any such arrearages must be paid on the common units before any distributions of available cash from operating surplus may be made on the subordinated units and before any subordinated units may convert into common units. The subordinated units will not accrue any arrearages. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—Subordinated Units and Subordination Period.”

Our Ability to Grow is Dependent on Our Ability to Access External Expansion Capital

Our partnership agreement requires us to distribute all of our available cash to our unitholders on a quarterly basis. As a result, we expect that we will rely primarily upon our cash reserves and external financing sources, including borrowings under our new revolving credit facility and the future issuance of debt and equity securities, to fund future acquisitions and other expansion capital expenditures. To the extent we are unable to finance growth with external sources of capital, the requirement in our partnership agreement to distribute all of our available cash will significantly impair our ability to grow. In addition, because we will distribute all of our

 

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available cash, our growth may not be as fast as businesses that reinvest all of their available cash to expand ongoing operations. We expect that our new revolving credit facility will restrict our ability to incur additional debt, including through the issuance of debt securities. Please read “Risk Factors—Risks Related to Our Business and Industry—Restrictions in our new revolving credit facility could adversely affect our business, results of operations, ability to make distributions to our unitholders and the value of our units.” To the extent we issue additional partnership interests, the payment of distributions on those additional partnership interests may increase the risk that we will be unable to maintain or increase our cash distributions per unit. There are no limitations in our partnership agreement on our ability to issue additional partnership interests, including partnership interests ranking senior to our common units, and our unitholders will have no preemptive or other rights (solely as a result of their status as unitholders) to purchase any such additional partnership interests. If we incur additional debt (under our new revolving credit facility or otherwise) to finance our growth strategy, we will have increased interest expense, which in turn will reduce the available cash that we have to distribute to our unitholders. Please read “Risk Factors—Risks Related to Our Business and Industry—Debt we incur in the future may limit our flexibility to obtain financing and to pursue other business opportunities.”

Our Minimum Quarterly Distribution

Upon the consummation of this offering, our partnership agreement will provide for a minimum quarterly distribution of $         per unit for each whole quarter, or $         per unit on an annualized basis. Our ability to pay cash distributions at the minimum quarterly distribution rate will be subject to the factors described above under “—General—Limitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy.” Quarterly distributions, if any, will be made within 45 days after the end of each calendar quarter to holders of record on or about the first day of each such month in which such distributions are made. If the distribution date does not fall on a business day, we will pay the distribution on the first business day immediately following the indicated distribution date. We do not expect to pay distributions for the period that begins on                     , 2015, and ends on the day prior to the closing of this offering.

The amount of available cash needed to pay the minimum quarterly distribution on all of our common units and subordinated units and the 2% general partner interest to be outstanding immediately after this offering for one quarter and on an annualized basis (assuming no exercise and full exercise of the underwriters’ option to purchase additional common units) is summarized in the table below:

 

     No Exercise of Option
to Purchase
Additional Common Units
     Full Exercise of Option
to Purchase
Additional Common Units
 
     Aggregate  Minimum
Quarterly
Distributions
     Aggregate  Minimum
Quarterly
Distributions
 
     Number of
Units
   One
Quarter
     Annualized
(Four
Quarters)
     Number of
Units
   One
Quarter
     Annualized
(Four
Quarters)
 
          (in thousands)           (in thousands)  

Publicly-held common units

      $         $            $         $     

Common units held by our parent

                 

Subordinated units held by our parent

                 

2% general partner interest

                 
  

 

  

 

 

    

 

 

    

 

  

 

 

    

 

 

 

Total

      $                    $                       $                    $                
  

 

  

 

 

    

 

 

    

 

  

 

 

    

 

 

 

Initially, our general partner will be entitled to 2% of all distributions that we make prior to our liquidation. Our general partner’s initial 2% general partner interest in these distributions may be reduced if we issue additional partnership interests in the future and our general partner does not contribute a proportionate amount of capital to us in order to maintain its initial 2% general partner interest. Our general partner will also initially hold all of the incentive distribution rights, which entitle the holder to increasing percentages, up to a maximum of 48%, of the cash we distribute in excess of $         per unit per quarter.

 

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During the subordination period, before we pay any quarterly distributions to our subordinated unitholders, our common unitholders are entitled to receive payment of the full minimum quarterly distribution for such quarter plus any arrearages in distributions of the minimum quarterly distribution from prior quarters. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—Subordinated Units and Subordination Period.” We cannot guarantee, however, that we will pay distributions on our common units at our minimum quarterly distribution rate or at any other rate in any quarter.

Although holders of our common units may pursue judicial action to enforce provisions of our partnership agreement, including those related to requirements to pay cash distributions as described above, our partnership agreement provides that any determination made by our general partner in its capacity as our general partner must be made in good faith and that any such determination will not be subject to any other standard imposed by the Delaware Act or any other law, rule or regulation or at equity. Our partnership agreement provides that, in order for a determination by our general partner to be made in “good faith,” our general partner must subjectively believe that the determination is in the best interests of our partnership. In making such determination, our general partner may take into account the totality of the circumstances or the totality of the relationships between the parties involved, including other relationships or transactions that may be particularly favorable or advantageous to us. Please read “Conflicts of Interest and Duties.”

The provision in our partnership agreement requiring us to distribute all of our available cash quarterly may not be modified or repealed without amending our partnership agreement; however, as described above, the actual amount of our cash distributions for any quarter is subject to fluctuations based on the amount of cash we generate from our business, the amount of reserves our general partner establishes in accordance with our partnership agreement and the amount of available cash from working capital borrowings.

Additionally, our general partner may reduce the minimum quarterly distribution and the target distribution levels if legislation is enacted or modified that results in our partnership becoming taxable as a corporation or otherwise subject to taxation as an entity for federal, state or local income tax purposes. In such an event, the minimum quarterly distribution and the target distribution levels may be reduced proportionately by the percentage decrease in our available cash resulting from the estimated tax liability we would incur in the quarter in which such legislation is effective. The minimum quarterly distribution will also be proportionately adjusted in the event of any distribution, combination or subdivision of common units in accordance with the partnership agreement, or in the event of a distribution of available cash from capital surplus. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels.” The minimum quarterly distribution is also subject to adjustment if the holder(s) of the incentive distribution rights (initially only our general partner) elect to reset the target distribution levels related to the incentive distribution rights. In connection with any such reset, the minimum quarterly distribution will be reset to an amount equal to the average cash distribution amount per common unit for the two quarters immediately preceding the reset. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—General Partner’s Right to Reset Incentive Distribution Levels.”

In the sections that follow, we present in detail the basis for our belief that we will be able to fully fund our annualized minimum quarterly distribution of $         per unit for the twelve months ending June 30, 2016. In those sections, we present two tables, consisting of:

 

   

“Unaudited Pro Forma Distributable Cash Flow,” in which we present the amount of distributable cash flow we would have generated on a pro forma basis for the year ended December 31, 2014, and the twelve months ended March 31, 2015, derived from our unaudited pro forma consolidated financial statements that are included in this prospectus, as adjusted to give pro forma effect to this offering and the related formation transactions; and

 

   

“Estimated Distributable Cash Flow for the Twelve Months Ending June 30, 2016,” in which we provide our estimated forecast of our ability to generate sufficient distributable cash flow to support the payment of the minimum quarterly distribution on all units for the twelve months ending June 30, 2016.

 

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Unaudited Pro Forma Distributable Cash Flow for the Year Ended December 31, 2014 and the Twelve Months Ended March 31, 2015

If we had completed the transactions contemplated in this prospectus on January 1, 2014, pro forma distributable cash flow for the year ended December 31, 2014 and the twelve months ended March 31, 2015, would have been approximately $54.1 million and $54.6 million, respectively. The amount of distributable cash flow we generated during the year ended December 31, 2014 on a pro forma basis would have been sufficient to pay the minimum quarterly distribution of $         per unit per quarter ($         per unit on an annualized basis) on all of our common units and all of our subordinated units and the corresponding distributions on our general partner’s 2% general partner interest for such period. The amount of distributable cash flow for the twelve months ended March 31, 2015 on a pro forma basis would have been sufficient to pay the minimum quarterly distribution of $         per unit per quarter ($         per unit on an annualized basis) on all of our common units and all of our subordinated units and the corresponding distributions on our general partner’s 2% general partner interest for such period.

We based the pro forma adjustments upon currently available information and specific estimates and assumptions. The pro forma amounts below do not purport to present our results of operations had the transactions contemplated in this prospectus actually been completed as of the dates indicated. In addition, distributable cash flow is primarily a cash accounting concept, while our unaudited pro forma consolidated financial statements have been prepared on an accrual basis. As a result, you should view the amount of pro forma distributable cash flow only as a general indication of the amount of distributable cash flow that we might have generated had we been formed on January 1, 2014. Our unaudited pro forma distributable cash flow for the year ended December 31, 2014 and the twelve months ended March 31, 2015, reflects our entering into a storage and throughput agreement and two transportation services agreements, and our assumption of terminaling agreements, each with Green Plains Trade, and the recognition of storage, terminal and transportation revenue under those agreements (using historical volumes) at rates that were not recognized on a historical basis. Also included are approximately $2.0 million of estimated annual incremental general and administrative expenses as a result of being a separate publicly-traded partnership, including costs associated with SEC reporting requirements, tax return and Schedule K-1 preparation and distribution, independent audit fees, legal fees, investor relations, Sarbanes-Oxley compliance, stock exchange listing, register and transfer agent fees, incremental officer and director liability expenses and director compensation. These expenses are not reflected in the historical financial statements of our Predecessor or our unaudited pro forma financial statements included elsewhere in the prospectus. Actual distributable cash may differ from pro forma distributable cash flows.

We use the term “distributable cash flow” to measure whether we have generated from our operations, or “earned,” a particular amount of cash sufficient to support the payment of the minimum quarterly distributions. Our partnership agreement contains the concept of “operating surplus” to determine whether our operations are generating sufficient cash to support the distributions that we are paying, as opposed to returning capital to our partners. Any cash distributions by us in excess of cumulative operating surplus will be deemed to be capital surplus under our partnership agreement. Please read “Risk Factors—Risks Inherent in an Investment in Us—If we distribute available cash from capital surplus, which is analogous to a return of capital, our minimum quarterly distribution will be reduced proportionately, and the target distributions relating to our general partner’s incentive distributions will be proportionately decreased” and “Provisions of Our Partnership Agreement Relating to Cash Distributions—Operating Surplus and Capital Surplus—Operating Surplus.” Because operating surplus is a cumulative concept (measured from the initial public offering date, and compared to cumulative distributions from the initial public offering date), we use the term distributable cash flow to approximate operating surplus on a quarterly or annual, rather than a cumulative, basis. As a result, distributable cash flow is not necessarily indicative of the actual cash we have on hand to distribute or that we are required to distribute. We believe that distributable cash flow is substantially equivalent to the operating surplus generated during the periods shown in the table below. We do not anticipate that we will make any cash distributions from capital surplus.

 

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The following table illustrates, on a pro forma basis, for the year ended December 31, 2014, and the twelve months ended March 31, 2015, the amount of cash that would have been available for distribution to our unitholders and our general partner, assuming in each case that this offering and the other transactions contemplated in this prospectus had been consummated on January 1, 2014.

Green Plains Partners LP

Unaudited Pro Forma Distributable Cash Flow

for the Year Ended December 31, 2014 and the Twelve Months Ended March 31, 2015

 

    Pro Forma
Three Months Ended
    Pro Forma
Year Ended

December 31,
2014
    Pro Forma
Three
Months
Ended
March 31,
2015
    Pro Forma
Twelve Months
Ended
March 31,
2015
 

(in thousands)            

  March 31,
2014
    June  30,
2014
    September 30,
2014
    December 31,
2014
       

Revenues

             

Affiliate revenues

  $ 18,312      $ 19,397      $ 20,556      $ 20,533      $ 78,798      $ 19,957      $ 80,443   

Non-affiliate revenues

    1,850        2,218        2,261        2,155        8,484        2,085        8,719   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    20,162        21,615        22,817        22,688        87,282        22,042        89,162   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Expenses

             

Operations and maintenance expenses(1)

    5,606        6,082        6,942        6,847        25,477        7,057        26,928   

General and administrative expenses

    254        290        354        505        1,403        196        1,345   

Depreciation and amortization expense

    1,384        1,403        1,415        1,394        5,596        1,335        5,547   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    7,244        7,775        8,711        8,746        32,476        8,588        33,820   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income

    12,918        13,840        14,106        13,942        54,806        13,454        55,342   

Interest income

    18        19        19        19        75        21        78   

Interest expense(2)

    (210     (210     (210     (210     (840     (195     (825
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    12,726        13,649        13,915        13,751        54,041        13,280        54,595   

Plus:

             

Interest expense(2)

    210        210        210        210        840        195        825   

Depreciation and amortization expense

    1,384        1,403        1,415        1,394        5,596        1,335        5,547   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA(3)

    14,320        15,262        15,540        15,355        60,477        14,810        60,967   

Less:

             

Cash interest paid(2)

    160        160        160        160        640        145        625   

Incremental publicly-traded partnership expenses(4)

    500        500        500        500        2,000        500        2,000   

Incremental allocated operating expenses(5)

    786        821        836        835        3,278        802        3,294   

Maintenance capital expenditures(6)

    114        130        124        109        477        121        484   

Expansion capital expenditures(6)

    350        —          —          18        368        71        89   

Plus:

             

Capital contribution from parent for expansion capital expenditures(7)

    350        —          —          18        368        71        89   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributable Cash Flow(3)

  $ 12,760      $ 13,651      $ 13,920      $ 13,751      $ 54,082      $ 13,242      $ 54,564   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Annualized minimum quarterly distribution per unit

  $        $        $        $        $        $        $     

Distributions to public common unitholders(8)

             

Distributions to our parent—common units(8)

             

Distributions to our parent—subordinated units(8)

             

Distributions to our general partner

             

Total distributions to our unitholders and general partner

             
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Excess of distributable cash flow over aggregate annualized minimum quarterly distributions

  $        $        $        $        $        $        $     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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(1) Includes approximately $20.0 million, $21.2 million and $5.5 million of railcar lease costs under the lease agreements that will be assigned to us in connection with this offering for the year ended December 31, 2014, the twelve months ended March 31, 2015, and the three months ended March 31, 2015, respectively.
(2) Includes (i) interest on our Predecessor’s QLICI Notes and (ii) commitment fees of $0.5 million that would have been paid by our Predecessor had our new revolving credit facility been in place during the periods presented. In addition, interest expense includes the amortization of origination fees on our new revolving credit facility.
(3) For the definition of the non-GAAP financial measure Adjusted EBITDA and a reconciliation of Adjusted EBITDA to our most directly-comparable financial measure calculated and presented in accordance with GAAP, please read “Selected Historical and Pro Forma Condensed Consolidated Financial and Operating Data—Non-GAAP Financial Measure.”
(4) We expect to incur approximately $2.0 million of estimated annual incremental general and administrative expenses as a result of being a separate publicly-traded partnership, including costs associated with SEC reporting requirements, tax return and Schedule K-1 preparation and distribution, independent audit fees, legal fees, investor relations, Sarbanes-Oxley compliance, stock exchange listing, register and transfer agent fees, incremental officer and director liability expenses and director compensation.
(5) Represents $0.4 million of incremental allocated annual general and administrative expenses and $2.9 million of incremental allocated annual operations and maintenance expenses that we will incur under the omnibus agreement and the operational services and secondment agreement, respectively, that we will enter into with our parent as of the closing of this offering.
(6) Historically, we did not make a distinction between maintenance capital expenditures and expansion capital expenditures as will be required in accordance with the definition of those terms in our partnership agreement that will be entered into at the time of this offering. We believe that the amount of maintenance and expansion capital expenditures shown above approximates the maintenance and expansion capital expenditures that we would have recorded in accordance with our partnership agreement for the year ended December 31, 2014 or the twelve months ended March 31, 2015. Under our partnership agreement, maintenance capital expenditures are cash expenditures (including expenditures for the construction or development of new capital assets or the replacement, improvement or expansion of existing capital assets) made to maintain, over the long term, our operating capacity or operating income. Examples of maintenance capital expenditures are expenditures to repair, refurbish and replace ethanol storage facilities, fuel terminal facilities, transportation assets and other related assets and businesses, to maintain equipment reliability, integrity and safety and to address environmental laws and regulations. Under our partnership agreement, expansion capital expenditures are cash expenditures (including expenditures for the construction or development of new capital assets or the replacement, improvement or expansion of existing capital assets) made to increase, over the long term, our operating capacity or operating income. The majority of our assets are relatively new and, therefore, we did not incur significant maintenance capital expenditures for the year ended December 31, 2014 or the twelve months ended March 31, 2015.
(7) Historically, our capital expenditures were funded by our parent; thus we have included a contribution from our parent to fund expansion capital expenditures in a corresponding amount to the amount of expansion capital expenditures. Please read “—Significant Forecast Assumptions—Capital Expenditures.”
(8) Based on the number of common units and subordinated units expected to be outstanding upon the closing of this offering and assumes that the underwriters’ option to purchase additional common units is not exercised.

Estimated Distributable Cash Flow for the Twelve Months Ending June 30, 2016

Our estimated distributable cash flow for the twelve months ending June 30, 2016 is forecasted to be approximately $57.1 million. This amount would exceed by $         million the amount needed to pay the aggregate annualized minimum quarterly distribution of $         per unit on all of our outstanding common and subordinated units for the twelve months ending June 30, 2016. The number of outstanding units on which we have based our estimate assumes that the underwriters’ option to purchase additional common units is not exercised.

We have not historically made public projections as to future operations, earnings or other results. However, management has prepared the forecast of estimated distributable cash flow for the twelve months ending June 30, 2016, and related assumptions set forth below to substantiate our belief that we will have sufficient available cash to pay the minimum quarterly distribution to all of our unitholders for the twelve months ending June 30, 2016. Please read below under “—Significant Forecast Assumptions” for further information as to the assumptions we have made for this forecast. This forecast is a forward-looking statement and should be read together with our unaudited pro forma balance sheet and the accompanying notes included elsewhere in this prospectus and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” This forecast was not prepared with a view toward complying with the published guidelines of the SEC or guidelines established by

 

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the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of our management, was prepared on a reasonable basis, reflects the best currently available estimates and judgments, and presents, to the best of management’s knowledge and belief, the assumptions on which we base our belief that we can generate sufficient distributable cash flow to pay the minimum quarterly distribution to all unitholders for the forecasted period. However, this information is not factual and should not be relied upon as being necessarily indicative of our future results, and readers of this prospectus are cautioned not to place undue reliance on the prospective financial information.

The prospective financial information included in this registration statement has been prepared by, and is the responsibility of, our management. KPMG LLP has neither compiled nor performed any procedures with respect to the accompanying prospective financial information and, accordingly, KPMG LLP does not express an opinion or any other form of assurance with respect thereto.

When considering our financial forecast, you should keep in mind the risk factors and other cautionary statements under “Risk Factors.” Any of the risks discussed in this prospectus, to the extent they are realized, could cause our actual results of operations to vary significantly from those that would enable us to generate our estimated distributable cash flow.

The assumptions and estimates underlying the prospective financial information are inherently uncertain and, though considered reasonable by us as of the date of its preparation, are subject to a wide variety of significant business, economic, and competitive risks and uncertainties that could cause actual results to differ materially from those contained in the prospective financial information. Please read “Cautionary Note Concerning Forward-Looking Statements” and “Risk Factors” for a discussion of various factors that could materially affect our financial condition, results of operations, business, prospects and securities. Accordingly, there can be no assurance that the prospective results are indicative of our future performance or that actual results will not differ materially from those presented in the prospective financial information. Inclusion of the prospective financial information in this prospectus should not be regarded as a representation by any person that the results contained in the prospective financial information will be achieved.

We do not undertake any obligation to release publicly the results of any future revisions we may make to the forecast or to update this forecast to reflect events or circumstances after the date of this prospectus. Therefore, you are cautioned not to place undue reliance on this prospective financial information.

 

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The following table presents our forecast of estimated distributable cash flow for the twelve-month period ending June 30, 2016.

Green Plains Partners LP

Estimated Distributable Cash Flow

 

    Three Months Ending     Twelve Months
Ending

June 30,
2016
 

(in thousands)

  September 30,
2015
    December 31,
2015
    March 31,
2016
    June 30,
2016
   

Revenues

         

Affiliate revenues

  $ 21,403      $ 21,527      $ 21,460      $ 21,500      $ 85,890   

Non-affiliate revenues

    1,885        1,908        1,908        1,908        7,609   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    23,288        23,435        23,368        23,408        93,499   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Expenses

         

Operations and maintenance expenses(1)

    7,579        7,462        7,411        7,369        29,821   

General and administrative expenses(2)

    1,467        1,468        1,243        1,432        5,610   

Depreciation and amortization expense

    1,322        1,326        1,318        1,319        5,285   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    10,368        10,256        9,972        10,120        40,716   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income

    12,920        13,179        13,396        13,288        52,783   

Interest income

    21        21        21        21        84   

Interest expense(3)

    (195     (195     (195     (195     (780
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Income

    12,746        13,005        13,222        13,114        52,087   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Plus:

         

Interest expense(3)

    195        195        195        195        780   

Depreciation and amortization expense

    1,322        1,326        1,318        1,319        5,285   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA(4)

    14,263        14,526        14,735        14,628        58,152   

Less:

         

Cash interest paid(3)

    145        145        145        145        580   

Maintenance capital expenditures(5)

    120        122        128        129        499   

Expansion capital expenditures(6)

    —          —          —          —          —     

Plus:

         

Borrowings to fund expansion capital expenditures

    —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributable Cash Flow

  $ 13,998      $ 14,259      $ 14,462      $ 14,354      $ 57,073   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Annualized minimum quarterly distribution per unit

         

Distributions to public common unitholders(7)

  $        $        $        $        $     

Distributions to our parent—common units(7)

         

Distributions to our parent—subordinated units(7)

         

Distributions to our general partner

         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to our unitholders and general partner

         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Excess of distributable cash flow over aggregate annualized minimum quarterly distributions

  $        $        $        $        $     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Includes approximately $21.5 million of railcar lease expenses under the lease agreements that will be assigned to us in connection with this offering, as well as approximately $3.1 million of incremental allocated operations and maintenance expenses that we will incur under the operational services and secondment agreement that we will enter into with our parent as of the closing of this offering.
(2) We expect to incur approximately $2.0 million of annual incremental general and administrative expenses as a result of being a separate publicly-traded partnership, including costs associated with SEC reporting requirements, tax return and Schedule K-1 preparation and distribution, independent audit fees, legal fees, investor relations, Sarbanes-Oxley compliance, stock exchange listing, register and transfer agent fees, incremental officer and director liability expenses and director compensation. Also includes $0.4 million of incremental allocated annual general and administrative expenses that we will incur under the omnibus agreement that we will enter into with our parent as of the closing of this offering.

 

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(3) Includes interest on amounts outstanding under our new revolving credit facility, commitment fees on the unused portion of our new revolving credit facility and interest on our Predecessor’s QLICI Notes. In addition, interest expense includes the amortization of origination fees on our new revolving credit facility.
(4) For the definition of the non-GAAP financial measure Adjusted EBITDA and a reconciliation of Adjusted EBITDA to our most directly comparable financial measure calculated and presented in accordance with GAAP, please read “Selected Historical and Pro Forma Condensed Consolidated Financial and Operating Data—Non-GAAP Financial Measure.”
(5) Maintenance capital expenditures are cash expenditures (including expenditures for the construction or development of new capital assets or the replacement, improvement or expansion of existing capital assets) made to maintain, over the long term, our operating capacity or operating income. Examples of maintenance capital expenditures are expenditures to repair, refurbish and replace ethanol storage facilities, fuel terminal facilities, transportation assets and other related assets and businesses, to maintain equipment reliability, integrity and safety and to address environmental laws and regulations.
(6) Expansion capital expenditures are cash expenditures (including expenditures for the construction or development of new capital assets or the replacement, improvement or expansion of existing capital assets) made to increase, over the long term, our operating capacity or operating income.
(7) Based on the number of common units and subordinated units expected to be outstanding upon the closing of this offering and assumes that the underwriters’ option to purchase additional common units is not exercised.

Significant Forecast Assumptions

The forecast is unaudited and has been prepared by, and is the responsibility of, management. The forecast reflects our judgment as of the date of this prospectus of conditions we expect to exist and the course of action we expect to take during the twelve months ending June 30, 2016. While the assumptions disclosed in this prospectus are not all-inclusive, the assumptions listed below are those that we believe are material to our forecasted results of operations, and any assumptions not discussed below were not deemed to be material. We believe we have a reasonable, objective basis for these assumptions. We believe our actual results of operations will approximate those reflected in our forecast, but we can give no assurance that our forecasted results will be achieved. There will likely be differences between our forecast and our actual results and those differences could be material. If the forecasted results are not achieved, we may not be able to pay cash distributions on our common units at the minimum quarterly distribution rate or at all.

General Considerations

Historically, our parent did not operate our ethanol storage facilities and railcar fleet as stand-alone businesses for profit and, as a result, has not had intercompany revenues attributable to these activities. We expect our ethanol storage facilities and our transportation assets will be solely attributable to the storage and transportation of ethanol under our agreements with Green Plains Trade.

As discussed in this prospectus, we expect a substantial portion of our revenues and expenses will be determined by a storage and throughput agreement and rail transportation services agreement that did not previously exist and that we expect to enter into with Green Plains Trade at the closing of this offering. Through our parent’s contribution of BlendStar LLC to us upon the closing of this offering, we will also assume the Birmingham terminaling agreement and several other terminaling agreements with Green Plains Trade as well as several terminaling agreements with third parties. Our storage and throughput agreement and certain of our terminaling agreements, including the Birmingham terminaling agreement, will be supported by minimum volume commitments, and our rail transportation services agreement will be supported by minimum take-or-pay capacity commitments. Accordingly, our forecasted results are not directly comparable with historical periods. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting the Comparability of Our Financial Results” And “Business—Commercial Agreements with Our Parent’s Affiliate.”

Revenues and Volumes

We estimate that we will generate pro forma revenues of $93.5 million for the twelve months ending June 30, 2016, compared with pro forma revenues of $87.3 million for the year ended December 31, 2014 and

 

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$89.2 million for the twelve months ended March 31, 2015. For the twelve months ending June 30, 2016, approximately $51.6 million, or 55.2%, of our forecasted revenues are attributable to our storage and throughput agreement with Green Plains Trade, approximately $3.4 million, or 3.7%, of our forecasted revenues is attributable to our terminaling agreements with Green Plains Trade, approximately $27.8 million, or 29.7%, of our forecasted revenues is attributable to our rail transportation services agreement with Green Plains Trade, approximately $3.0 million, or 3.2% of our forecasted revenues is attributable to our trucking transportation agreement with Green Plains Trade, and approximately $7.6 million, or 8.1%, of our forecasted revenues is attributable to our terminaling agreements with third parties. Based on our assumptions for the twelve months ending June 30, 2016, we expect 85.5% of our forecasted revenues to be supported by minimum commitments under our commercial agreements with Green Plains Trade and third parties.

To forecast our revenues, we used our historical volumes handled on behalf of our parent and third parties for the year ended December 31, 2014, and made adjustments taking into account historical utilization of capacity, internal forecasts for our parent’s ethanol production capacity and U.S. and global ethanol supply and demand. The increase in forecasted revenues compared to the year ended December 31, 2014 is primarily due to an increase in volumes attributable to the 100 mmgy ethanol expansion project that our parent is implementing at its ethanol production plants, partially offset by lower assumed utilization.

The following table compares forecasted volumes and capacity, as applicable, and our minimum commitments under our commercial agreements for the twelve months ending June 30, 2016 to actual volumes for the year ended December 31, 2014.

 

Agreement

  Actual Year
Ended December 31,
2014
    Forecasted Twelve
Months Ending
June 30, 2016
    Minimum
Commitments
    Percentage of
Forecasted
Revenue for Twelve
Months Ending
June 30, 2016(1)
 

Green Plains Trade Agreements

       

Storage and Throughput(mmgy)

    966.2        1,033.0        850.0 (2)      55.2

Birmingham Terminaling(mmgy)

    40.6        33.2        33.2 (2)      1.3   

Other Terminals(mmgy)

    69.3        74.1        28.8 (3)      2.4   

Rail Transportation Services(mmg)

    60.4 (4)      63.8 (5)      66.3 (6)      29.7   

Third-Party Agreements

       

Birmingham Terminaling(mmgy)

    174.9        165.9        165.9        6.3

Other Terminals(mmgy)

    40.0        31.6        12.9 (3)      1.8   

 

(1) Excludes transportation usage related to our tanker trucks, which comprises 3.2% of forecasted revenue for the twelve months ending June 30, 2016.
(2) Represents the annualized minimum volume commitments under our storage and throughput agreement and our Birmingham terminaling agreement.
(3) Only certain of our terminaling agreements with Green Plains Trade and third parties for our other terminals have minimum volume commitments.
(4) Represents the daily weighted average volumetric capacity leased by us subject to our rail transportation services agreement for the twelve months ending December 31, 2014.
(5) Represents the daily weighted average volumetric capacity leased by us subject to our rail transportation services agreement for the twelve months ending June 30, 2016.
(6) Our rail transportation service agreement will be supported by minimum take-or-pay capacity commitments of 66.3 mmg upon completion of the offering. As our railcar lease agreements expire, the respective volumetric capacity of those expired leases will no longer be subject to the rail transportation services agreement, and the minimum take-or-pay capacity commitment will be reduced proportionately. We will also receive a monthly management fee of approximately $0.0013 per gallon for providing services in support of railcar volumetric capacity provided to Green Plains Trade by third parties. Under our rail transportation services agreement, fees will be assessed daily and payable monthly.

 

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We have forecasted volumes from Green Plains Trade under our storage and throughput agreement above at the minimum volume commitment under such agreement. We have forecasted volumes from Green Plains Trade under our terminaling agreement for the Birmingham terminal at the minimum volume commitment. We have forecasted volumes from Green Plains Trade under our rail transportation services agreement at the minimum take-or-pay capacity commitment and assumed that any railcar volumetric capacity provided by us will be replaced by Green Plains Trade with railcar volumetric capacity from third parties upon the expiration of our underlying lease agreements. We have forecasted usage and volumes from Green Plains Trade under terminaling agreements at our other fuel terminal facilities and our trucking transportation agreement based on actual historical usage and volumes. We have forecasted usage and volumes from third parties under terminaling agreements for our Birmingham facility at the minimum volume commitments under those agreements and for our other fuel terminal facilities based on actual historical usage and volumes. We expect that any variances between the actual and forecasted revenues of our fuel terminal facilities will be driven by differences between actual and forecasted volumes received from third parties for terminal services and logistics solutions.

Ethanol Storage Facilities. Under our storage and throughput agreement, Green Plains Trade will be obligated to throughput a minimum of 212.5 mmg per calendar quarter of product (equivalent to 850 mmgy) at our storage facilities, representing approximately 85% of our parent’s production capacity as of December 31, 2014, and will be obligated to pay $0.05 per gallon on all volumes it throughputs, subject to an inflation escalator based on the PPI following the last day of the fifth year of the primary term. The forecast reflects the assumption that Green Plains Trade will utilize 1,033 mmgy of our daily average storage capacity, which implies a utilization rate of 95.6% for the twelve months ending June 30, 2016.

The following table compares the forecasted daily average capacity at our parent’s ethanol production facilities and throughput at our storage facilities for the twelve months ending June 30, 2016 with daily average capacity and throughput for the year ended December 31, 2014:

 

     Actual Year  Ended
December 31, 2014
    Forecasted For the
Twelve Months Ending
June 30, 2016
 

Ethanol Production Plant Location

   Daily Average
Capacity
(mmgy)
     Throughput(1)
(mmgy)
    Daily  Average
Capacity

(mmgy)
     Throughput(1)
(mmgy)
 

Atkinson, Nebraska

     50         47        56         54   

Bluffton, Indiana

     120         113        120         115   

Central City, Nebraska

     100         106 (2)      112         107   

Fairmont, Minnesota

     106         101        125         119   

Lakota, Iowa

     100         106 (2)      115         110   

Obion, Tennessee

     120         116        120         115   

Ord, Nebraska

     55         59 (2)      55         53   

Otter Tail, Minnesota

     60         44        60         57   

Riga, Michigan

     60         54        60         57   

Shenandoah, Iowa

     65         69 (2)      75         72   

Superior, Iowa

     60         54        60         57   

Wood River, Nebraska

     115         98        122         117   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total (subject to rounding)

     1,011         966        1,080         1,033   
  

 

 

    

 

 

   

 

 

    

 

 

 

Utilization

        95.6        95.6
     

 

 

      

 

 

 

 

(1) Throughput for our storage facilities is equal to plant production at our parent’s ethanol production plants.
(2) Throughput for the year ended December 31, 2014 was higher than the daily average capacity for the same period due to lower than expected downtime at the applicable ethanol production plant.

The increase in the aggregate production capacity at our parent’s ethanol production facilities for the twelve months ending June 30, 2016 compared to the year ended December 31, 2014 assumes the timely completion of our parent’s announced 100 mmgy expansion project at its ethanol production plants. We will not be obligated to spend any capital expenditures on these capital expansion projects.

 

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Fuel Terminal Facilities. Green Plains Trade is obligated to pay us a minimum monthly fee of $0.0355 per gallon on Green Plains Trade’s minimum throughput of approximately 2.8 mmg at our Birmingham facility. In addition, we have two contracts with third parties, with remaining terms of two years, pursuant to which such parties are obligated to pay us aggregate monthly minimum charges on minimum throughput of 13.8 mmgy at our Birmingham facility. Our throughput capacity at our Birmingham facility for the year ended December 31, 2014 was 300 mmg and our utilization rate was approximately 72%. Our throughput capacity at our Birmingham facility for the three months ended March 31, 2015 was 75 mmg and our utilization rate was approximately 67%. Our forecasted throughput at our Birmingham facility is assumed to equal the minimum volume commitments under the applicable contracts and represents a utilization rate of approximately 66%.

At our other terminal facilities, Green Plains Trade and third parties will pay us varying rates per gallon of product throughput at the facilities. For this forecast, we have assumed a slight decrease in our revenues from these facilities of approximately $0.7 million. Certain of our terminal services arrangements with Green Plains Trade and third parties for these terminals will be supported by minimum volume commitments.

Transportation Assets. The forecast reflects an assumption that Green Plains Trade will be obligated to pay us for a minimum of 66.3 mmg of railcar volumetric capacity pursuant to our rail transportation services agreement with Green Plains Trade, which represents the aggregate volumetric capacity of all of the railcars currently under lease by us, and a weighted average of 63.8 mmg of railcar volumetric capacity leased by us during the twelve-month forecast period ending June 30, 2016. The monthly fee under our rail transportation services agreement with Green Plains Trade is approximately $0.0361 per gallon for the forecast period for the railcar volumetric capacity provided by us. Under our rail transportation services agreement, we will also manage the logistical operations and provide other services related to railcar volumetric capacity provided by third parties to Green Plains Trade and will receive a monthly management fee of approximately $0.0013 per gallon for providing such services. Under our rail transportation services agreement, fees will be assessed daily and payable monthly. Our leased railcars are subject to lease agreements with various terms and as a result, upon the expiration of the term of a railcar lease agreement, the minimum take-or-pay capacity commitment shall be reduced by the volumetric capacity of the railcars subject to the expired railcar lease agreements. 4.6%, 41.4%, 5.1% and 10.4% of the current railcar volumetric capacity of our current leased railcar fleet have terms that will expire in the years ended December 31, 2015, 2016, 2017 and 2018, respectively, or approximately 61.5% of our current railcar volumetric capacity during that timeframe. We do not forecast that we will lease additional railcar volumetric capacity to replace the railcar volumetric capacity that will no longer be subject to our rail transportation services agreement as a result of expiring leases. Instead, we have forecasted that when the leases expire, Green Plains Trade will replace that railcar volumetric capacity with railcar volumetric capacity leased from a third party.

In addition, we provide fuel transport services pursuant to our trucking transportation agreement with Green Plains Trade. In 2014, we transported 38.0 mmg of ethanol using our tanker trucks. We have forecasted that we will transport additional volumes using tanker trucks due to anticipated acquisitions of four additional tanker trucks, which will result in aggregate revenues of 3.2% of forecasted revenue for the twelve months ending June 30, 2016. Please read “—Capital Expenditures.”

Operations and Maintenance Expenses

Our operations and maintenance expenses are comprised primarily of lease expenses related to our transportation assets, labor expenses, outside contractor expenses, insurance premiums, repairs and maintenance expenses and utility costs. We estimate that we will incur operations and maintenance expenses of $29.8 million for the twelve months ending June 30, 2016, compared with $25.5 million for the year ended December 31, 2014 and $26.9 million for the twelve months ended March 31, 2015, each on a pro forma basis. Our forecasted operations and maintenance expenses include $21.5 million of lease costs related to our railcars and an estimated reimbursement of $3.1 million to our parent under the operational services and secondment agreement that we and our parent will enter into at the closing of this offering, under which our parent will agree to provide certain

 

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management, maintenance and operational services to us in support of our facilities. Additionally, we intend to retrofit or replace any of our approximately 2,200 leased railcars to abide by new regulations adopted by the DOT to address concerns related to safety. Pursuant to the terms of the omnibus agreement we will enter into upon the closing of this offering, our parent will indemnify us for any cost associated with the retrofit or replacement of our leased railcars pursuant to the DOT regulations. For a more complete description of these provisions please read “Certain Relationships and Related Party Transactions—Agreements with Affiliates in Connection with the Transactions—Operational Services and Secondment Agreement” and “Certain Relationships and Related Party Transactions—Agreements with Affiliates in Connection with the Transactions—Omnibus Agreement.”

General and Administrative Expenses

We estimate that our total general and administrative expenses will be $5.6 million pro forma for the twelve months ending June 30, 2016, compared with $1.4 million, which excludes $0.4 million of incremental allocated general and administrative expenses, for the year ended December 31, 2014 and $1.3 million for the twelve months ended March 31, 2015, each on a pro forma basis. The estimated increase in general and administrative expenses is expected to be attributable to the following:

 

   

approximately $1.8 million per year to our parent under the omnibus agreement that we and our parent will enter into at the closing of this offering for the provision of certain general and administrative services to us. For a more complete description of this agreement and the services covered by it, please read “Certain Relationships and Related Party Transactions—Agreements with our Affiliates in Connection with the Transactions—Omnibus Agreement”; and

 

   

approximately $2.0 million of incremental annual expenses as a result of being a publicly-traded partnership, including costs associated with SEC reporting requirements, tax return and Schedule K-1 preparation and distribution, independent audit fees, legal fees, investor relations, Sarbanes-Oxley compliance, stock exchange listing, register and transfer agent fees, director compensation and incremental officer and director liability insurance costs.

Depreciation and Amortization Expense

We estimate that depreciation and amortization expense will be $5.3 million for the twelve months ending June 30, 2016, compared with $5.6 million for the year ended December 31, 2014, and $5.5 million for the twelve months ended March 31, 2015, each on a pro forma basis. We forecasted depreciation and amortization expense based on expected cost basis of our assets and their related depreciation and amortization lives.

Financing

We estimate that interest expense will be approximately $0.8 million for the twelve months ending June 30, 2016, compared with $0.8 million for the year ended December 31, 2014, and $0.8 million for the twelve months ended March 31, 2015, each on a pro forma basis, based on the following assumptions:

 

   

we will enter into a new $100 million revolving credit facility at the closing of this offering, which will remain undrawn during the forecast period;

 

   

interest expense includes an estimated 0.50% commitment fee for the unutilized portion of the revolving credit;

 

   

interest expense includes the amortization of debt issuance costs incurred in connection with our new revolving credit facility;

 

   

interest expense includes interest on our Predecessor’s QLICI Notes; and

 

   

we expect to realize immaterial interest income attributable to the $8 million note receivable related to our Predecessor’s QLICI Notes.

 

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Capital Expenditures

We estimate that total capital expenditures for the twelve months ending June 30, 2016 will be approximately $0.5 million compared with approximately $0.8 million for the year ended December 31, 2014, and $0.6 million for the twelve months ended March 31, 2015, each on a pro forma basis. Our estimate is based on the following assumptions:

 

   

we estimate that our maintenance capital expenditures will be approximately $0.5 million for the twelve months ending June 30, 2016; and

 

   

we estimate that we will not incur any expansion capital expenditures for the twelve months ending June 30, 2016.

We assume that the capital expenditures associated with the expansion projects by our parent, if any, during the twelve months ending June 30, 2016 would be minimal since our ethanol storage facilities have available capacity to accommodate growth in our parent’s throughput.

Regulatory, Industry and Economic Factors

Our forecast of estimated Adjusted EBITDA for the twelve months ending June 30, 2016 is based on the following significant assumptions related to regulatory, industry and economic factors:

 

   

neither Green Plains Trade nor any third parties will default under any of our commercial agreements or reduce, suspend or terminate their obligations, nor will any events occur that would be deemed a force majeure event, under such commercial agreements;

 

   

our ethanol storage facilities will not fall below the level of Green Plains Trade’s commitment under the storage and throughput agreement at any time;

 

   

there will not be any new federal, state or local regulation, or any interpretation of existing regulation, of the portions of the ethanol and logistics industries in which we operate that will be materially adverse to our business;

 

   

there will not be any material accidents, weather-related incidents, unscheduled downtime or similar unanticipated events that affect our assets or the storage, throughput, terminal or transportation of the ethanol volumes included in our forecast;

 

   

there will not be a shortage of skilled labor; and

 

   

there will not be any material adverse changes in the ethanol storage, throughput, terminal or transportation industries, the ethanol and fuel markets or overall economic conditions.

 

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PROVISIONS OF OUR PARTNERSHIP AGREEMENT RELATING TO CASH DISTRIBUTIONS

Set forth below is a summary of the significant provisions of our partnership agreement that relate to cash distributions.

Distributions of Available Cash

General

Our partnership agreement requires that, within 45 days after the end of each quarter, beginning with the quarter ending                     , 2015, we distribute all of our available cash to unitholders of record on the applicable record date. We will adjust the amount of our distribution for the period from the closing of this offering through                     , 2015, based on the number of days in that period.

Definition of Available Cash

Available cash generally means, for any quarter, all cash and cash equivalents on hand at the end of that quarter:

 

   

less, the amount of cash reserves established by our general partner to:

 

   

provide for the proper conduct of our business (including reserves for our future capital expenditures, future acquisitions and anticipated future debt service requirements);

 

   

comply with applicable law, any of our or our subsidiaries’ debt instruments or other agreements or any other obligation; or

 

   

provide funds for distributions to our unitholders and to our general partner for any one or more of the next four quarters (provided that our general partner may not establish cash reserves for distributions if the effect of the establishment of such reserves will prevent us from distributing the minimum quarterly distribution on all common units and any cumulative arrearages on such common units for the current quarter);

 

   

plus, if our general partner so determines, all or any portion of the cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made subsequent to the end of such quarter.

The purpose and effect of the last bullet point above is to allow our general partner, if it so decides, to use cash from working capital borrowings made after the end of the quarter but on or before the date of determination of available cash for that quarter to pay distributions to unitholders. Under our partnership agreement, working capital borrowings are generally borrowings incurred under a credit facility, commercial paper facility or similar financing arrangement that are used solely for working capital purposes or to pay distributions to our partners and with the intent of the borrower to repay such borrowings within twelve months with funds other than from additional working capital borrowings.

Intent to Distribute the Minimum Quarterly Distribution

Under our current cash distribution policy, we intend to pay a minimum quarterly distribution to the holders of our common units and subordinated units of $         per unit, or $         per unit on an annualized basis, to the extent we have sufficient available cash after the establishment of cash reserves and the payment of costs and expenses, including reimbursements of expenses to our general partner and its affiliates. However, there is no guarantee that we will pay the minimum quarterly distribution on our units in any quarter. The amount of distributions paid under our cash distribution policy and the decision to pay any distribution will be determined by our general partner, taking into consideration the terms of our partnership agreement. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources and Liquidity—Credit Facility” for a discussion of the restrictions that we expect to be included in our new revolving credit facility that may restrict our ability to pay distributions.

 

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General Partner Interest and Incentive Distribution Rights

Initially, our general partner will be entitled to 2% of all quarterly distributions from inception that we make prior to our liquidation. Our general partner has the right, but not the obligation, to contribute a proportionate amount of capital to us to maintain its current general partner interest. The general partner’s initial 2% general partner interest in these distributions will be reduced if we issue additional limited partner interests in the future and our general partner does not contribute a proportionate amount of capital to us to maintain its 2% general partner interest (other than the issuance of common units upon any exercise by the underwriters of their option to purchase additional common units in this offering).

Our general partner will also initially hold incentive distribution rights that will entitle it to receive increasing percentages, up to a maximum of 48%, of the available cash we distribute from operating surplus (as defined below) in excess of $         per unit per quarter. The maximum distribution of 48% does not include any distributions that our general partner or its affiliates may receive on the general partner interest, common units or subordinated units that they may own. Please read “—General Partner Interest and Incentive Distribution Rights” for additional information.

Operating Surplus and Capital Surplus

General

All cash distributed to unitholders will be characterized as either being paid from “operating surplus” or “capital surplus.” We treat distributions of available cash from operating surplus differently than distributions of available cash from capital surplus.

Operating Surplus

We define operating surplus as:

 

   

$         million (as described below); plus

 

   

all of our cash receipts after the closing of this offering, excluding cash from interim capital transactions (as defined below), provided that cash receipts from the termination of a commodity hedge or interest rate hedge prior to its specified settlement or termination date will be included in operating surplus in equal quarterly installments over the remaining scheduled life of such commodity hedge or interest rate hedge had it not been terminated; plus

 

   

working capital borrowings made after the end of a quarter but on or before the date of determination of operating surplus for that quarter; plus

 

   

cash distributions (including incremental distributions on incentive distribution rights) paid in respect of equity issued, other than equity issued in this offering, to finance all or a portion of expansion capital expenditures in respect of the period from such financing until the earlier to occur of the date the capital asset commences commercial service and the date that it is abandoned or disposed of; plus

 

   

cash distributions (including incremental distributions on incentive distribution rights) paid in respect of equity issued to pay the construction period interest on debt incurred, or to pay construction period distributions on equity issued, to finance all or a portion of expansion capital expenditures in respect of the period from such financing until the earlier to occur of the date the capital asset commences commercial service and the date that it is abandoned or disposed of; less

 

   

all of our operating expenditures (as defined below) after the closing of this offering; less

 

   

the amount of cash reserves established by our general partner to provide funds for future operating expenditures; less

 

   

all working capital borrowings not repaid within twelve months after having been incurred, or repaid within such 12-month period with the proceeds of additional working capital borrowings.

 

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As described above, operating surplus does not reflect actual cash on hand that is available for distribution to our unitholders and is not limited to cash generated by our operations. For example, it includes a provision that will enable us, if we choose, to distribute as operating surplus up to $         million of cash we receive in the future from non-operating sources such as asset sales, issuances of securities and long-term borrowings that would otherwise be distributed as capital surplus. In addition, the effect of including, as descr