TPG invests $300m in natural gas company

The private equity firm will take a preferred interest in Houston-based Copano Energy, which will fund an expansion project in the Eagle Ford Shale.

Private equity firm TPG Capital has purchased $300 million of preferred equity in Copano Energy, a publicly traded natural gas pipeline and processing business.

Copano said TPG’s preferred shares were priced at $29.05 per share, representing a 10 percent premium to the 30-day average price of its common shares as of 19 July.

As of press time, Copano’s common shares stood at $28.05, up 1.85 percent on the day’s trading.

The transaction highlights private equity firms’ continuing interest in the US’ natural gas sector, which has been hungry for capital for expansion projects. In response, private equity firms have been investing in the sector.

In February, Kohlberg Kravis Roberts inked a joint venture with an oil and gas company to jointly invest in the sector and is reportedly marketing a $900 million fund devoted to natural resources opportunities.

And last year, Alinda Capital Partners invested $526.5 million in a joint venture that will build a natural gas pipeline in Louisiana and Global Infrastructure Partners agreed to invest up to $700 million in a 675-mile long Ruby natural gas pipeline.

Like GIP, TPG is structuring its investment as a preferred interest that can convert into common equity in the future. TPG’s preferred shares will be entitled to quarterly distributions of about 73 cents per share for the next three years, meaning that TPG will receive about a 10 percent annual yield on the investment. After the three year period, TPG’s preferred shares will be convertible into common shares on a one-for-one basis. But shareholders must first approve the conversion, Copano said.

Michael MacDougall, the head of TPG’s energy and natural resources team, will also join the board of Copano as part of the deal. He called the investment “a long-term source of flexible capital” which will be used to accelerate the development of Copano’s “attractive growth opportunities,” according to a statement.

Chief among these will be an expansion of Copano’s existing services in Eagle Ford Shale, a natural gas-rich area in southern Texas.

TPG did not disclose which of its funds is making the investment. However, TPG Capital makes its investments out of one fund, regardless of industry. Its latest fund, TPG Partners VI, closed on $19 billion in 2008.

Bank of America Merrill Lynch acted as placement agent to Copano on the transaction. Morgan Stanley acted as Copano’s financial advisor.