UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-35719

Southcross Energy Partners, L.P.

(Exact name of registrant as specified in its charter)



DELAWARE		45-5045230
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



1717 Main Street, Suite 5200 Dallas, TX		75201
(Address of principal executive offices)		(Zip Code)

(214) 979-3700

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes o No o

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



Large accelerated filer o		Accelerated filer o

Non-accelerated filer x		Smaller reporting company x

Emerging Growth Company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

Indicate by check mark whether registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ý No o

As of August 9, 2019, the registrant has 48,694,891 common units outstanding, 12,213,713 subordinated units outstanding and 19,996,781 Class B Convertible Units outstanding. Our common units trade on the OTC Pink under the symbol “SXEEQ.”

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Commonly Used Terms

As generally used in the energy industry and in this Quarterly Report on Form 10-Q, the following terms have the following meanings:

/d: Per day

/gal: Per gallon

Bbls: Barrels

Condensate: Hydrocarbons that are produced from natural gas reservoirs but remain liquid at normal temperature and pressure

MMBtu: One million British thermal units

Mcf: One thousand cubic feet

MMcf: One million cubic feet

NGLs: Natural gas liquids, which consist primarily of ethane, propane, isobutane, normal butane, natural gasoline and stabilized condensate

Residue gas: Pipeline quality natural gas remaining after natural gas is processed and NGLs and other matters are removed

Rich gas: Natural gas that is high in NGL content

Throughput: The volume of natural gas and NGLs transported or passing through a pipeline, plant, terminal or other facility

Y-grade: Commingled mix of NGL components extracted via natural gas processing normally consisting of ethane, propane, isobutane, normal butane and natural gasoline

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FORM 10-Q

TABLE OF CONTENTS

Southcross Energy Partners, L.P.



PART I — FINANCIAL INFORMATION		4

ITEM 1.	Financial Statements (Unaudited)	4

	Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018	4

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018	5

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018	6

	Condensed Consolidated Statements of Changes in Partners’ Capital for the Three and Six Months Ended June 30, 2019 and 2018	8

	Notes to Condensed Consolidated Financial Statements (Unaudited)	9

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	59

ITEM 4.	Controls and Procedures	59

PART II — OTHER INFORMATION		60

ITEM 1.	Legal Proceedings	60

ITEM 1A.	Risk Factors	60

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60

ITEM 3.	Defaults Upon Senior Securities	60

ITEM 4.	Mine Safety Disclosures	60

ITEM 5.	Other Information	60

ITEM 6.	Exhibits	60

SIGNATURES		61

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

SOUTHCROSS ENERGY PARTNERS, L.P.

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except for unit data)

(Unaudited)



	June 30, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	29,557		$	11,707
Restricted cash	55,000			—
Trade accounts receivable	40,279			53,941
Accounts receivable - affiliates	—			5,980
Prepaid expenses	3,183			3,521
Other current assets	22,278			8,212
Total current assets	150,297			83,361

Property, plant and equipment, net	381,162			427,021
Investments in joint ventures	92,237			96,980
Other assets	8,128			3,090
Total assets	$	631,824		$	610,452

LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities	$	32,367		$	60,825
Accounts payable - affiliates	1,010			288
Current portion of long-term debt	254,231			521,123
Other current liabilities	3,902			15,309
Total current liabilities	291,510			597,545

Other non-current liabilities	153			16,715
Total liabilities not subject to compromise	291,663			614,260
Liabilities subject to compromise (Note 2)	443,118			—
Total liabilities	734,781			614,260

Commitments and contingencies (Note 7)

Partners' capital (deficit):
Common units (48,694,891 and 48,686,215 units outstanding as of June 30, 2019 and December 31, 2018, respectively)	—			—
Class B Convertible units (19,996,781 and 19,652,831 units issued and outstanding as of June 30, 2019 and December 31, 2018, respectively)	—			9,393
Subordinated units (12,213,713 units issued and outstanding as of June 30, 2019 and December 31, 2018, respectively)	—			—
General partner interest	(102,957		)	(13,201		)
Total partners' deficit	(102,957		)	(3,808		)
Total liabilities and partners' deficit	$	631,824		$	610,452

See accompanying notes.

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SOUTHCROSS ENERGY PARTNERS, L.P.

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for per unit data)

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenues:
Revenues	$	85,134		$	78,343		$	195,338		$	182,204
Revenues - affiliates	11,401			58,429			23,125			109,805
Total revenues (Note 11)	96,535			136,772			218,463			292,009

Expenses:
Cost of natural gas and liquids sold	67,275			104,411			159,807			227,928
Operations and maintenance	16,239			14,376			31,057			28,349
Depreciation and amortization	8,512			17,906			20,750			35,762
General and administrative	12,392			4,941			28,312			9,916
Impairment of assets	26,619			—			26,619			—
Gain on sale of assets	—			(553		)	—			(553		)
Total expenses	131,037			141,081			266,545			301,402

Loss from operations	(34,502		)	(4,309		)	(48,082		)	(9,393		)
Other expense:
Equity in losses of joint venture investments	(2,514		)	(3,152		)	(5,171		)	(6,288		)
Interest expense	(15,933		)	(11,095		)	(27,402		)	(21,105		)
Total other expense	(18,447		)	(14,247		)	(32,573		)	(27,393		)
Loss before reorganization items	(52,949		)	(18,556		)	(80,655		)	(36,786		)
Reorganization items (Note 2)	(18,490		)	—			(18,490		)	—
Loss before income tax expense	(71,439		)	(18,556		)	(99,145		)	(36,786		)
Income tax expense	(4		)	—			(4		)	—
Net loss	$	(71,443	)	$	(18,556	)	$	(99,149	)	$	(36,786	)
General partner unit in-kind distribution	—			(11		)	—			(22		)
Net loss attributable to partners	$	(71,443	)	$	(18,567	)	$	(99,149	)	$	(36,808	)

Earnings per unit:
Net loss allocated to limited partner common units	$	—		$	(11,101	)	$	—		$	(22,050	)
Weighted average number of limited partner common units outstanding	48,682			48,637			48,682			48,632
Basic and diluted loss per common unit	$	—		$	(0.23	)	$	—		$	(0.45	)

Net loss allocated to limited partner subordinated units	$	—		$	(1,369	)	$	—		$	(4,118	)
Weighted average number of limited partner subordinated units outstanding	12,214			12,214			12,214			12,214
Basic and diluted loss per subordinated unit	$	—		$	(0.11	)	$	—		$	(0.34	)

See accompanying notes.

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SOUTHCROSS ENERGY PARTNERS, L.P.

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Six Months Ended June 30,
	2019			2018
Cash flows from operating activities:
Net loss	$	(99,149	)	$	(36,786	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	20,750			35,762
Unit-based compensation	—			170
Amortization of deferred financing costs, original issuance discount and PIK interest	2,902			2,770
Gain on sale of assets	—			(553		)
Unrealized loss (gain) on financial instruments	11			(1		)
Equity in losses of joint venture investments	5,171			6,288
Impairment of assets	26,619			—
Non-cash reorganization items (Note 2)	8,893			—
Other, net	(126		)	(126		)
Changes in operating assets and liabilities:
Trade accounts receivable, including affiliates	19,641			7,545
Prepaid expenses and other current assets	(19,020		)	(7,123		)
Other non-current assets	3			535
Accounts payable and accrued liabilities, including affiliates	(17,258		)	(10,352		)
Other liabilities	4,386			4,664
Net cash provided by (used in) operating activities	(47,177		)	2,793
Cash flows from investing activities:
Capital expenditures	(4,546		)	(7,619		)
Aid in construction receipts	1,475			(7		)
Net proceeds from sales of assets	1,065			108
Investment contributions to joint venture investments	(428		)	(222		)
Net cash used in investing activities	(2,434		)	(7,740		)
Cash flows from financing activities:
Borrowings under our senior unsecured note	—			15,000
Borrowings under our DIP financing facility (Note 6)	127,500			—
Borrowings under our DIP roll-up loans (Note 6)	127,500			—
Repayments under our credit facility	—			(11,431		)
Repayments under our term loan agreement	(127,500		)	(2,128		)
Repayments under our DIP financing facility	(938		)	—
Payments on finance and capital lease obligations	(342		)	(293		)
Financing costs	(3,758		)	(256		)
Tax withholdings on unit-based compensation vested units	(1		)	(8		)
Net cash provided by financing activities	122,461			884

Net increase (decrease) in cash, cash equivalents and restricted cash	72,850			(4,063		)
Cash, cash equivalents and restricted cash — Beginning of period	11,707			5,218
Cash, cash equivalents and restricted cash — End of period	$	84,557		$	1,155

See accompanying notes.

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SOUTHCROSS ENERGY PARTNERS, L.P.

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL (DEFICIT)

(In thousands)

(Unaudited)



	Partners' Capital (Deficit)
	Limited Partners
	Common		Class B Convertible			Subordinated		General Partner			Total
BALANCE - December 31, 2018	$	—	$	9,393		$	—	$	(13,201	)	$	(3,808	)
Net loss	—		(9,393		)	—		(18,313		)	(27,706		)
BALANCE - March 31, 2019	$	—	$	—		$	—	$	(31,514	)	$	(31,514	)
Net loss	—		—			—		(71,443		)	(71,443		)
BALANCE - June 30, 2019	$	—	$	—		$	—	$	(102,957	)	$	(102,957	)



	Partners' Capital
	Limited Partners
	Common			Class B Convertible			Subordinated			General Partner			Total
BALANCE - December 31, 2017	$	215,146		$	266,725		$	8,302		$	9,393		$	499,566
Net loss	(10,949		)	(4,167		)	(2,749		)	(365		)	(18,230		)
Unit-based compensation on long-term incentive plan	65			—			—			—			65
Tax withholdings on unit-based compensation vested units	(8		)	—			—			—			(8		)
Contributions from general partner	—			—			—			2			2
General partner unit in-kind distribution	(7		)	(2		)	(2		)	11			—
Class B Convertible unit in-kind distribution	(422		)	542			(106		)	(14		)	—
BALANCE - March 31, 2018	$	203,825		$	263,098		$	5,445		$	9,027		$	481,395
Net loss	(11,101		)	(5,716		)	(1,369		)	(370		)	(18,556		)
Unit-based compensation on long-term incentive plan	105			—			—			—			105
General partner unit in-kind distribution	(6		)	(4		)	(1		)	11			—
Class B Convertible unit in-kind distribution	(415		)	533			(104		)	(14		)	—
BALANCE - June 30, 2018	$	192,408		$	257,911		$	3,971		$	8,654		$	462,944

See accompanying notes.

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SOUTHCROSS ENERGY PARTNERS, L.P.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

Organization

Southcross Energy Partners, L.P. (the "Partnership," "Southcross," "we," "our" or "us") is a Delaware limited partnership formed in April 2012. We are a master limited partnership, headquartered in Dallas, Texas, that provides natural gas gathering, processing, treating, compression and transportation services and access to NGL fractionation and transportation services. We also source, purchase, transport and sell natural gas and NGLs. Our assets are located in South Texas, Mississippi and Alabama and include two gas processing plants, one fractionation facility, one treating facility and gathering and transportation pipelines.

As of March 31, 2019, Southcross Holdings LP, a Delaware limited partnership (“Holdings”), indirectly owned 100% of Southcross Energy Partners GP, LLC, a Delaware limited liability company and our General Partner (“General Partner”) (and therefore controlled us), all of our subordinated and Class B convertible units and 54.4% of our common units. Our General Partner owns an approximate 2.0% interest in us and all of our incentive distribution rights. EIG Global Energy Partners, LLC (“EIG”) and Tailwater Capital LLC (“Tailwater”) (collectively, the “Sponsors”) each indirectly own approximately one-third of Holdings, and a group of consolidated lenders under Holdings' term loan (the "Lenders") own the remaining one-third of Holdings. However, as a result of the Chapter 11 Cases (defined below), Holdings lost control over the Partnership’s operations when the Debtors (defined below) submitted to the jurisdiction of the Bankruptcy Court on April 1, 2019. See Note 2.

Chapter 11 Cases and Going Concern Assessment

On April 1, 2019 (the "Petition Date"), the Partnership, our General Partner, and certain of the Partnership’s subsidiaries, including, Southcross Energy Finance Corp., Southcross Energy Operating, LLC, Southcross Energy GP LLC, Southcross Energy LP LLC, Southcross Gathering Ltd., Southcross CCNG Gathering Ltd., Southcross CCNG Transmission Ltd., Southcross Marketing Company Ltd., Southcross NGL Pipeline Ltd., Southcross Midstream Services, L.P., Southcross Mississippi Industrial Gas Sales, L.P., Southcross Mississippi Pipeline, L.P., Southcross Gulf Coast Transmission Ltd., Southcross Mississippi Gathering, L.P., Southcross Delta Pipeline LLC, Southcross Alabama Pipeline LLC, Southcross Nueces Pipelines LLC, Southcross Processing LLC, FL Rich Gas Services GP, LLC, FL Rich Gas Services, LP, FL Rich Gas Utility GP, LLC, FL Rich Gas Utility, LP, Southcross Transmission, LP, T2 EF Cogeneration Holdings, LLC, and T2 EF Cogeneration LLC (collectively the “Filing Subsidiaries” and, together with the Partnership and General Partner, the “Debtors”) filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Debtors’ Chapter 11 cases are being jointly administered under the caption In re Southcross Energy Partners, L.P., Case No. 19-10702 (the “Chapter 11 Cases”) pursuant to Rule1015(b) of the Federal Rules of Bankruptcy Procedure and the Order Directing Joint Administration of Chapter 11 Cases entered by the Bankruptcy Court on April 2, 2019. We will continue to operate our businesses as “debtors in possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Bankruptcy Court entered orders approving a variety of first-day relief designed primarily to minimize the impact of the Chapter 11 Cases on our operations, customers and employees, including authorizing post-petition financing. We expect to continue our operations without interruption during the pendency of the Chapter 11 Cases.

For the duration of the of the Chapter 11 Cases, our operations and our ability to develop and execute our business plan are subject to significant risks and uncertainties associated with Chapter 11 Cases. As a result of these significant risks and uncertainties, we expect our assets, liabilities, partners’ capital (deficit), officers and/or directors will be significantly different following the outcome of the Chapter 11 Cases, and the description of our operations, properties and capital plans included in this quarterly report on Form 10-Q may not accurately reflect our operations, properties and capital plans following the Chapter 11 Cases.

We have not reached an agreement with our creditors for a plan of reorganization and continue to engage in discussions regarding the terms of a financial restructuring plan. In conjunction with this process, we are exploring potential strategic alternatives to maximize value for the benefit of our stakeholders, which include a sale of certain or substantially all of our assets under Section 363 of the Bankruptcy Code, a plan of reorganization to equitize certain indebtedness as an alternative to the sale process, or a combination thereof. Therefore, the outcome of the Chapter 11 Cases is subject to a high degree of uncertainty and is dependent upon numerous factors, some of which are outside of our control (including actions of the Bankruptcy Court and our creditors). The significant risks and uncertainties related to our liquidity and the Chapter 11 Cases

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described above raise substantial doubt about our ability to continue as a going concern. These condensed financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and other commitments in the normal course of business. The accompanying condensed financial statements do not include any adjustments to reflect the possible future effects of this uncertainty on the recoverability or classification of recorded asset amounts or the amounts or classification of liabilities.

Chapter 11 Filing Impact on Creditors and Unitholders

We have filed schedules and statements of financial affairs with the Bankruptcy Court setting forth, among other things, the assets and liabilities of each of the Debtors, subject to the assumptions filed in connection therewith. These schedules and statements of financial affairs may be subject to further amendment or modification after filing. Certain holders of pre-petition claims that are not governmental units were required to file proofs of claim by the July 19, 2019 deadline for general claims. Differences between amounts scheduled by the Debtors and claims by creditors will be investigated, reconciled and resolved in connection with the claims resolution process. In light of the expected number of creditors, the claims resolution process may take considerable time to complete and likely will continue after the Debtors emerge from bankruptcy. Accordingly, the ultimate number and amount of allowed claims is not presently known, nor can the ultimate recovery with respect to allowed claims be presently asserted.

Under the priority requirements established by the Bankruptcy Code, unless creditors agree otherwise, pre-petition and post-petition liabilities to creditors must be satisfied in full before the holders of our existing common units are entitled to receive any distribution or retain any property under a plan of reorganization. The ultimate recovery for creditors, if any, will not be determined until confirmation and implementation of a plan of reorganization. The outcome of the Chapter 11 Cases remains uncertain at this time and, as a result, we cannot accurately estimate the amounts or value of distributions that creditors may receive. We believe it is highly likely that our existing common units will be canceled at the conclusion of our Chapter 11 Cases and the holders of our existing common units will be entitled to little recovery, if any.

Automatic Stay

Subject to certain specific exceptions under the Bankruptcy Code, the Chapter 11 Cases automatically stayed most judicial or administrative actions against the Partnership and the Filing Subsidiaries as well as efforts by creditors to collect on or otherwise exercise rights or remedies with respect to pre-petition claims. As a result, for example, most creditor actions to obtain possession of property from us or any of the Filing Subsidiaries, or to create, perfect or enforce any lien against our property or any of the Filing Subsidiaries, or to collect on or otherwise exercise rights or remedies with respect to a pre-petition claim are stayed.

Impact on Indebtedness

As of the Petition Date, we had approximately $527.6 million in principal amount of indebtedness, including approximately: (i) $429.1 million related to our term loan and $81.1 million (excluding outstanding letters of credit) related to our revolving credit facility and $17.4 million related to the Investment Notes (defined below). The commencement of the Chapter 11 Cases described above constituted an event of default that accelerated our obligations under the following debt instruments (the “Debt Instruments”):

•

Third Amended and Restated Revolving Credit Agreement, dated as of August 4, 2014, by and among Southcross Energy Partners, L.P., Wilmington Trust, National Association (successor to Wells Fargo Bank, N.A.), as Administrative Agent, UBS Securities LLC and Barclays Bank PLC, as Co-Syndication Agents, JPMorgan Chase Bank, N.A., as Documentation Agent, and the lenders party thereto, as amended; (the “Third A&R Revolving Credit Agreement”)


•	Term Loan Credit Agreement, dated as of August 4, 2014, by and among Southcross Energy Partners, L.P., Wilmington Trust, National Association (successor to Wells Fargo Bank, N.A.), as Administrative Agent, UBS Securities LLC and Barclays Bank PLC, as Co-Syndication Agents, and the lenders party thereto (the “Term Loan Agreement”); and


•	$15.0 million aggregate principal amount of Qualifying Notes dated January 22, 2018, issued by the Partnership to each of certain funds or accounts managed or advised by EIG and certain funds or accounts managed or advised by Tailwater.

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On August 19, 2019, the Successor Agent Agreement and Seventh Amendment to the Third Amended and Restated Revolving Credit Agreement (the "Seventh Amendment") became effective, pursuant to which Wells Fargo Bank, N.A. resigned as administrative agent under the Third A&R Revolving Credit Agreement and was succeeded by Wilmington Trust, National Association.

These debt instruments provide that, as a result of the commencement of the Chapter 11 Cases, the principal and interest due thereunder shall be immediately due and payable. Any efforts to enforce such payment obligations under the debt instruments are automatically stayed as a result of the commencement of the Chapter 11 Cases, and the creditors’ rights of enforcement in respect of the debt instruments are subject to the applicable provisions of the Bankruptcy Code.

On the Petition Date, the Debtors filed a motion with the Bankruptcy Court seeking approval of term loan and letter of credit facilities (the “DIP Facilities”) in the aggregate principal amount of $255.0 million, consisting of (i) a senior secured priming superpriority term loan in the aggregate principal amount of $72.5 million (the “DIP New Money Loan”), (ii) a senior secured priming superpriority term loan in the aggregate principal amount of $55.0 million (the “DIP LC Loans” and, together with the DIP New Money Loans, the “DIP Term Loans”) to cash collateralize a letter of credit sub-facility for the issuance of letters of credit (including the deemed issuance of existing letters of credit) by certain issuing banks party to the DIP Credit Agreement (as defined below) in an aggregate face amount of $52,597,087.38, and (iii) a senior secured priming superpriority term loan in the aggregate principal amount of $127.5 million, which would be subordinate to the DIP Term Loans, to refinance term loans (the “Rolled-Up Loans”) outstanding under the Term Loan Agreement owed to the DIP Lenders (as defined below) on a dollar-for-dollar basis to the DIP Term Loans provided by the DIP Lenders (the “DIP Roll-Up Loans” and, together with the DIP Term Loans, the “DIP Loans”). On April 2, 2019, the Bankruptcy Court entered an interim order (the “Interim Order”) authorizing the Debtors (the “DIP Loan Parties”) to enter into the DIP Facilities. The Interim Order allowed the DIP Loan Parties to access immediately up to $85.0 million of DIP Term Loans and refinance their obligations outstanding under prepetition letters of credit (the “Existing Letters of Credit”). However, both the DIP Facilities and the refinancing of such letters of credit and of certain term loans outstanding under the Term Loan Agreement remained subject to entry of a final order by the Bankruptcy Court (the “Final Order” and, together with the Interim Order, the “DIP Orders”).

Pursuant to the Interim Order, on April 3, 2019, the Loan Parties entered into a Senior Secured Superpriority Priming Debtor-In-Possession Credit Agreement as amended by that certain First Amendment to Senior Secured Superpriority Priming Debtor-in-Possession Credit Agreement, dated as of May 20, 2019, and as further amended by that certain Second Amendment to Senior Secured Superpriority Priming Debtor-in-Possession Credit Agreement, dated as of June 12, 2019 (the “DIP Credit Agreement”) governing the terms of the DIP Facilities with the lenders party thereto (the “DIP Lenders”), Wells Fargo Bank, N.A., Royal Bank of Canada and UBS AG as issuing banks (the “DIP L/C Issuers”) and Wilmington Trust, National Association, as the administrative agent and the collateral agent thereunder (the “DIP Agent”). On April 3, 2019, the conditions precedent to closing were satisfied and the Partnership made an initial borrowing of $30.0 million of DIP New Money Loans and $55.0 million of DIP LC Loans and the Existing Letters of Credit were deemed issued under the DIP Credit Agreement. Subsequent borrowings and issuances of new letters of credit under the DIP Credit Agreement are also subject to the satisfaction of additional specified conditions precedent. The $55.0 million of the proceeds from the DIP LC Loans is considered restricted cash and is included in the restricted cash line items within our consolidated balance sheet as of June 30, 2019.

On May 7, 2019, the Bankruptcy Court entered the Final Order approving the DIP Facilities and allowing the Borrower to draw down on the remaining commitments with respect to the DIP Term Loans and to refinance the Rolled-Up Loans with the DIP Roll-Up Loans. On May 9, 2019, we borrowed the remaining $42.5 million of DIP New Money Loans and made a payment of $127.5 million to our term loans outstanding under the Term Loan Agreement.

Sale of Assets

Since the Debtors formally retained Evercore Group L.L.C. (“Evercore”) on March 12, 2019, Evercore and the Debtors have run an extensive marketing process for the potential sale (the “Sale”) of all or substantially all of the Debtors’ assets (the “Assets”) under Section 363 of the Bankruptcy Code. To effectuate the Sale, Evercore and the Debtors have contacted numerous potential purchasers, the Debtors have executed non-disclosure agreements with a significant number of such parties, and Evercore has provided additional details to these parties, including access to confidential diligence materials.

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Granting Related Relief and (ii)(a) Approving Sale of Debtors’ Assets Free and Clear of Liens, Claims, Interests, and Encumbrances, (b) Authorizing Assumption and Assignment of Executory Contracts and Unexpired Leases, and (c) Granting Related Relief [D.I. 225] (the “Bidding Procedures Motion”).

On June 13, 2019, the Bankruptcy Court entered an order approving the Bidding Procedures Motion [D.I. 324] (the“Bidding Procedures Order”). Pursuant to the Bidding Procedures Order, the Debtors intend to sell all of their right, title and interest in and to the Assets free and clear of any pledges, liens, security interests, encumbrances, claims, charges, options, and interests thereon (collectively, the “Interests”) to the maximum extent permitted by section 363 of the Bankruptcy Code, with such Interests to attach to the net proceeds of the sale of the Assets with the same validity and priority as such Interests applied against the Assets. The deadline for the submission of bids that satisfy the requirements of the Bidding Procedures Order (each a “Qualified Bid,” and those parties who submit a Qualified Bid, each a “Qualified Bidder”) was July 24, 2019 at 6:00 p.m. (prevailing Eastern Time) (the “Bid Deadline”).

In the event that the Debtors timely receive more than one Qualified Bid, the Debtors shall conduct an auction (the “Auction”) for the Assets. The Auction shall be in accordance with the procedures outlined in the Bidding Procedures Order and upon notice to all Qualified Bidders that have submitted Qualified Bids. The Auction shall be conducted on September 3, 2019 at 10:00 a.m. (prevailing Eastern Time) or such later time as the Debtors shall notify all relevant parties. If (a) no Qualified Bids are submitted by the Bid Deadline other than a Qualified Bid that shall serve as the minimum bid for the Assets or any lot thereof (a “Stalking Horse Bid”), (b) only one Qualified Bid that is not a Stalking Horse Bid is submitted by the Bid Deadline, or (c) only one or more bids for less than all or substantially all of the Debtors’ assets (each a “Partial Bid”) are submitted by the Bid Deadline for non-overlapping lots of the Assets, the Debtors may in their discretion (in consultation with certain parties) elect to cancel the Auction and seek approval of the transactions contemplated in the Stalking Horse Bid, the Qualified Bid which is not a Stalking Horse Bid, or the transactions in respect of the Partial Bids at the hearing to consider and approve the Sale (the “Sale Hearing”).

Prior to the conclusion of the Auction, the Debtors shall (in consultation with certain parties) (a) review and evaluate each bid made at the Auction on the basis of financial and contractual terms and other factors relevant to the sale process, including those factors affecting the speed and certainty of consummating the Sale, (b) determine and identify the highest or otherwise best offer or collection of offers (the “Successful Bid(s)”), (c) determine and identify the next highest or otherwise best offer or collection of offers (the “Alternate Bid(s)”), and (d) notify all Qualified Bidders participating in the Auction, prior to its adjournment, of (i) the identity of the party or parties that submitted the Successful Bid(s) (the “Successful Bidder(s)”), (ii) the amount and other material terms of the Successful Bid(s), (iii) the identity of the party or parties that submitted the Alternate Bid(s), and (iv) the amount and other material terms of the Alternate Bid(s).

The Sale Hearing will be held on September 18, 2019 at 10:30 a.m. (prevailing Eastern Time) before the Honorable Judge Mary F. Walrath, in the United States Bankruptcy Court for the District of Delaware, 824 N. Market St., Wilmington, Delaware 19801. The Sale Hearing may be adjourned by the Debtors (with the consent of the certain parties) by an announcement of the adjourned date at a hearing before the Bankruptcy Court or by filing a notice on the Bankruptcy Court’s docket. At the Sale Hearing, the Debtors will seek the Bankruptcy Court’s approval of the Successful Bid(s) and, at the Debtors’ election (in consultation with certain parties), the Alternate Bid(s).

The Debtors’ presentation to the Bankruptcy Court of the Successful Bid(s) and Alternate Bid(s) will not constitute the Debtors’ acceptance of such bid(s), which acceptance will only occur upon approval of such bid(s) by the Bankruptcy Court. Following the Bankruptcy Court’s entry of the order approving any Sale, the Debtors and the Successful Bidder(s) shall proceed to consummate the transaction(s) contemplated by the Successful Bid(s).

Executory Contracts

Subject to certain exceptions, under the Bankruptcy Code, the Partnership and the Filing Subsidiaries may assume, assume and assign, or reject certain executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and fulfillment of certain other conditions. The rejection of an executory contract or unexpired lease is generally treated as a breach as of the petition date of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Partnership and the Filing Subsidiaries of performing their future obligations under such executory contract or unexpired lease but may give rise to a general unsecured claim against us or the applicable Filing Subsidiaries for damages caused by such rejection. The assumption of an executory contract or unexpired lease generally requires the Partnership and the Filing Subsidiaries to cure existing monetary or other defaults under such executory contract or unexpired lease and provide adequate assurance of future performance. Any description of the treatment of an executory contract or unexpired lease with the Partnership or any of the Filing Subsidiaries, including any description of the obligations under any such executory contract or

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unexpired lease, is qualified by and subject to any rights we have with respect to executory contracts and unexpired leases under the Bankruptcy Code. See further discussion regarding the Chapter 11 Cases in Note 2.

Reorganization Expenses

The Debtors have incurred and will continue to incur significant costs associated with the reorganization throughout 2019, principally professional fees. The amount of these costs, which are being expensed as incurred, are expected to affect our results of operations significantly.

Delisting of Common Units from NYSE

On February 27, 2019, the New York Stock Exchange (“NYSE”) notified the Partnership that the staff of NYSE Regulation, Inc. (the “NYSE Regulation”) had determined to commence proceedings to delist our common units. The NYSE Regulation reached its decision to delist our common units pursuant to Rule 802.01C of the NYSE’s Listed Company Manual, as the Partnership’s unit price had fallen below the NYSE’s continued listing standard with average closing price of less than $1.00 over a consecutive 30 trading-day period and the Partnership failed to cure this non-compliance within the required timeframe. The NYSE suspended trading after the market close on the NYSE on February 27, 2019.

Effective February 28, 2019, our common units commenced trading on the OTCQX Marketplace under the ticker symbol "SXEEQ". On March 20, 2019, the NYSE filed with the SEC a notification of removal from listing and registration on Form 25 to delist our common units and terminate the registration of our common units under Section 12(b) of the Securities Exchange Act of 1934. The delisting became effective on April 1, 2019.

On April 1, 2019, the Partnership was notified by the OTC Markets Group Inc. that our common units, ticker: “SXEEQ”, was being removed from the OTCQX tier of the OTC Marketplace and downgraded to the OTC Pink, effective April 1, 2019. The Partnership was informed that the foregoing decision was made by the OTC Markets Group Inc. in light of the Chapter 11 Cases.

Holdings' Sale of Robstown Facility

On October 4, 2018, EPIC Midstream Holdings, LP (“EPIC”) and EPIC Y-Grade Holdings, LP, a subsidiary of EPIC, entered into a definitive equity purchase agreement (the "Robstown Purchase Agreement") with Holdings and Holdings Borrower to acquire Holdings' Robstown fractionation facility ("Robstown") and related pipelines that enables Robstown to receive natural gas liquids from various supply sources and several short pipelines that allow the delivery of fractionated products to Corpus Christi-area markets. Under the terms of the agreement, EPIC assumed all of the NGL purchase and sale agreements associated with Robstown, including certain natural gas liquids sales and transportation agreements with the Partnership. The sale was completed in November 2018.

Liquidity Consideration and Ability to Continue as a Going Concern

Our liquidity and ability to maintain compliance with debt covenants have been negatively impacted by our level of indebtedness. Our future cash flow may be materially adversely affected if the natural gas and NGL volumes connected to our systems decline. The majority of our revenue is derived from fixed-fee and fixed- spread contracts, which have limited direct exposure to commodity price levels since we are paid based on the volumes of natural gas that we gather, process, treat, compress and transport and the volumes of NGLs we fractionate and transport, rather than being paid based on the value of the underlying natural gas or NGLs. In addition, a portion of our contract portfolio contains minimum volume commitment arrangements. The majority of our volumes are dependent upon the level of producer drilling activity and our success in connecting volumes to our systems.

The accompanying consolidated financial statements have been prepared assuming that the Partnership will continue as a going concern, which contemplates continuity of operations, the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. However, the Chapter 11 Cases raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements and related notes do not include any adjustments related to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities or any other adjustments that would be required should we be unable to continue as a going concern. See further discussion regarding the Chapter 11 Cases in Note 2.

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Basis of Presentation

We prepared this report under the rules and regulations of the Securities Exchange Commission (the “SEC”) and in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements. Accordingly, these condensed consolidated financial statements do not include all of the disclosures required by GAAP and should be read in conjunction with our 2018 Annual Report on Form 10-K. The condensed consolidated financial statements as of June 30, 2019 and December 31, 2018, and for the three and six months ended June 30, 2019 and 2018, are unaudited and have been prepared on the same basis as the audited financial statements included in our 2018 Annual Report on Form 10-K. However, on January 1, 2019, the Partnership adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASC 842”), using the modified retrospective method.

Accounting during Bankruptcy

We have applied the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 852, Reorganizations, in the preparation of these condensed consolidated financial statements. For periods subsequent to the Chapter 11 Cases, ASC 852 requires the financial statements distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain revenues, expenses, realized gains and losses and provisions for losses that are realized or incurred in the bankruptcy proceedings are recorded as “Reorganization items” on the condensed consolidated statements of operations. In addition, the pre-petition obligations that may be impacted by the bankruptcy reorganization process have been classified on the condensed consolidated balance sheet as of June 30, 2019 as “Liabilities subject to compromise”. These liabilities are reported at the amounts expected to be allowed by the Bankruptcy Court, which may differ from the ultimate settlement amounts. Accordingly, our condensed consolidated financial statements for the three and six months ended June 30, 2019 have been prepared in accordance with ASC 852. Adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the results of operations and financial position have been included herein. All intercompany accounts and transactions have been eliminated in the preparation of the accompanying condensed consolidated financial statements.

The accompanying unaudited condensed consolidated financial statements were prepared in conformity with GAAP, which requires management to make various estimates and assumptions that may affect the amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the applicable period. Actual results may differ from those estimates. Information for interim periods may not be indicative of our operating results for the entire year.

We evaluate events that occur after the balance sheet date, but before the financial statements are issued, for potential recognition or disclosure. Based on the evaluation, we determined that there were no material subsequent events for recognition or disclosure other than those disclosed in this report. See Note 14.

Segments

Our chief operating decision-maker is our Chief Executive Officer who reviews financial information presented on a consolidated basis in order to assess our performance and make decisions about resource allocations. There are no segment managers who are held accountable by the chief operating decision-maker, or anyone else, for operations, operating results and planning for levels or components below the consolidated unit level. Accordingly, we have determined that we have one reportable segment.

Significant Accounting Policies

During the six months ended June 30, 2019, the Partnership adopted ASC 842 (as described below) and began to apply accounting standards applicable to reorganizations, ASC 852, which are applicable to companies under Chapter 11 bankruptcy protection (see Note 2). As a result, there was a change to our significant accounting policies described in Note 1 of our 2018 Annual Report on Form 10-K.

Adopted Accounting Pronouncements

In February 2016, the FASB issued updated guidance that sets out revised principles for the recognition, measurement, presentation and disclosure for both lessees and lessors. The pronouncement states that a lessee should recognize a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. When measuring assets and liabilities arising from a lease, a lessee (and a lessor) are to include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate

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the lease. Similarly, optional payments to purchase the underlying asset are to be included in the measurement of lease assets and lease liabilities only if the lessee is reasonably certain to exercise that purchase option. In addition, also consistent with the previous lease guidance, a lessee (and a lessor) should exclude most variable lease payments in measuring lease assets and lease liabilities, other than those that depend on an index or a rate or are in substance fixed payments.

In 2018, the FASB issued ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842 and ASU No. 2018-11, Targeted Improvements. Under these updates, optional transition practical expedients are available (1) whereby existing or expired land easements that were not previously accounted for as leases under ASC 840 are not required to be evaluated under Topic 842 and (2) lease and associated non-lease components are not required to be separated within lessor arrangements if certain criteria are met. The FASB also issued ASUs 2018-10 and 2018-20, Codification Improvements to Topic 842 and Narrow Scope Improvements for Lessors, respectively, to alleviate unintended consequences from applying Topic 842. The amendments do not make substantive changes to the core provisions or principles of Topic 842 and did not significantly impact our implementation process. We adopted this standard effective January 1, 2019 using the modified retrospective method of adoption, whereby comparative prior period financial information will not be restated and will continue to be reported under the lease accounting standard in effect during the period. We elected the package of practical expedients permitted under the transition guidance within Topic 842 which, among other things, allows us to carry forward the historical lease classification. As such, we did not reassess (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) any initial direct costs for any existing leases as of the effective date. We also elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements. We did not elect the hindsight practical expedient which permits entities to use hindsight in determining the lease term and assessing impairment of right-of-use assets.

Additionally, we elected certain practical expedients on an ongoing basis, including the practical expedient for short-term leases pursuant to which a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize a lease liability and right-of-use asset for leases (1) with a term of 12 months or less and (2) that do not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise. Instead, we will recognize the lease payments for short-term leases within our statement of operations on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred. Substantially all leases where we are a lessee are classified as operating leases under Topic 842.

Upon adoption of this standard, we recognized right-of-use asset recorded within other assets of approximately $7.7 million and corresponding liabilities recorded within other current and non-current liabilities of approximately $2.3 million and $5.4 million on our condensed consolidated balance sheet at January 1, 2019. See Note 7 for additional information on our lease policies.

Recent Accounting Pronouncements

Accounting standard-setting organizations frequently issue new or revised accounting pronouncements. We review and evaluate new pronouncements and existing pronouncements to determine their impact, if any, on our condensed consolidated financial statements. We are evaluating the impact of each pronouncement on our condensed consolidated financial statements.

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Correction of Error

As previously disclosed in our 2018 Annual Report on Form 10-K, subsequent to the issuance of the June 30, 2018 interim financial statements, the Partnership identified an error in the accounts receivable - affiliates and revenues financial statement line items related to the reconciliation of residue imbalances between the Partnership and Holdings. As a result, the Partnership corrected previously reported amounts for the respective periods as indicated in the table below. The correction resulted in a decrease to revenue for the three and six months ended June 30, 2018. The Partnership has assessed this error and determined it to be not material to our financial statements. The following table explains the effects of the error for the three and six months ended June 30, 2018 (in thousands, except unit and per unit data):



	Three Months Ended			Six Months Ended
	June 30,			June 30,
	2018			2018
Revenues, as previously reported	$	137,420		$	294,050
Effect of error	(648		)	(2,041		)
Revenues, as corrected	136,772			292,009

Net loss, as previously reported	(17,908		)	(34,745		)
Effect of error	(648		)	(2,041		)
Net loss, as corrected	(18,556		)	(36,786		)

Trade accounts receivable, including affiliates, as previously reported on the condensed consolidated statements of cash flows ⁽¹⁾	—			5,504
Effect of error ⁽¹⁾	—			2,041
Trade accounts receivable, including affiliates, as corrected on the condensed consolidated statements of cash flows ⁽¹⁾	—			7,545

Basic and diluted net loss per common unit, as originally reported	(0.22		)	(0.43		)
Effect of error	(0.01		)	(0.02		)
Basic and diluted net loss per common unit, as corrected	(0.23		)	(0.45		)

Basic and diluted net loss per subordinated unit, as originally reported	(0.22		)	(0.43		)
Effect of error	0.11			0.09
Basic and diluted net loss per subordinated unit, as corrected	(0.11		)	(0.34		)


(1)	The Partnership does not present the condensed consolidated statements of cash flows for the three months Ended June 30, 2018.

2. BANKRUPTCY FILING

Chapter 11 Cases

On April 1, 2019, the Partnership, our General Partner and the Filing Subsidiaries filed voluntary petitions for relief under the Bankruptcy Code in the Bankruptcy Court. The Debtors’ Chapter 11 Cases are being jointly administered under the caption In re Southcross Energy Partners, L.P., Case No. 19-10702 pursuant to Rule1015(b) of the Federal Rules of Bankruptcy Procedure and the Order Directing Joint Administration of Chapter 11 Cases entered by the Bankruptcy Court on April 2, 2019. The Bankruptcy Court entered orders approving a variety of first-day relief designed primarily to minimize the impact of the Chapter 11 Cases on our operations, customers and employees, including authorizing post-petition financing. We will continue to operate our business as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. See Note 1 “Organization and Description of the Business - Chapter 11 Cases” for a detailed description of the Chapter 11 Cases.

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Significant Bankruptcy Court Actions

On April 1, 2019, we filed a motion seeking entry of an order authorizing the Debtors to enter into the DIP Financing to, among other things, provide additional liquidity to fund our operations during the Chapter 11 process.

Pursuant to the Interim Order, on April 3, 2019, the DIP Loan Parties entered into the DIP Credit Agreement. On April 3, 2019, the conditions precedent to closing were satisfied and the Partnership made an initial borrowing of $30.0 million of DIP New Money Loans and $55.0 million of DIP LC Loans and the Existing Letters of Credit were deemed issued under the DIP Credit Agreement. The $55.0 million of the proceeds from the DIP LC Loans is considered restricted cash and is included in the restricted cash line items within our consolidated balance sheet as of June 30, 2019.

On May 22, 2019, the Debtors filed with the Bankruptcy Court the Bidding Procedures Motion. On June 13, 2019, the Bankruptcy Court entered an order approving the Bidding Procedures Motion.

Debtor-In-Possession Financing

See Note 6 for further discussion of the DIP Facilities, which provide up to $127.5 million in debtor-in-possession financing.

Impact on Indebtedness

•


•	Term Loan Credit Agreement, dated as of August 4, 2014, by and among Southcross Energy Partners, L.P., Wilmington Trust, National Association (successor to Wells Fargo Bank, N.A.), as Administrative Agent, UBS Securities LLC and Barclays Bank PLC, as Co-Syndication Agents, and the lenders party thereto (the “Term Loan Agreement”); and


•	$15.0 million aggregate principal amount of Qualifying Notes dated January 22, 2018, issued by the Partnership to each of certain funds or accounts managed or advised by EIG and certain funds or accounts managed or advised by Tailwater.

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instruments are automatically stayed as a result of the commencement of the Chapter 11 Cases, and the creditors’ rights of enforcement in respect of the debt instruments are subject to the applicable provisions of the Bankruptcy Code.

Sale Process

Since the Debtors formally retained Evercore Group L.L.C. on March 12, 2019, Evercore and the Debtors have run an extensive marketing process for the potential sale of all or substantially all of the Debtors’ assets under Section 363 of the Bankruptcy Code. To effectuate the Sale, Evercore and the Debtors have contacted numerous potential purchasers, the Debtors have executed non-disclosure agreements with a significant number of such parties, and Evercore has provided additional details to these parties, including access to confidential diligence materials.

On May 22, 2019, the Debtors filed with the Bankruptcy Court the Motion of Debtors for Entry of Orders (i)(a) Approving Bidding Procedures for Sale of Debtors’ Assets, (b) Authorizing the Selection of a Stalking Horse Bidder, (c) Approving Bid Protections, (d) Scheduling Auction for, and Hearing To Approve, Sale of Debtors’ Assets, (e) Approving Form and Manner of Notices of Sale, Auction, and Sale Hearing, (f) Approving Assumption and Assignment Procedures, and (g) Granting Related Relief and (ii)(a) Approving Sale of Debtors’ Assets Free and Clear of Liens, Claims, Interests, and Encumbrances, (b) Authorizing Assumption and Assignment of Executory Contracts and Unexpired Leases, and (c) Granting Related Relief [D.I. 225].

On June 13, 2019, the Bankruptcy Court entered an order approving the Bidding Procedures Motion [D.I. 324]. Pursuant to the Bidding Procedures Order, the Debtors intend to sell all of their right, title and interest in and to the Assets free and clear of any pledges, liens, security interests, encumbrances, claims, charges, options, and interests thereon to the maximum extent permitted by section 363 of the Bankruptcy Code, with such Interests to attach to the net proceeds of the sale of the Assets with the same validity and priority as such Interests applied against the Assets. The deadline for the submission of bids that satisfies the requirements of the Bidding Procedures Order was July 24, 2019 at 6:00 p.m. (prevailing Eastern Time).

In the event that the Debtors timely receive more than one Qualified Bid, the Debtors shall conduct an auction for the Assets. The Auction shall be in accordance with the procedures outlined in the Bidding Procedures Order and upon notice to all Qualified Bidders that have submitted Qualified Bids. The Auction shall be conducted on September 3, 2019 at 10:00 a.m. (prevailing Eastern Time) or such later time as the Debtors shall notify all relevant parties. If (a) no Qualified Bids are submitted by the Bid Deadline other than a Qualified Bid that shall serve as the minimum bid for the Assets or any lot thereof, (b) only one Qualified Bid that is not a Stalking Horse Bid is submitted by the Bid Deadline, or (c) only one or more bids for less than all or substantially all of the Debtors’ assets are submitted by the Bid Deadline for non-overlapping lots of the Assets, the Debtors may in their discretion (in consultation with certain parties) elect to cancel the Auction and seek approval of the transactions contemplated in the Stalking Horse Bid, the Qualified Bid which is not a Stalking Horse Bid, or the transactions in respect of the Partial Bids at the hearing to consider and approve the Sale.

Prior to the conclusion of the Auction, the Debtors shall (in consultation with certain parties) (a) review and evaluate each bid made at the Auction on the basis of financial and contractual terms and other factors relevant to the sale process, including those factors affecting the speed and certainty of consummating the Sale, (b) determine and identify the highest or otherwise best offer or collection of offers, (c) determine and identify the next highest or otherwise best offer or collection of offers, and (d) notify all Qualified Bidders participating in the Auction, prior to its adjournment, of (i) the identity of the party or parties that submitted the Successful Bid(s), (ii) the amount and other material terms of the Successful Bid(s), (iii) the identity of the party or parties that submitted the Alternate Bid(s), and (iv) the amount and other material terms of the Alternate Bid(s).

Schedules and Statements of Financial Affairs - Claims & Claims Resolution Process

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To the best of our knowledge, after making reasonable efforts, we have notified all of our known current or potential creditors that the Debtors have filed Chapter 11 cases. On June 12, 2019 each of the Debtors filed their respective Schedules of Assets and Liabilities (the “Schedules”) and Statements of Financial Affairs (the “Statements”) (collectively, the “Schedules and Statements”) with the Bankruptcy Court. These documents set forth, among other things, the assets and liabilities of each of the Debtors, the unexpired leases of the Debtors, including executory contracts to which each of the Debtors is a party, are subject to the qualifications and assumptions included therein, and are subject to amendment or modification as our Chapter 11 Cases proceed. The Schedules and Statements may be subject to further amendment or modification after filing. Many of the claims identified in the Schedules and Statements are listed as disputed, contingent or unliquidated.

Pursuant to the Federal Rules of Bankruptcy Procedure, creditors who wish to assert prepetition claims against us and whose claim (i) is not listed in the Schedules and Statements or (ii) is listed in the Schedules and Statements as disputed, contingent, or unliquidated, must file a proof of claim with the Bankruptcy Court prior to the bar date set by the court. The bar dates are July 19, 2019, for non-governmental creditors, and September 30, 2019, for governmental creditors.

As of August 9, 2019, approximately 545 claims totaling $500.6 million have been filed with the Bankruptcy Court against the Debtors by approximately 160 claimants. We expect additional claims to be filed prior to the bar dates. In addition, creditors who have already filed claims may amend or modify their claims in ways we cannot reasonably predict. The amounts of these additional claims and/or amendments or modifications to claims already filed may be material. We anticipate the claims filed against the Debtors in the Chapter 11 Cases will be numerous. We expect the process of resolving claims filed against the Debtors to be complex and lengthy. We plan to investigate and evaluate all filed claims in connection with the Chapter 11 Cases. As part of the process, we will work to resolve differences in amounts scheduled by the Debtors and the amounts claimed by creditors, including through the filing of objections with the Bankruptcy Court where necessary. Accordingly, the ultimate number and amount of claims that will be allowed against the Debtors is not presently known, nor can the ultimate recovery with respect to allowed claims be reasonably estimated.

Financial Reporting in Reorganization

Effective on the Petition Date, the Partnership began to apply accounting standards applicable to reorganizations, which are applicable to companies under Chapter 11 bankruptcy protection. The accounting standards require the financial statements for periods subsequent to the Petition Date to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain revenues, expenses, realized gains and losses and provisions for losses that are realized or incurred in the bankruptcy proceedings must be recorded separately as a “Reorganization items, net” line item, in the condensed consolidated statements of operations. In addition, the pre-petition obligations that may be impacted by the bankruptcy reorganization process are to be classified on the condensed consolidated balance sheet as “Liabilities subject to compromise”. These liabilities are reported at the amounts expected to be allowed by the Bankruptcy Court, which may differ from the ultimate settlement amounts. Liabilities subject to compromise are pre-petition obligations that are not fully secured and have at least a possibility of not being repaid at the full claim amount. Where there is uncertainty about whether a secured claim will be paid or impaired pursuant to the Chapter 11 Cases, the Partnership has classified the entire amount of the claim as liabilities subject to compromise.

Furthermore, these condensed consolidated financial statements contemplate the uncertainty of the realization of assets and the satisfaction of liabilities and other commitments in the normal course of business. While operating as debtors-in-possession, certain claims against the Partnership in existence before the filing of the petitions for relief under the federal bankruptcy laws are stayed while the Partnership continues business operations as debtors-in-possession. These claims are reflected in the condensed consolidated balance sheets at June 30, 2019 as “Liabilities subject to compromise”. Additional claims (which could be liabilities subject to compromise) may arise after the Petition Date resulting from rejection of executory contracts, including leases, and from the determination by the Bankruptcy Court (or agreed to by parties in interest) of allowed claims for contingencies and other disputed amounts. Subject to certain specific exceptions under the Bankruptcy Code, the Chapter 11 Cases automatically stayed most judicial or administrative actions against the Partnership and the Filing Subsidiaries as well as efforts by creditors to collect on or otherwise exercise rights or remedies with respect to pre-petition claims. As a result, for example, most creditor actions to obtain possession of property from us or any of the Filing Subsidiaries, or to create, perfect or enforce any lien against our property or any of the Filing Subsidiaries, or to collect on or otherwise exercise rights or remedies with respect to a pre-petition claim are stayed.

Liabilities Subject to Compromise

As a result of the filing of the Chapter 11 Cases on April 1, 2019, the payment of pre-petition liabilities is generally subject to compromise pursuant to a plan of reorganization. Generally, actions to enforce or otherwise effect payment of pre petition liabilities are stayed. Although payment of pre-petition claims generally is not permitted, the Bankruptcy Court has

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entered orders approving a variety of first-day relief designed primarily to minimize the impact of the Chapter 11 Cases on our operations, customers and employees, including authorizing post-petition financing. This relief generally was designed to preserve the value of the Partnership’s business and assets. Among other things, the Bankruptcy Court authorized, but did not require, the Partnership to pay certain pre-petition claims relating to employee wages and benefits, taxes, and certain customers.

The accounting standards require pre-petition liabilities that are subject to compromise to be reported at the amounts expected to be allowed by the Bankruptcy Court, even if they may be settled for different amounts. The amounts currently classified as liabilities subject to compromise are preliminary and may be subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, determinations of the secured status of certain claims, the values of any collateral securing such claims, rejection of executory contracts, continued reconciliation or other events. We will continue to evaluate these liabilities throughout the Chapter 11 process and adjust amounts as necessary. Such adjustments may be material.

The following table summarizes the components of “Liabilities subject to compromise” included on the condensed consolidated balance sheet as of June 30, 2019 (in thousands):



	As of June 30, 2019
Current maturities of long-term debt (Note 6)	$	407,925
Accounts payable and accrued liabilities	3,176
Deferred revenue	12,751
Lease liabilities	10,054
Other liabilities	9,212
Total liabilities subject to compromise	$	443,118

Reorganization Items

The accounting standards require that the condensed consolidated financial statements, for the periods incurred after the Petition Date as a direct result of the Chapter 11 Cases, distinguish transactions and events that are directly associated with the Chapter 11 Cases from the ongoing operations of the business. Accordingly, certain revenues, expenses (including professional fees), realized gains and losses and provisions for losses that are realized or incurred during the Chapter 11 Cases are recorded in reorganization items, net in the condensed consolidated statements of operations. These costs, which are being expensed as incurred, significantly impact our results of operations. The following table summarized the components included in “Reorganization items” in our condensed consolidated statement of operations for the six months ended June 30, 2019 (in thousands):



	Six Months Ended June 30,
	2019
Legal and professional fees	$	7,616
Write-off of pre-petition deferred financing costs and debt discount⁽¹⁾	5,136
DIP financing costs	5,738
Total reorganization items	18,490


(1)	Includes a non-cash charge to write off of the unamortized pre-petition debt issuance costs and debt discounts of $5.1 million related to the Term Loan, Revolving Credit Facility and Senior Unsecured Note Payable as these debt instruments are expected to be impacted by the Chapter 11 Cases.

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3. NET LOSS PER LIMITED PARTNER UNIT AND DISTRIBUTIONS

Net Loss Per Limited Partner Unit

The following is a reconciliation of net loss attributable to limited partners and the limited partner units used in the basic and diluted earnings per unit calculations for the three and six months ended June 30, 2019 and 2018 (in thousands, except unit and per unit data):



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net loss	$	(71,443	)	$	(18,556	)	$	(99,149	)	$	(36,786	)
General partner unit in-kind distribution	—			(11		)	—			(22		)
Net loss attributable to partners	$	(71,443	)	$	(18,567	)	$	(99,149	)	$	(36,808	)

General partner's interest⁽¹⁾	$	(71,443	)	$	(381	)	$	(89,756	)	$	(757	)
Class B Convertible limited partner interest⁽¹⁾	—			(5,716		)	(9,393		)	(9,883		)
Limited partners' interest⁽¹⁾
Common	$	—		$	(11,101	)	$	—		$	(22,050	)
Subordinated	—			(1,369		)	—			(4,118		)


(1)	General Partner's and limited partners’ interests are calculated based on the allocation of net losses for the period, net of the General Partner unit in-kind distributions. The Class B Convertible Unit interest is calculated based on the allocation of only net losses for the period.



	Three Months Ended June 30,					Six Months Ended June 30,
Common Units	2019		2018			2019		2018
Interest in net loss	$	—	$	(11,101	)	$	—	$	(22,050	)
Effect of dilutive units - numerator⁽¹⁾	—		—			—		—
Dilutive interest in net loss	$	—	$	(11,101	)	$	—	$	(22,050	)

Weighted-average units - basic	48,682,152		48,636,517			48,682,104		48,631,546
Effect of dilutive units - denominator⁽¹⁾	—		—			—		—
Weighted-average units - dilutive	48,682,152		48,636,517			48,682,104		48,631,546

Basic and diluted net loss per common unit	$	—	$	(0.23	)	$	—	$	(0.45	)

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	Three Months Ended June 30,					Six Months Ended June 30,
Subordinated Units	2019		2018			2019		2018
Interest in net income (loss)	$	—	$	(1,369	)	$	—	$	(4,118	)
Effect of dilutive units - numerator⁽¹⁾	—		—			—		—
Dilutive interest in net income (loss)	$	—	$	(1,369	)	$	—	$	(4,118	)

Weighted-average units - basic	12,213,713		12,213,713			12,213,713		12,213,713
Effect of dilutive units - denominator⁽¹⁾	—		—			—		—
Weighted-average units - dilutive	12,213,713		12,213,713			12,213,713		12,213,713

Basic and diluted net income (loss) per subordinated unit	$	—	$	(0.11	)	$	—	$	(0.34	)

(1)

Because we had a net loss for all periods for common units and the subordinated units, the effect of the dilutive units would be anti-dilutive to the per unit calculation. Therefore, the weighted average units outstanding are the same for basic and dilutive net loss per unit for those periods. The weighted average units that were not included in the computation of diluted per unit amounts were 77,572 and 231,525 unvested awards granted under the LTIP for the three and six months ended June 30, 2018. As of January 1, 2019, all awards under the LTIP vested. See Note 10.

Cash Distributions

Our agreement of limited partnership (as amended and restated, the “Partnership Agreement”), requires that within 45 days after the end of each quarter, we distribute all of our available cash to unitholders of record on the applicable record date, as determined by our General Partner. There is no guarantee that we will pay the minimum quarterly distribution on our units in any quarter. Beginning with the third quarter of 2014, until such time that we have a distributable cash flow divided by cash distributions ratio (“Distributable Cash Flow Ratio”) of at least 1.0, Holdings, the indirect holder of all of our subordinated units, waived the right to receive distributions on any subordinated units that would cause the Distributable Cash Flow Ratio to be less than 1.0. More importantly, the First Amendment to our Third A&R Revolving Credit Agreement imposed additional restrictions on our ability to declare and pay quarterly cash distributions with respect to our subordinated units. Additionally, we are restricted under the Fifth Amendment from paying a distribution with respect to our common units until our Consolidated Total Leverage Ratio is below 5.0. See Note 6.

In addition to the above mentioned restrictions imposed by our debt instruments, the Partnership GP Board suspended paying a quarterly distribution with respect to the fourth quarter of 2015, every subsequent quarter of 2016, 2017, 2018 and the first and second quarter of 2019 to conserve any excess cash for the operation of our business. Further, all cash distributions have been stayed by the commencement of the Chapter 11 Cases.

Paid In-Kind Distributions

Class B Convertible Units. As of June 30, 2019, the Class B Convertible Units consisted of 19,996,781 of such units including the additional Class B Convertible Units issued in-kind as a distribution (“Class B PIK Units”). The Class B Convertible Units are not participating securities for purposes of the earnings per unit calculation. Commencing with the quarter ended September 30, 2014 and until converted, as long as certain requirements are met, the holders of the Class B Convertible Units will receive quarterly distributions in an amount equal to $0.3257 per unit. These distributions are to be paid quarterly in Class B PIK Units within 45 days after the end of each quarter. Our General Partner was entitled, and has exercised its right, to retain its 2.0% general partner interest in us in connection with the original issuance of the Class B Convertible Units. In connection with future distributions of Class B PIK Units, the General Partner is entitled to a corresponding distribution to maintain its 2.0% general partner interest in us. The Class B Convertible Units have the same rights, preferences and privileges, and are subject to the same duties and obligations, as our common units, with certain exceptions. See Note 8. However, all PIK distributions have been stayed by the commencement of the Chapter 11 Cases.

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The following table represents the Class B PIK unit distribution paid on the Class B Convertible Units for the periods ended December 31, 2018 and June 30, 2019 (in thousands, except per unit and in-kind distribution units):



Payment Date	Attributable to the Quarter Ended	Per Unit Distribution		In-Kind Class B Convertible Unit Distributions to Class B Convertible Holders	In-Kind Class B Convertible Distributions Value⁽¹⁾		In-Kind Unit Distribution to General Partner	In-Kind General Partner Distribution Value⁽¹⁾
2019	(2)	(2)		(2)	(2)		(2)	(2)
2018
February 7, 2019	December 31, 2018	$	0.3257	343,950	$	76	7,019	$	2
November 12, 2018	September 30, 2018	0.3257		338,034	196		6,899	4
August 13, 2018	June 30, 2018	0.3257		332,220	515		6,780	11
May 3, 2018	March 31, 2018	0.3257		326,506	532		6,663	11


(1)	The fair-value was calculated as required, based on the common unit price at the quarter end date for the period attributable to the distribution, multiplied by the number of units distributed.


(2)	The issuance of the Class B distributions has been stayed by the commencement of the Chapter 11 Cases. See Note 1.

4. FINANCIAL INSTRUMENTS

Fair-Value Measurements

We apply recurring fair-value measurements to our financial assets and liabilities. In estimating fair-value, we generally use a market approach and incorporate assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation techniques. The fair-value measurement inputs we use vary from readily observable inputs that represent market data obtained from independent sources to unobservable inputs that reflect our own market assumptions that cannot be validated through external pricing sources. Based on the observability of the inputs used in the valuation techniques, the financial assets and liabilities carried at fair-value in the financial statements are classified as follows:


•	Level 1—Represents unadjusted quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date. This category primarily includes our cash and cash equivalents.


•	Level 2—Represents quoted market prices for similar assets or liabilities in active markets, quoted market prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data. This category primarily includes variable rate debt, over-the-counter swap contracts based upon natural gas price indices and interest rate derivative transactions.

•

Level 3—Represents derivative instruments whose fair-value is estimated based on internally developed models and methodologies utilizing significant inputs that are generally less readily observable from market sources. During the fourth quarter of 2018 and second quarter of 2019, we had a non-recurring Level 3 fair-value measurement associated with the impairment of our fixed assets. See Note 5. In certain cases, the inputs used to measure fair-value may fall into different levels of the fair-value hierarchy.

In such cases, the level in the fair-value hierarchy must be determined based on the lowest level input that is significant to the fair-value measurement. An assessment of the significance of a particular input to the fair-value measurement in its entirety requires judgment and consideration of factors specific to the asset or liability.

The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable represent fair-values based on the short-term nature of these instruments. The fair-value of our Credit Facility (defined in Note 6) approximates its carrying amount due primarily to the variable nature of the interest rate of the instrument and is considered a Level 2 fair-value measurement. As of June 30, 2019, the fair-value of our term loan was $223.8 million and the fair-value of the Investment Notes was $12.6 million, based on recent trading levels and are considered Level 2 fair-value instruments.

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Derivative Financial Instruments

Interest Rate Derivative Transactions

We entered into interest rate cap contracts to limit our London Interbank Offered Rate (“LIBOR”) based interest rate risk on the portion of debt hedged at the contracted cap rate. As of June 30, 2019, we have no active interest rate cap contracts. Our interest rate cap position is as follows (in thousands):



					Estimated Fair Value
Notional Amount	Cap Rate		Effective Date	Maturity Date	June 30, 2019
40,000	2.575	%	December 31, 2018	June 30, 2019	—
60,000	3.000	%	June 30, 2017	June 30, 2019	—
175,000	4.000	%	June 30, 2018	June 30, 2019	—
					$	—

These interest rate derivatives were not designated as cash flow hedging instruments for accounting purposes and as a result, changes in the fair-value are recognized in interest expense immediately.

The fair-value of our interest rate derivative transactions is determined based on a discounted cash flow method using contractual terms of the transactions. The floating coupon rate is based on observable rates consistent with the frequency of the interest cash flows. We have elected to present our interest rate derivatives net in the balance sheets. There was no effect of offsetting in the balance sheets as of June 30, 2019 or December 31, 2018.

The fair-values of our interest rate derivative transactions were as follows (in thousands):



	Significant Other Observable Inputs (Level 2)
	Fair-Value Measurement as of
	June 30, 2019		December 31, 2018
Current interest rate derivative assets	$	—	$	11
Total interest rate derivatives	$	—	$	11

The realized and unrealized amounts recognized in interest expense associated with derivatives were as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Realized loss (gain) on interest rate derivatives	$	1	$	4	$	11	$	(1	)

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5. LONG-LIVED ASSETS

Property, Plant and Equipment

Property, plant and equipment consisted of the following (in thousands):



	Estimated Useful Life (yrs)	June 30, 2019			December 31, 2018
Pipelines	15-30	$	202,500		$	224,752
Gas processing, treating and other plants	15	152,962			169,899
Compressors	5-15	14,283			16,058
Rights of way and easements	15	12,646			13,968
Furniture, fixtures and equipment	5	2,357			2,577
Finance lease vehicles	3-5	2,838			2,944
Total property, plant and equipment		387,586			430,198
Accumulated depreciation and amortization		(17,905		)	(17,726		)
Total		369,681			412,472

Construction in progress		5,987			8,234
Land and other		5,494			6,315
Property, plant and equipment, net		$	381,162		$	427,021

Depreciation is provided using the straight-line method based on the estimated useful life of each asset. Depreciation expense for the three and six months ended June 30, 2019 was $8.5 million and $20.8 million, respectively, and $17.9 million and $35.8 million for the three and six months ended June 30, 2018, respectively.

In an effort to further our cost-saving initiatives, management elected to idle the Bonnie View fractionation facility (“Bonnie View”) in the second quarter of 2017. As a result, all of our Y-grade product was being sold to Holdings in accordance with our affiliate Y-grade sales agreement and was being fractionated at the Robstown fractionation facility. However, during the fourth quarter of 2018, Holdings and Holdings Borrower completed the sale to EPIC and EPIC Y-Grade Holdings, LP, a subsidiary of EPIC of the Robstown facility and related pipelines, that enables the Robstown facility to receive natural gas liquids from various supply sources and several short pipelines that allow the delivery of fractionated products to Corpus Christi-area markets. Under the terms of the Robstown Purchase Agreement, EPIC assumed all of the NGL purchase and sale agreements associated with Robstown, including those with the Partnership through December 31, 2019. In addition, during the second quarter of 2019, we entered into an operating agreement with EPIC to restart Bonnie View and fractionate the Y-Grade product delivered by EPIC through December 31, 2019. Under the terms of the operating agreement, EPIC will pay a $0.01 per gallon operating expense, reimburse the Partnership all operating and maintenance expenses, and pay a general and administrative expense equal to 15% of total Bonnie View operating and maintenance expense.

Impairment of Long-Lived Assets

We evaluate our long-lived assets by asset group, which include finite-lived intangible assets, for impairment when events or circumstances indicate that the asset group's carrying values may not be recoverable. These events include, but are not limited to, market declines that are believed to be other than temporary, changes in the manner in which we intend to use a long-lived asset or group, decisions to sell an asset and adverse changes in the legal or business environment such as adverse actions by regulators. We continually monitor our operations, the market, and business environment to identify indicators that could suggest an asset or asset group may not be recoverable. If an event occurs, we evaluate the recoverability of our carrying value based on the long-lived asset group's ability to generate future cash flows on an undiscounted basis. If the undiscounted cash flows are not sufficient to recover the long-lived asset group's carrying value, or if we decide to sell a long-lived asset or group of assets, we adjust the carrying values of the asset downward, if necessary, to their estimated fair-value. Our fair-value estimates are based generally on assumptions market participants would use, including market data obtained through the sales process or an analysis of expected discounted cash flows.

Following the consummation of the transactions contemplated by the Robstown Purchase Agreement, Holdings performed recoverability testing of its assets, including the consolidated assets of the Partnership. As a result of such testing, we received evidence that indicated we may not be able to recover the carrying values of our assets. We performed a separate recoverability test of our assets and concluded that the carrying amounts of our long-lived asset groups exceeded the expected future

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probability-weighted undiscounted cash inflows. We then determined the estimated fair-values of our South Texas, Mississippi, and Alabama asset groups. During the fourth quarter of 2018, as part of a non-recurring valuation of our long-lived assets, we determined that the fair value of our South Texas and Mississippi assets groups was a combined $501.7 million as of October 2018. Therefore, we recorded asset impairment charges of $430.3 million to our South Texas and Mississippi asset groups. Of the $430.3 million impairment charge to our property, plant and equipment, $379.5 million related to our South Texas asset group and $50.8 million to our Mississippi asset group. This related impairment charge is a non-recurring Level 3 fair-value measurement.

Following the commencement of the Chapter 11 Cases (as described in Note 1 and Note 2), the Partnership performed recoverability testing of its assets. As a result of such testing, we received evidence that indicated we may not be able to recover the carrying values of our assets. We performed a separate recoverability test of our assets and concluded that the carrying amounts of our long-lived asset groups exceeded the expected future probability-weighted undiscounted cash inflows. We then determined the estimated fair-values of our South Texas, Mississippi, and Alabama asset groups. During the second quarter of 2019, as part of a non-recurring valuation of our long-lived assets, we determined that the fair value of our South Texas asset group was $433.1 million. Therefore, we recorded an asset impairment charge of $26.6 million to our South Texas asset group. This related impairment charge is a non-recurring Level 3 fair-value measurement.

Intangible Assets

Intangible assets of $1.3 million as of June 30, 2019 and December 31, 2018, respectively, represent the unamortized value assigned to long-term supply and gathering contracts. These intangible assets are amortized on a straight-line basis over the 30-year expected useful lives of the contracts through 2041. Amortization expense over the next five years related to intangible assets is not significant.

6. LONG-TERM DEBT

Our outstanding debt and related information at June 30, 2019 and December 31, 2018 are as follows (in thousands):



	June 30, 2019			December 31, 2018
DIP credit facility due 2019 ⁽¹⁾	$	126,562		$	—
DIP roll-up loans due 2019 ⁽¹⁾	127,500			—
Revolving credit facility due 2019 ⁽²⁾	81,293			81,124
Term loans due 2021 ⁽²⁾	309,418			429,141
Senior unsecured notes payable due 2019 ⁽²⁾	17,383			16,867
Original issuance discount on term loans due 2021	—			(814		)
Total long-term debt (including current portion)	662,156			526,318
Liabilities subject to compromise (Note 2) ⁽²⁾	(407,925		)	—
Current portion of long-term debt ^{(1) (3)(4)}	(254,231		)	(521,123		)
Deferred financing costs	—			(5,195		)
Total long-term debt	$	—		$	—

Outstanding letters of credit	$	21,663		$	27,738
Remaining unused borrowings	$	33,337		$	6,138

(1)

The DIP Credit Agreement and DIP Roll-Up Loans mature on the date that is the earliest to occur of: (i) October 1, 2019 (provided that such date may be extended with the consent of DIP Lenders holding a majority of DIP Loans and unused commitments by an additional ninety days subject to certain conditions, including the payment of an extension premium of 1.00% of then outstanding DIP Loans of the consenting DIP Lenders); (ii) the effective date of any chapter 11 plan of the Debtors; (iii) the date on which all or substantially all of the assets of the Debtors are sold in a sale under a chapter 11 plan or pursuant to Section 363 of the Bankruptcy Code; and (iv) the acceleration of the maturity of the DIP Loans upon the occurrence of any event of default. As a result, we have classified our DIP Credit Agreement and DIP Roll-Up Loans as current at June 30, 2019.


(2)	Under ASC Topic 852, Reorganizations, as a result of our Chapter 11 Cases, we classified our Term Loan, Revolving Credit Facility and Senior Unsecured Notes Payable as liabilities subject to compromise as of April 1, 2019.

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(3)

Under ASC Topic 470, Debt, as a result of our debt covenant violations, we classified our debt under our Term Loan, Revolving Credit Facility and Senior Unsecured Notes Payable, as current at December 31, 2018 and March 31, 2019, respectively. However, as a result of the Chapter 11 Cases, we classified our Term Loan, Revolving Credit Facility and Senior Unsecured Notes Payable as liabilities subject to compromise as of April 1, 2019.


(4)	Includes $126.6 million related to the DIP Credit Agreement, $127.5 million related to the DIP Roll-Up Loans and $0.2 million of PIK interest related to the Revolving Credit Facility.



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Weighted average interest rate	11.89		%	7.27		%	10.03		%	6.94		%
Average outstanding borrowings	$	643,239		$	530,793		$	585,515		$	530,793
Maximum borrowings	$	662,367		$	530,806		$	662,367		$	532,952

Senior Credit Facilities

Prior to the commencement of the Chapter 11 Cases, our long-term debt arrangements consisted of (i) the Third A&R Revolving Credit Agreement and (ii) the Term Loan Agreement. Substantially all of our assets are pledged as collateral under the Senior Credit Facilities, with the obligations thereunder being secured on a pari passu basis. Our bankruptcy filing triggered an event of default under our Senior Credit Facilities.

DIP Credit Agreement

On April 2, 2019, the Bankruptcy Court entered an interim order authorizing the Debtors to enter into the DIP Facilities. The Interim Order allowed the DIP Loan Parties to access immediately up to $85.0 million under the DIP Facilities and refinance their obligations outstanding under prepetition letters of credit. However, both the DIP Facilities and the refinancing of such letters of credit and of certain term loans outstanding under the Term Loan Agreement remained subject to entry of a final order by the Bankruptcy Court. Pursuant to the Interim Order, on April 3, 2019, the DIP Loan Parties entered into the DIP Credit Agreement. On April 3, 2019, the conditions precedent to closing were satisfied and the Partnership made an initial borrowing of $30.0 million of DIP New Money Loans and $55.0 million of DIP LC Loans and the Existing Letters of Credit were deemed issued under the DIP Credit Agreement. The proceeds of the DIP Loans may be used in accordance with the DIP Credit Agreement to (i) finance working capital and general corporate purposes of the Partnership and its subsidiaries (including to conduct a sale process pursuant to Section 363 of the Bankruptcy Code and to pay professional fees approved by the Bankruptcy Court) in accordance with a budget approved by the Required DIP Lenders (subject to permitted variances); (ii) deem to cancel and reissue the Existing Letters of Credit and the Rolled-Up Loans; (iii) pay for certain transaction costs, fees and expenses of the DIP Agent and the DIP Lenders; (iv) make adequate protection payments pursuant to the Interim Order and the Final Order; and (v) pay for certain other costs and expenses of administering the Chapter 11 Cases. The $55.0 million of the proceeds from the DIP LC Loans is considered restricted cash and is included in the restricted cash line item within our consolidated balance sheet as of June 30, 2019.

On May 7, 2019, the Bankruptcy Court entered the Final Order approving the DIP Facilities and allowed the Borrower to draw down on the remaining commitments with respect to the DIP Term Loans and to refinance the Rolled-Up Loans with the DIP Roll-Up Loans. On May 9, 2019, we borrowed the remaining $42.5 million of DIP New Money Loans and made a payment of $127.5 million to our term loans outstanding under the Term Loan Agreement.

Borrowings of DIP New Money Loans bear interest, at the option of the Partnership, at a rate per annum equal to the Alternate Base Rate (as defined in the DIP Credit Agreement) plus 9.00% or the Adjusted LIBO Rate (as defined in the DIP Credit Agreement) plus 10.00%. DIP LC Loans bear interest at the Alternate Base Rate plus 9.00%, and DIP Roll-Up Loans bear interest at the Alternate Base Rate plus 5.25%. Upon the occurrence and continuation of an event of default under the DIP Credit Agreement, the interest rate will increase by 2.00% per annum.

All borrowings under the DIP Facilities will mature on the date that is the earliest to occur of: (i) October 1, 2019 (provided that such date may be extended with the consent of DIP Lenders holding a majority of DIP Loans and unused commitments by an additional ninety days subject to certain conditions, including the payment of an extension premium of 1.00% of then outstanding DIP Loans of the consenting DIP Lenders); (ii) the effective date of any chapter 11 plan of the Debtors; (iii) the date on which all or substantially all of the assets of the Debtors are sold in a sale under a chapter 11 plan or pursuant to Section 363 of the Bankruptcy Code; and (iv) the acceleration of the maturity of the DIP Loans upon the occurrence

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of any event of default. The obligations under the DIP Facilities are secured by a superpriority lien on substantially all of the assets of each DIP Loan Party pursuant to the Guaranty and Collateral Agreement and the DIP Orders, having the priorities set forth in the Final Order.

The DIP Credit Agreement provides for certain affirmative and negative covenants applicable to the DIP Loan Parties that are customary for debtor-in-possession facilities of this type, including affirmative covenants requiring reporting by the Partnership in the form of rolling 13-week cash flow forecasts, together with a reasonably detailed written explanation of all material variances from the budget, and negative covenants restricting the ability of the Debtors to incur additional indebtedness, grant liens, dispose of assets, pay dividends or take certain other actions.

As of June 30, 2019, we were in compliance with all of the covenants under the DIP Credit Agreement. The DIP Credit Agreement contains certain events of default that are customary for debtor-in-possession facilities of this type, including: (i) non-payment of principal, interest or other amounts when due; (ii) breaches of representations and warranties; (iii) breaches of covenants in the DIP Credit Agreement or other loan documents; (iv) cross-defaults under other post-petition indebtedness; (v) conversion of the Chapter 11 Cases to a Chapter 7 case; (vi) appointment of a trustee, examiner or receiver in the Chapter 11 Cases; and (vii) the Final Order is not entered by the Bankruptcy Court within 40 days of the Petition Date.

Term Loan Agreement

The Term Loan Agreement is a $450 million senior secured term loan facility that was scheduled to mature on August 4, 2021. Immediately prior to the commencement of the Chapter 11 Cases, borrowings under our Term Loan Agreement bore interest at LIBOR plus 4.25% or a base rate as defined in the respective credit agreement with a LIBOR floor of 1.00%. The facility also amortized in equal quarterly installments in an aggregate amount equal to 1% of the original principal amount, less any mandatory prepayments (as defined in the Term Loan Agreement), such as the $1.064 million, with the remainder due on the maturity date. The Term Loan Agreement payable included $7.8 million of PIK interest as of June 30, 2019. As a result of the commencement of the Chapter 11 Cases, interest will accrue on all outstanding obligations at the applicable default rate in accordance with the Term Loan Agreement.

In connection with the execution of the DIP Facilities, certain of the Debtors entered into that certain Second Amendment to Term Loan Credit Agreement, dated as of March 31, 2019 (the “Term Loan Amendment”), among such Debtors and the lenders party thereto, in order to clarify the treatment of the “roll up” of certain loans held by the lenders party thereto or affiliates of such lenders. Pursuant to the Term Loan Amendment, among other things, 100% of the proceeds from DIP Roll-Up Loans shall be required to be used by the Debtors to prepay certain of the loans under the Term Loan Agreement (or be deemed to cancel and refinance such loans). On May 9, 2019, we borrowed the $42.5 million of DIP Roll-Up Loans and made a payment of $127.5 million to our term loans outstanding under the Term Loan Agreement.

Senior Unsecured Note

On January 2, 2018, Holdings delivered a Backstop Demand (as defined in the Investment Agreement) for each Sponsor to fund their respective pro rata portions of the Sponsor Shortfall Amount (as defined in the Investment Agreement) of $15.0 million in accordance with the Backstop Agreement. As consideration for the amount contributed directly to us by a Sponsor pursuant to the Backstop Agreement, we issued to the Sponsors senior unsecured notes of the Partnership in an aggregate principal amount of $15.0 million. Prior to the commencement of the Chapter 11 Cases, the Investment Notes were scheduled to mature on November 5, 2019 and bore interest at a rate of 12.5% per annum. Interest on the Investment Note was to be paid-in-kind (“PIK”) (other than with respect to interest payable (i) on or after the maturity date, (ii) in connection with prepayment, or (iii) upon acceleration of the Investment Note, which shall be payable in cash); provided that all interest was to be payable in cash on or after December 31, 2018. The Investment Notes are the unsecured obligation of the Partnership subordinate in right of payment to any of our secured obligations under the Third A&R Revolving Credit Agreement. The senior unsecured note payable included $2.4 million of PIK interest as of June 30, 2019.

The filing of the Chapter 11 Cases described in Notes 1 and 2 constituted an event of default that accelerated our obligations under the Third A&R Revolving Credit Agreement, the Term Loan Agreement and the Investments Notes.

These debt instruments provide that as a result of the commencement of the Chapter 11 Cases, the principal and interest due thereunder shall be immediately due and payable. Any efforts to enforce such payment obligations under the debt instruments are automatically stayed as a result of the commencement of the Chapter 11 Cases, and the creditors’ rights of enforcement in respect of the debt instruments are subject to the applicable provisions of the Bankruptcy Code. However, we are making adequate protection payments to the lenders under the Third A&R Revolving Credit Agreement and the Term Loan

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Agreement, in each case in an amount equal to all accrued post-petition unpaid interest accruing on all outstanding principal, interest, fees and other amounts under the applicable facility on a monthly basis at the applicable default rate.

Deferred Financing Costs

Deferred financing costs are capitalized and amortized as interest expense under the effective interest method over the term of the related debt. The unamortized balance of deferred financing costs is included in long-term debt in the balance sheet. Changes in deferred financing costs are as follows (in thousands):



	2019			2018
Deferred financing costs, January 1	$	5,195		$	8,295
Capitalization of deferred financing costs	—			256
Amortization of deferred financing costs	(794		)	(1,777		)
Write-off of deferred financing costs ⁽¹⁾	(4,401		)	—
Deferred financing costs, June 30	$	—		$	6,774


(1)	The Partnership incurred a write-off of $4.4 million of deferred financing costs as a result of the Chapter 11 Cases. See Note 2.

7. COMMITMENTS AND CONTINGENCIES

Legal Matters

From time to time, we are party to certain legal or administrative proceedings that arise in the ordinary course and are incidental to our business. For example, during periods when we are expanding our operations through the development of new pipelines or the construction of new plants, we may become involved in disputes with landowners that are in close proximity to our activities. While we are involved currently in several such proceedings and disputes, our management believes that none of such proceedings or disputes will have a material adverse effect on our results of operations, cash flows or financial condition. However, future events or circumstances, currently unknown to management, will determine whether the resolution of any litigation or claims ultimately will have a material effect on our results of operations, cash flows or financial condition in any future reporting periods.

For a discussion about the Chapter 11 Cases, see Notes 1 and 2.

Woodsboro. Our General Partner has been named as a defendant in a lawsuit filed on April 29, 2016 in Duval County, Texas styled Victor Henneke, Jr., et al. v. Southcross Energy Partners GP, LLC, et al., Cause No. DC-16-139, 229th Judicial District, Duval County, Texas (the “Henneke Case”). The Henneke Case involves claims by two employees of a third-party contractor for personal injury and wrongful death resulting from the alleged negligence of the Partnership related to a pipeline construction project located at our Woodsboro processing facility in 2016. No trial date has been set for the contractual liability claims in the case. On April 25, 2018, a judgment was entered against Southcross in the amount of approximately $7.7 million which has been appealed to the Texas Court of Appeals. We believe we have adequate insurance coverage to cover this matter and have recorded a $7.7 million liability and receivable from our insurance carrier. In April 2018 the plaintiffs filed two new lawsuits against Southcross CCNG Transmission Ltd. that allege the same or similar causes of actions for which we previously received a judgement in Duval County. The cases are styled as Ivy Gonzalez on behalf of M.R. Gonzalez and M.N. Gonzalez Minor Children vs. Southcross CCNG Transmission Ltd.; Gene Henneke as independent administrator of the estate of Dennis Henneke; Galbreath Contracting, Inc. and Severo Sepulveda, Jr. Cause no. DE-18-82 and Amy Gonzalez as co-personal representative of the estate of Jesus Gonzalez, Jr. under the Texas Survival Act and for and on behalf of wrongful death beneficiaries M.R. Gonzalez and M.N. Gonzalez Minor Children and Amy Gonzalez and Jesus Gonzalez, Sr. vs. Southcross CCNG Transmission Ltd.; Gene Henneke as independent administrator of the estate of Dennis Henneke; Galbreath Contracting, Inc. and Severo Sepulveda, Jr. Cause no. DE-18-83.

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Additionally, in 2016, Lisa Bueno Martinez filed claims against Debtors Southcross Energy Partners, GP, LLC, Southcross Energy Partners, LP, and Southcross NGL Pipeline Ltd., as well as Furmanite Corporation (now known as Furmanite LLC) and certain of its affiliates, Galbraith Contracting, Inc., and other defendants, asserting claims for the death of her alleged common law husband, Jesus Gonzalez, Jr., in connection with the same 2016 pipeline construction project at the Woodsboro facility. The trial court granted summary judgment in the defendants’ favor, but the decision was reversed by the San Antonio Court of Appeal, and the Texas Supreme Court denied review. The case is currently pending and abated in the Texas Supreme Court, in Furmanite America, Inc. et al. v. Lisa Bueno Martinez, Case No. 18-0957.

Southcross Energy Partners GP, LLC and other Debtor affiliates filed claims against Furmanite and Galbraith, seeking defense and indemnity for the claims filed against Southcross, including the above described judgment presently pending appeal, pursuant to respective contracts with Furmanite and Galbraith. Furmanite responded to this claim with its own claim for defense and indemnity for amounts it paid to settle with Henneke, a Southcross employee. The indemnity action was stayed, pending completion of the personal injury claims. Southcross also has been notified by Galbraith Contracting, Inc. that it intends to pursue indemnification claims against Southcross Debtor entities for claims filed against Southcross by a different Southcross employee in the same action as well.

We intend to vigorously pursue indemnity from Galbraith and Furmanite, and otherwise defend vigorously these pending matters and believe we have adequate insurance coverage with respect to these matters.

On May 6, 2019, June 10, 2019, and August 8, 2019, the Bankruptcy Court approved stipulations between the Debtors and all of the parties asserting pending claims against the Debtors, as well as Galbraith Contracting, Inc., in connection with the 2016 pipeline construction project at Woodsboro. The stipulations fully release these parties’ claims against the Debtors and various related entities and individuals, except to the extent of any available insurance coverage, and modify the automatic stay to allow these parties to pursue their asserted claims against the Debtor entities named in their respective actions only to the extent of the available coverage.

Regulatory Compliance

In the ordinary course of our business, we are subject to various laws and regulations. In the opinion of our management, compliance with current laws and regulations will not have a material effect on our results of operations, cash flows or financial condition.

Leases

Prior to January 1, 2019, we classified our leases as either capital or operating leases under ASC Topic 840, Leases (Topic 840). We recognized leased vehicle assets (included in property, plant and equipment) and liabilities (included in other current liabilities and other long-term liabilities) related to our capital leases on our consolidated balance sheets. We also recognized depreciation expense and interest expense related to our capital leases on our consolidated statements of operations. The majority of our lease arrangements were classified as operating leases, under which we did not recognize assets or liabilities on our condensed consolidated balance sheets, but rather recognized leases on our condensed consolidated statements of operations (included in operating and maintenance expenses and general and administrative expenses).

On January 1, 2019, we adopted the provisions of ASC Topic 842, Leases (Topic 842), which requires us to determine if an arrangement is or contains a lease at inception. Our assessment is based on (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period and (3) whether we have the right to direct the use of the asset. When a lease exists, we record a right-of use asset that represents our right to use the asset over the lease term and a lease liability that represents our obligation to make payments over the lease term. Lease liabilities are recorded at the sum of future lease payments discounted by the discount rate established at the commencement date or that we could obtain to lease a similar asset over a similar period, and right-of-use assets and corresponding lease liabilities are recorded. The estimation of our right-of-use assets and lease liabilities requires us to make significant assumptions and judgments about the term of the lease, variable payments, and discount rates. When available, we use the rate implicit in the lease to discount lease payments; however, the rate implicit in the lease is not readily determinable for substantially all of our leases. In such cases, we use an estimate of our incremental borrowing rate to discount lease payments based on information available at lease commencement. Our operating leases have remaining terms that vary from one year to eight years and certain of those leases have renewal options to extend the leases, or terminate the leases at our sole discretion. The termination dates of the lease agreements vary from 2019 to 2026. We adopted the standard using the modified retrospective method. Based on the practical expedients allowed for in the standard, we did not reassess the current GAAP classification of leases, easements and rights of way that existed as of January 1, 2019, and we did not utilize the

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hindsight method in determining the assets and liabilities to be recorded for our existing leases on January 1, 2019. The majority of our leases are for the following types of assets:

•

Office space - Our primary offices are in Dallas, Houston, and San Antonio, with smaller offices in other locations near our operating assets. Our office leases are long-term in nature and represent $6.5 million of our lease liability and $5.4 million of our right-of-use asset as of June 30, 2019. A rental reimbursement included in our lease agreement associated with the office space we leased in June 2015 of $1.7 million, net of amortization, has been recorded as a deferred liability in our condensed consolidated balance sheets as of June 30, 2019. This amount will continue to be amortized against the lease payments over the length of the lease term. Our San Antonio office includes income related to subleases of $0.1 million and $0.1 million for the three and six months ended June 30, 2019. Our office space operating leases do not contain any residual value guarantees. Many of our leases contain charges for common area maintenance or other miscellaneous expenses that are updated based on landlord estimates. Due to this variability, the cash flows associated with these charges are not included in the minimum lease payments used in determining the right-of-use asset and associated lease liability. These common area maintenance and other miscellaneous expense are immaterial.

•

Compression and other field equipment - We pay third parties to provide compressors or other field equipment for our assets. Under these agreements, a third party installs and operates compressor units based on specifications set by us to meet our compression needs at specific locations. While the third party determines which compressors to install and operates and maintains the units, we have the right to control the use of the compressors and are the sole economic beneficiary of the identified assets. These agreements are typically for an initial term of one to three years but will automatically renew from month to month until canceled by us or the lessor. Compression and other field equipment rentals represent $0.5 million of our lease liability and $0.5 million of our right-of-use asset as of June 30, 2019. Our compression operating leases do not contain any residual value guarantees. Some of our compression leases contain options to renew or extend the lease or terminate the lease before the expiration date. These options are factored into the determination of the lease term and lease payments when their exercise is considered to be reasonably certain.


•	Land and land easements - We make periodic payments to lease land or to have access to our assets. Land leases and easements are typically long-term to match the expected useful life of the corresponding asset. During the first and second quarter of 2019, we did not make any payments to lease land.

Supplemental balance sheet information included in other current assets, other assets, other current liabilities and other long-term liabilities related to operating leases was as follows (in thousands, except for lease term and discount rate):



	June 30, 2019
Other assets:
Other lease right-of-use assets	$	5,868

Liabilities subject to compromise:
Other current operating lease liabilities	$	1,522
Liabilities subject to compromise:
Other long-term operating lease liabilities	$	5,481
Total operating lease liabilities	$	7,003

Weighted average discount rate	10%

Weighted average lease term (years)	6.0

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Finance Leases

We have finance lease obligations related to vehicle leases that are classified as finance leases. The termination dates of the lease agreements vary from 2019 to 2023. We recorded accretion expense related to the finance leases of $0.2 million and $0.4 million for the three and six months ended June 30, 2019, respectively, and $0.1 million and $0.2 million for the three and six months ended June 30, 2018, respectively. Finance leases entered into during the three and six months ended June 30, 2019, were each $0.2 million, respectively, and for the three and six months ended June 30, 2018, were $1.0 million and $1.3 million, respectively . The finance lease obligation amounts included in the balance sheets were as follows (in thousands):



	June 30, 2019
Finance lease vehicles	$	2,838
Less: accumulated depreciation	(1,294		)
Finance lease vehicles, net of accumulated depreciation	$	1,544



	June 30, 2019		December 31, 2018
Other current liabilities	$	623	$	646
Other non-current liabilities	886		1,054
Total finance lease liabilities	$	1,509	$	1,700

Future Minimum Lease Payments

Prior to January 1, 2019, we classified our leases as either capital or operating leases under ASC 840, Leases. Future minimum annual rental commitments under ASC 840 for our capital and operating leases at December 31, 2018 were as follows (in thousands):



Year Ending December 31,	Capital Leases			Operating Leases
2019	$	646		$	2,912
2020	523			1,148
2021	414			922
2022	117			941
2023	—			953
Thereafter	—			1,956
Total future payments	$	1,700		$	8,832
Less: Imputed interest	$	(53	)
Future lease payments	$	1,647

Future minimum annual rental commitments under ASC 842 for our finance and operating leases as of June 30, 2019 were as follows (in thousands):



Year Ending June 30,	Finance Leases			Operating Leases
2019⁽¹⁾	$	325		$	1,381
2020	553			1,481
2021	453			1,211
2022	160			1,238
2023	18			1,264
Thereafter	—			3,273
Total future lease payments	$	1,509		$	9,848
Less: imputed interest	(43		)	(2,845		)
Total lease obligations	$	1,466		$	7,003
Less: current lease obligations	(623		)	(1,522		)
Long-term lease obligations	$	843		$	5,481

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(1)	For the six months remaining in the 2019 fiscal year.

The components of lease expense for the three and six months ended June 30, 2019 is as follows (in thousands):



	Three Months Ended June 30,		Six Months Ended June 30,
	2019		2019

Operating lease costs⁽¹⁾	$	873	$	1,764

Finance lease costs:
Amortization of assets	$	159	$	315
Interest on lease liabilities	7		16
Total finance lease costs	$	166	$	331


(1)	Any common area maintenance and other miscellaneous expenses and operating leases less than one year are immaterial and not included in operating lease costs.

Southcross Assets Considered Leases to Third Parties

We have pipelines that transport natural gas to two power plants in Nueces County, Texas under fixed-fee contracts. The contracts have a primary term through 2029 and an option to extend the agreements by an additional term of up to ten years. These contracts are considered operating leases.

Future minimum annual demand payment receipts under these agreements as of June 30, 2019 were as follows: $1.1 million for the remainder of 2019; $2.2 million in 2020; $1.5 million in 2021; $1.5 million in 2022; $1.5 million in 2023 and $8.8 million thereafter. The revenue for the demand payments is recognized on a straight-line basis over the term of the contract. The demand fee revenues under the contracts were each $0.7 million and $1.3 million for the three and six months ended June 30, 2019 and 2018, respectively, and have been included within transportation, gathering and processing fees within Note 11. These amounts do not include variable fees based on the actual gas volumes delivered under the contracts. Variable fees recognized in revenues within transportation, gathering and processing fees within Note 11 were $0.2 million and $0.3 million for the three and six months ended June 30, 2019, and $0.3 million and $0.5 million for the three and six months ended June 30, 2018, respectively. Deferred lease revenue associated with these agreements was $11.0 million and $11.1 million at June 30, 2019, and December 31, 2018, respectively.

San Antonio Sublease

We sublet a portion of our capitalized property to a third party. The rental agreement has a primary term through July 2020. This lease is considered an operating lease. Future annual payment receipts under this agreement as of June 30, 2019 were as follows: $0.1 million for the remainder of 2019; and $0.1 million in 2020.

Southcross Assets Leases to Related Parties

We own compressors that we lease to an affiliate of Holdings. The contracts have a primary term through 2023 and an option to continue on a month-to-month basis. These contracts are considered operating leases. Future annual payment receipts under these agreements as of June 30, 2019 were as follows: $5.2 million for the remainder of 2019; $10.5 million in 2020, 2021, and 2022 respectively; and $3.5 million in 2023. The revenue for the payments is recognized on a straight-line basis over the term of the contract. The revenues under the contracts were $2.6 million and $5.2 million for the three and six months ended June 30, 2019 and $2.6 million and $5.2 million for the three and six months ended June 30, 2018, respectively, and have been included within affiliate revenue within the consolidated statement of operations.

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Total property, plant and equipment which we are the lessor consisted of the following (in thousands):



	June 30, 2019			December 31, 2018
Pipelines	$	14,843		$	14,843
Compressors	2,768			2,768
Total lease property, plant and equipment	$	17,611		$	17,611
Less: accumulated depreciation	(448		)	—
Total	$	17,163		$	17,611

Total lease revenues consisted of the following for the three and six months ended June 30, 2019 (in thousands):



	Three Months Ended June 30,		Six Months Ended June 30,
	2019		2019
Revenue:
San Antonio sublease	$	38	$	76
Pipelines	651		1,302
Total revenue	$	689	$	1,378

Revenue - affiliate:
Related party compressors	$	2,622	$	5,244
Total revenue - affiliate	$	2,622	$	5,244

8. PARTNERS’ CAPITAL

Ownership

Our units outstanding as of June 30, 2019 are as follows (in units):



	Partners’ Capital
		Owned by Parent
	Public	Holdings	Class B		General
	Common	Common	Convertible	Subordinated	Partner
Units outstanding as of December 31, 2018	22,194,141	26,492,074	19,652,831	12,213,713	1,643,934
Vesting of LTIP units, net	8,676	—	—	—	—
In-kind distributions and issuances to general partner to maintain 2.0% ownership	—	—	343,950	—	7,196
Units outstanding as of June 30, 2019	22,202,817	26,492,074	19,996,781	12,213,713	1,651,130

Common Units

Our common units represent limited partner interests in us. The holders of our common units are entitled to participate in our distributions (to the extent distributions are made) and are entitled to exercise the rights and privileges available to limited partners under our Partnership Agreement.

Class B Convertible Units

As of June 30, 2019, the Class B Convertible Units consist of 19,996,781 units, inclusive of any Class B PIK Units issued. The Class B Convertible Units have the same rights, preferences and privileges, and are subject to the same duties and obligations, as our common units, with certain exceptions as noted below.

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Our Partnership Agreement does not allow additional Class B Convertible Units (other than Class B PIK Units) to be issued without the prior approval of our General Partner and the holders of a majority of the outstanding Class B Convertible Units. As of June 30, 2019, all of our outstanding Class B Convertible Units were indirectly owned by Holdings.

Distribution Rights: The holders of the Class B Convertible Units receive quarterly distributions in an amount equal to $0.3257 per unit paid in Class B PIK Units (based on a unit issuance price of $18.61) within 45 days after the end of each quarter. Our General Partner was entitled, and has exercised its right, to retain its 2.0% general partner interest in us in connection with the original issuance of Class B Convertible Units. In connection with future distributions of Class B PIK Units, the General Partner is entitled to a corresponding distribution to maintain its 2.0% general partner interest in us.

Conversion Rights: The Class B Convertible Units are convertible into common units on a one-for-one basis and, once converted, will participate in cash distributions pari passu with all other common units. The conversion of Class B Convertible Units will occur on the date we (i) make a quarterly distribution equal to or greater than $0.44 per common unit, (ii) generate Class B Distributable Cash Flow (as defined in our Partnership Agreement) in an amount sufficient to pay the declared distribution on all units for the two quarters immediately preceding the date of conversion (the “measurement period”) and (iii) forecast paying a distribution equal to or greater than $0.44 per unit from forecasted Class B Distributable Cash Flow on all outstanding common units for the two quarters immediately following the measurement period.

Voting Rights: The Class B Convertible Units generally have the same voting rights as common units, and have one vote for each common unit into which such units are convertible.

Subordinated Units

Subordinated units represent limited partner interests in us and convert to common units at the end of the Subordination Period (as defined in our Partnership Agreement). The principal difference between our common units and our subordinated units is that in any quarter during the Subordination Period, holders of the subordinated units are not entitled to receive any distribution of available cash until the common units have received the minimum quarterly distribution plus any arrearages in the payment of the minimum quarterly distribution from prior quarters. Subordinated units do not accrue arrearages. Beginning with the third quarter of 2014, until such time we have a Distributable Cash Flow Ratio of at least 1.0, Holdings, the indirect holder of the subordinated units, has waived the right to receive distributions on any subordinated units that would cause the Distributable Cash Flow Ratio to be less than 1.0. In addition, the Fifth Amendment imposed additional restrictions on our ability to declare and pay quarterly cash distributions with respect to our subordinated units. See Note 6.

General Partner Interests

As defined by our Partnership Agreement, general partner units are not considered to be units (common or subordinated), but are representative of our General Partner’s 2.0% ownership interest in us. Our General Partner has received general partner unit PIK distributions in connection with the Class B Convertible Units. In connection with other equity issuances, our General Partner has made capital contributions in exchange for additional general partner units to maintain its 2.0% ownership interest in us.

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9. TRANSACTIONS WITH RELATED PARTIES

Affiliated Directors

As of August 13, 2019, the Partnership GP Board was comprised of two directors designated by EIG (one of which must be independent), two directors designated by Tailwater (one of which must be independent), two directors designated by a group of Holdings’ former term loan lenders (one of which must be independent) and one director by majority. On August 14, 2019, two affiliated directors resigned from the Partnership GP Board, leaving a total of five directors.

Our non-employee directors are reimbursed for certain expenses incurred for their services to us. The director services fees and expenses are included in general and administrative expenses in our statements of operations. We incurred fees and expenses related to the services from our affiliated directors as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
EIG	37		36		91		72
Tailwater	40		38		95		76
Total fees and expenses paid for director services to affiliated entities	$	77	$	74	$	186	$	148

Southcross Energy Partners GP, LLC (our General Partner)

Our General Partner does not receive a management fee or other compensation for its management of us. However, our General Partner and its affiliates are entitled to reimbursements for all expenses incurred on our behalf, including, among other items, compensation expense for all employees required to manage and operate our business. We incurred expenses related to these reimbursements as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Reimbursements included in general and administrative expenses	$	2,272	$	1,556	$	6,946	$	3,229
Reimbursements included in operations and maintenance expenses	4,368		3,619		9,127		6,997
Total reimbursements to our General Partner and its affiliates	$	6,640	$	5,175	$	16,073	$	10,226

Other Transactions with Affiliates

We had a gas gathering and processing agreement (the “G&P Agreement”) and an NGL sales agreement (the “NGL Agreement”) with an affiliate of Holdings. Under the terms of these commercial agreements, we transport, process and sell rich natural gas for the affiliate of Holdings in return for agreed-upon fixed fees, and we sold natural gas liquids that we own to Holdings at agreed-upon fixed prices. The NGL Agreement also permits us to utilize Holdings’ fractionation services at market-based rates. While the Partnership continues to have a G&P Agreement with Holdings, the NGL agreement was assigned to EPIC as of October 1, 2018 in connection with the consummation of the transactions contemplated by the Robstown Purchase Agreement.

We recorded revenues from affiliates of $11.4 million and $23.1 million for the three and six months ended June 30, 2019 and $58.4 million and $109.8 million for the three and six months ended June 30, 2018, respectively in accordance with the G&P Agreement, the NGL Agreement and the series of commercial agreements.

We had no accounts receivable due from affiliates as of June 30, 2019. We had accounts receivable due from affiliates of $6.0 million as of December 31, 2018, respectively, and accounts payable due to affiliates of $1.0 million and $0.3 million as of June 30, 2019 and December 31, 2018, respectively. The affiliate receivable and payable balances are related primarily to transactions associated with Holdings, noted above, and our joint venture investments (defined in Note 12).

On July 29, 2018, Holdings terminated the Contribution Agreement since the transactions contemplated thereby were not completed on or prior to June 15, 2018 due to AMID’s Funding Failure (as defined in the Contribution Agreement). Pursuant to the terms of the Contribution Agreement, AMID was obligated to pay Holdings a $17 million termination fee as a result of such

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termination. On August 1, 2018, AMID paid the $17 million termination fee to Holdings, of which $4.2 million was contributed to the Partnership and was used to reimburse the Partnership’s transaction costs.

On October 4, 2018, EPIC and EPIC Y-Grade, a subsidiary of EPIC, entered into the Robstown Purchase Agreement with Holdings and Holdings Borrower to acquire Robstown and related pipelines that enables the Robstown facility to receive natural gas liquids from various supply sources and several short pipelines that allow the delivery of fractionated products to Corpus Christi-area markets. Under the terms of the Robstown Purchase Agreement, EPIC assumed all of the NGL purchase and sale agreements associated with Robstown, including certain NGL sales and transportation agreements with the Partnership. The sale was completed in November 2018.

On March 8, 2019, the Partnership entered into an engineering services contract with Tailwater Technical Consulting, LLC (“Tailwater”). The Partnership paid $0.1 million and $0.2 million of engineering related service expenses to Tailwater during the three and six months ended June 30, 2019.

10. INCENTIVE COMPENSATION

Unit Based Compensation

Long-Term Incentive Plan

The 2012 Long-Term Incentive Plan (“LTIP”) provides incentive awards to eligible officers, employees and directors of our General Partner. Awards granted to employees under the LTIP generally vest over a three year period in equal annual installments, or in the event of a change in control, in either a common unit or an amount of cash equal to the fair market value of a common unit at the time of vesting, as determined by our management at its discretion. These awards also include distribution equivalent rights that grant the holder the right to receive an amount equal to the cash distributions on common units during the period the award remains outstanding.

On November 9, 2015, the holders of a majority of our limited partner interests approved an amendment to the LTIP which increased the number of common units that may be granted as awards by 4,500,000 units. The term of the LTIP also was extended to a period of 10 years following the amendment's adoption.

In connection with the filing of the Chapter 11 Cases, the Partnership has terminated all offerings under the LTIP.

The following table summarizes information regarding awards of units granted under the LTIP:



	Units		Weighted-Average Fair Value at Grant Date
Unvested - December 31, 2018	12,334		$	7.94
Units recaptured for tax withholdings⁽¹⁾	(3,658	)	$	3.56
Vested units⁽¹⁾	(8,676	)	$	3.56
Unvested - June 30, 2019	—		$	—


(1)	The weighted-average fair-value price on the date of vesting for our vested units was $0.22 for the three and six months ended June 30, 2019. The weighted-average fair-value price on the date of vesting for our units recaptured for tax withholdings was $0.22 for the three and six months ended June 30, 2019.

For the six months ended June 30, 2019, we did not grant any equity awards under the LTIP. As of January 1, 2019, all awards under the LTIP vested.

Unit Based Compensation Expense

The following table summarizes information regarding recognized compensation expense, which is included in general and administrative and operations and maintenance expenses in our statements of operations (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Unit-based compensation	$	—	$	105	$	—	$	170

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Employee Savings Plan

We have employee savings plans under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended, whereby employees of our General Partner may contribute a portion of their base compensation to the employee savings plan, subject to limits. We provide a matching contribution each payroll period equal to 100% of each employee’s contribution up to the lesser of 6% of the employee’s eligible compensation or $16,800 annually for the period. The following table summarizes information regarding contributions and the expense recognized for the matching contributions, which is included in operating and maintenance expense and general and administrative expense in our statements of operations (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Matching contributions expensed for employee savings plan	$	155	$	146	$	394	$	323

11. REVENUES

Upon adoption of ASC 606, when it is determined that a contract exists, our performance obligation has been met and our transaction price is determinable, we record natural gas and NGL sales revenue in the period when the physical product is delivered to the customer and in an amount based on the pricing terms of an executed contract. Our transportation, gathering, processing, treating, compression and other revenue is recognized in the period when the service is provided and represents our fee-based service revenue that is based upon the pricing terms of an executed contract. In addition, collectability is evaluated on a customer-by-customer basis. New customers are subject to a credit review process, which evaluates the customers' financial position and their ability to pay.

Our sale and purchase arrangements primarily are presented separately in the statements of operations. These transactions are contractual arrangements that establish the terms of the purchase of natural gas or NGLs at a specified location and the sale of natural gas or NGLs at a different location on the same or on another specified date. These transactions require physical delivery and transfer of control is evidenced by title transfer, assumption of environmental risk, transportation scheduling, credit risk and counterparty nonperformance risk.

We derive revenue in our business from the following types of arrangements:


•	Fixed-Fee. We receive a fixed-fee per unit of natural gas volume that we gather at the wellhead, process, treat, compress and/or transport for our customers, or we receive a fixed-fee per unit of NGL volume that we transport to fractionation. Some of our arrangements also provide for a fixed-fee for guaranteed transportation capacity on our

systems.

•

Fixed-Spread. Under these arrangements, we purchase natural gas and NGLs from producers or suppliers at receipt points on our systems at an index-based price plus or minus a fixed price differential and sell these volumes of natural gas and NGLs at delivery points off our systems at the same index-based price, plus or minus a fixed price differential. By entering into such back-to-back purchases and sales, we are able to mitigate our risk associated with changes in the general commodity price levels of natural gas and NGLs. We remain subject to variations in our fixed-spreads to the extent we are unable to match precisely volumes purchased and sold in a given time period or are unable to secure the supply or to produce or market the necessary volume of products at our anticipated differentials to the index price.

•

Commodity-Sensitive. In exchange for our processing services, we may remit to a customer a percentage of the proceeds from our sales, or a percentage of the physical volume, of residue natural gas and/or NGLs that result from our natural gas processing, or we may purchase NGLs from customers at set fixed NGL recoveries and retain the balance of the proceeds or physical commodity for our own account. These arrangements are generally combined with fixed-fee and fixed-spread arrangements for processing services and, therefore, represent only a portion of a processing contract's value. The revenues we receive from these arrangements directly correlate with fluctuating general commodity price levels of natural gas and NGLs and the volume of NGLs recovered relative to the fixed recovery obligations.

Our gathering and processing agreements provide for quarterly and annual MVCs. Under these MVCs, our producers agree to sell us, ship and/or process a minimum volume of production on our gathering systems or to pay a minimum monetary amount over certain periods during the term of the MVC. A customer must make a shortfall payment to us at the end of the contracted measurement period if its actual throughput volumes are less than its MVC for that period.

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We recognize customer obligations under their MVCs as revenue when our performance obligation has been met or when it is remote the producer will be able to meet its MVC commitment.

We had revenues consisting of the following categories (in thousands):



		Three Months Ended June 30,				Six Months Ended June 30,
	Contract Type	2019		2018		2019		2018
Sales of natural gas⁽¹⁾	Fixed Spread	47,333		70,530		114,202		165,834
Sales of NGLs and condensate⁽¹⁾	Fixed Spread	32,144		52,864		69,473		100,084
Transportation, gathering and processing	Fixed Fee	12,084		8,588		24,890		16,261
Treating and compression	Fixed Fee	3,088		3,744		6,149		7,595
Other	N/A	1,886		1,046		3,749		2,235
Total revenues		$	96,535	$	136,772	$	218,463	$	292,009


(1)	Commodity-sensitive revenues are included in these categories as well.

12. INVESTMENTS IN JOINT VENTURES

We own equity interests in two joint ventures with Targa as our joint venture partner. We own a 50% or less interest in each of T2 Eagle Ford Gathering Company LLC (“T2 Eagle Ford”) and T2 LaSalle Gathering Company LLC (“T2 LaSalle”). The joint venture arrangements give equal management rights with no single investor having unilateral control. Each party sharing joint control must consent to the ventures’ operating, investing and financing decisions. Therefore, because we do not have controlling financial interests, but do have significant influence, we use the equity method of accounting for investments in joint ventures. We recognize our share of the earnings and losses in the joint ventures pursuant to the terms of the applicable limited liability agreements governing such joint ventures, which provide for earnings and losses generally to be allocated based upon each member’s respective ownership interest in the joint ventures. We record our proportionate share of the joint ventures’ net income/loss as equity in income/losses of joint venture investments in the statements of operations. We evaluate investments in joint ventures for impairment when factors indicate that a decrease in the value of the investment has occurred that is not temporary.

We previously had a third joint venture arrangement with T2 Cogen which operated a cogeneration facility next to our Lone Star plant with similar terms that we accounted for as an equity method investment. On December 31, 2018, Targa and the Partnership, as part of a statement of agreement, agreed to terminate the T2 Cogen joint venture and distributed one cogeneration unit to Targa, with the Partnership receiving 100% interest in T2 Cogen. Therefore, as of the effective date of December 31, 2018, T2 Cogen was no longer accounted for as an equity method investment and was consolidated into the Partnership. In addition, under the terms of the agreement, T2 Eagle Ford and T2 LaSalle will be operated by Targa after the completion of a transition period. Our indirect ownership percentages will remain the same with respect to T2 Eagle Ford and T2 LaSalle, and therefore continue to be accounted for as equity method investments.

The joint ventures’ summarized financial data from their statements of operations for the three and six months ended June 30, 2019 and 2018 is as follows (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenue
T2 Eagle Ford	$	1,233		$	953		$	1,705		$	2,015
T2 Cogen ⁽¹⁾	—			92			—			303
T2 LaSalle	408			446			613			831

Net loss
T2 Eagle Ford	$	(4,331	)	$	(4,672	)	$	(8,903	)	$	(9,340	)
T2 Cogen ⁽¹⁾	—			(892		)	—			(1,756		)
T2 LaSalle	(1,392		)	(1,480		)	(2,876		)	(2,960		)

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(1)	As of December 31, 2018, T2 Cogen was no longer accounted for as an equity method investment and was consolidated into the Partnership.

Our equity in losses of joint venture investments is comprised of the following for the three and six months ended June 30, 2019 and 2018 (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
T2 Eagle Ford	$	(2,166	)	$	(2,336	)	$	(4,452	)	$	(4,670	)
T2 Cogen ⁽¹⁾	—			(446		)	—			(878		)
T2 LaSalle	(348		)	(370		)	(719		)	(740		)
Equity in losses of joint venture investments	$	(2,514	)	$	(3,152	)	$	(5,171	)	$	(6,288	)


(1)	As of December 31, 2018, T2 Cogen was no longer accounted for as an equity method investment and was consolidated into the Partnership.

Our investments in joint ventures is comprised of the following as of June 30, 2019 and December 31, 2018 (in thousands):



	June 30, 2019		December 31, 2018
T2 Eagle Ford	$	79,258	$	83,332
T2 LaSalle	12,979		13,648
Investments in joint ventures	$	92,237	$	96,980

13. CONCENTRATION OF CREDIT RISK

Our primary markets are in South Texas, Alabama and Mississippi. We have a concentration of revenues and trade accounts receivable due from customers engaged in the production, trading, distribution and marketing of natural gas and NGL products. These concentrations of customers may affect overall credit risk in that these customers may be affected similarly by changes in economic, regulatory or other factors. We evaluate our customers’ credit worthiness before extending credit.

Our top ten customers, excluding affiliates, for the three and six months ended June 30, 2019 and 2018 represent the following percentages of consolidated revenue:



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Top ten customers	85.8	%	41.6	%	95.0	%	44.7	%

The percentage of total consolidated revenue for each customer, excluding affiliates, that exceeded 10% of total revenues for the three and six months ended June 30, 2019 and 2018 was as follows:



	Three Months Ended June 30,			Six Months Ended June 30,
	2019		2018	2019		2018
EPIC Pipeline LP	36.1	%	(a)	34.2	%	(a)
Occidental Energy Marketing, Inc.	11.4	%	(a)	12.3	%	(a)
Calpine Energy Services LP	(a)		(a)	11.4	%	(a)

(a) Information is not provided for periods for which the customer or producer was less than 10% of our consolidated revenue.

For the three and six months ended June 30, 2019 and 2018, we did not experience significant non-payment for services. We had no allowance for uncollectible accounts receivable at June 30, 2019.

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14. SUBSEQUENT EVENTS

None.

15. SUPPLEMENTAL INFORMATION

Supplemental Cash Flow Information (in thousands)



	Six Months Ended June 30,
	2019		2018
Supplemental Disclosures:
Cash paid for interest	$	17,615	$	18,484
Cash paid for taxes	4		—
Cash paid for reorganization items	4,341		—
Supplemental disclosures of non-cash investing and financing activities:
Accounts payable related to capital expenditures	320		1,205
Finance and capital lease obligations	148		224
Class B Convertible unit in-kind distributions	—		1,075

Capitalization of Interest Cost

We capitalize interest on projects during their construction period. Once a project is placed in service, capitalized interest, as a component of the total cost of the construction, is depreciated over the estimated useful life of the asset constructed. We incurred the following interest costs (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Total interest costs	$	16,187		$	11,191		$	27,869		$	21,286
Capitalized interest included in property, plant and equipment, net	(254		)	(96		)	(467		)	(181		)
Interest expense	$	15,933		$	11,095		$	27,402		$	21,105

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

FORWARD-LOOKING INFORMATION

Investors are cautioned that certain statements contained in this Quarterly Report on Form 10-Q ("Form 10-Q") are "forward-looking" statements. Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, events, performance or achievements, and may contain the words "expect," "intend," "plan," "anticipate," "estimate," "believe," "will be," "will continue," "will likely result," and similar expressions, or future conditional verbs such as "may," "will," "should," "would" and "could." In addition, any statement concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible actions taken by us or our subsidiaries, are also forward-looking statements. These forward-looking statements involve external risks and uncertainties, including, but not limited to, those described under the section entitled “Risk Factors” included in our 2018 Annual Report on Form 10-K.

Forward-looking statements reflect management’s current expectations and projections about future events and are inherently subject to a variety of risks and uncertainties, many of which are beyond the control of our management team. All forward-looking statements in this Form 10-Q and subsequent written and oral forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by these risks and uncertainties. These risks and uncertainties include, among others:


•	our ability to continue as a going concern;


•	our bankruptcy proceedings and the effect of those proceedings on our ongoing and future operations;


•	the outcome of potential strategic alternatives to maximize the benefit of our stakeholders as part of the Chapter 11 process, which may include a sale of certain or substantially all of our assets under Section 363 of the Bankruptcy Code or a plan of reorganization to equitize certain indebtedness as an alternative to the sale process;


•	our ability to negotiate a plan of reorganization in connection with the Chapter 11 process, including the restructuring of our indebtedness;


•	our future cash flows and the adequacy to fund our ongoing operations and the significant costs associated with the bankruptcy process, including our ability to limit these costs by obtaining confirmation of a successful plan of reorganization in a timely manner;


•	our ability to maintain compliance with debt covenants and meet debt service obligations associated with DIP Financing;


•	our ability to enter into transactions as a result of our Chapter 11 Cases,


•	future capital requirements and availability of financing during and post-emergence from bankruptcy, including limitations on our ability to incur certain types of indebtedness under our debt agreements and to refinance or replace existing debt obligations;


•	our business strategies, including our business strategies post-emergence from bankruptcy;


•	our ability to maintain relationships with suppliers, customers, employees and other third parties as a result of our Chapter 11 filings;


•	the failure of Frio LaSalle Pipeline, L.P. (“Frio”), an affiliate of Southcross Holdings LP (“Holdings”), to perform under existing contracts with us may have a material adverse impact on our business, financial position, and results of operations;


•	the impact of the OTC Markets Group Inc.’s downgrade of our Common Stock and to the OTC Pink (as defined herein) from the OTCQX U.S. tier;


•	our ability to attract and retain key personnel;


•	the volatility of prices for natural gas, crude oil and NGLs (and demand for the products derived from these commodities) has the potential to affect the amount of the exploration, development and production of natural gas in the area of our assets;


•	competitive conditions in our industry and the extent and success of producers increasing production or replacing

declining production and our success in obtaining new sources of supply;


•	industry conditions and supply of pipelines, processing and fractionation capacity relative to available natural gas from

producers;


•	our dependence upon a relatively limited number of customers for a significant portion of our revenues;


•	our dependence upon EPIC Midstream Holdings, LP and EPIC Y-Grade Holdings, LP for a significant portion of our revenues as a result of the sale by Southcross Holdings LP of its Robstown fractionation facility;


•	actions taken or inactions or nonperformance by third parties, including suppliers, contractors, operators, processors, transporters and customers;

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•	the impacts on our common units as a result of the delisting from the New York Stock Exchange, including the negative impact on our common unit price, volatility and liquidity associated with trading on over-the-counter markets and the number of investors willing to hold or acquire our common units;


•	the financial condition and creditworthiness of our customers;


•	our ability to recover NGLs effectively at a rate equal to or greater than our contracted rates with customers;


•	our ability to produce and market NGLs at the anticipated differential to NGL index pricing;


•	our access to markets enabling us to match pricing indices for purchases and sales of natural gas and NGLs;


•	our ability to complete projects within budget and on schedule, including but not limited to, timely receipt of necessary government approvals and permits, our ability to control the costs of construction and other factors that may impact projects;


•	our ability to manage, over time, changing exposure to commodity price and spread risk;


•	the effectiveness of our hedging activities or our decisions not to undertake hedging activities;


•	our ability to generate sufficient operating cash flow;


•	the effects of downtime associated with our assets or the assets of third parties interconnected with our systems;


•	operating hazards, fires, natural disasters, weather-related delays, casualty losses and other matters beyond our control;


•	the failure of our processing, fractionation and treating plants to perform as expected, including outages for unscheduled maintenance or repair;


•	the effects of laws and governmental regulations and policies;


•	the effects of existing and future litigation;


•	the effects of the termination of the Merger Agreement;


•	changes in general economic conditions; and


•	other financial, operational and legal risks and uncertainties detailed from time to time in our filings with the SEC.

Developments in any of these areas could cause actual results to differ materially from those anticipated or projected, affect our ability to access necessary financial markets or cause a significant reduction in the market price of our common units.

The foregoing list of risks and uncertainties may not contain all of the risks and uncertainties that could affect us. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this report may not, in fact, occur. Accordingly, undue reliance should not be placed on these statements. We undertake no obligation to update publicly or revise any forward-looking statements as a result of new information, future events or otherwise, except as otherwise required by law.

Overview

As of March 31, 2019, Southcross Holdings LP, a Delaware limited partnership (“Holdings”) indirectly owned 100% of Southcross Energy Partners GP, LLC, a Delaware limited liability company, our general partner (“General Partner”) (and therefore controlled us), all of our subordinated and Class B convertible units (the "Class B Convertible Units") and 54.4% of our common units. Our General Partner owns an approximate 2.0% interest in us and all of our incentive distribution rights. EIG Global Energy Partners, LLC (“EIG”) and Tailwater Capital LLC (“Tailwater”) (collectively, the “Sponsors”) each indirectly own approximately one-third of Holdings, and a group of Holdings' former term loan lenders own the remaining one-third of Holdings. However, as a result of the Chapter 11 Cases (see below), Holdings lost control over the Partnership’s operations when the Debtors submitted to the jurisdiction of the Bankruptcy Court on April 1, 2019. Accordingly, on April 1, 2019, the Partnership’s assets, liabilities, partners’ capital (deficit) were deconsolidated from the Holdings financial statements. See Note 1 to our condensed consolidated financial statements.

Chapter 11 Cases

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Southcross Mississippi Gathering, L.P., Southcross Delta Pipeline LLC, Southcross Alabama Pipeline LLC, Southcross Nueces Pipelines LLC, Southcross Processing LLC, FL Rich Gas Services GP, LLC, FL Rich Gas Services, LP, FL Rich Gas Utility GP, LLC, FL Rich Gas Utility, LP, Southcross Transmission, LP, T2 EF Cogeneration Holdings, LLC, and T2 EF Cogeneration LLC (collectively the “Filing Subsidiaries” and, together with the Partnership and General Partner, the “Debtors”) filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Debtors’ Chapter 11 cases are being jointly administered under the caption In re Southcross Energy Partners, L.P., Case No. 19-10702 (the “Chapter 11 Cases”) pursuant to Rule1015(b) of the Federal Rules of Bankruptcy Procedure and the Order Directing Joint Administration of Chapter 11 Cases entered by the Bankruptcy Court on April 2, 2019. We will continue to operate our businesses as “debtors in possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Bankruptcy Court has entered orders approving a variety of first-day relief designed primarily to minimize the impact of the Chapter 11 Cases on our operations, customers and employees, including authorizing post-petition financing. We expect to continue our operations without interruption during the pendency of the Chapter 11 Cases.

On April 1, 2019, we filed a motion seeking entry of an order authorizing the Debtors to enter into the Debtor-in-Possession financing (“DIP Financing”) to, among other things, provide additional liquidity to fund our operations during the Chapter 11 process.

On the Petition Date, the Debtors filed a motion with the Bankruptcy Court seeking approval of the DIP Facilities (as defined in Note 1 to our consolidated financial statements). On April 2, 2019, the Bankruptcy Court entered an interim order (the “Interim Order”) authorizing the Debtors (the “DIP Loan Parties”) to enter into the DIP Facilities. The Interim Order allowed the DIP Loan Parties to access immediately up to $85.0 million under the DIP Facilities and refinance the their obligations outstanding under prepetition letters of credit (the “Existing Letters of Credit”). However, both the DIP Facilities and the refinancing of such letters of credit and of certain term loans outstanding under the Term Loan Agreement remained subject to entry of a final order by the Bankruptcy Court (the “Final Order” and, together with the Interim Order, the “DIP Orders”).

Pursuant to the Interim Order, on April 3, 2019, the DIP Loan Parties entered into the DIP Credit Agreement (as defined in Note 1 to our consolidated financial statements). On April 3, 2019, the conditions precedent to closing were satisfied and the Partnership made an initial borrowing of $30.0 million of DIP New Money Loans (as defined in Note 1 to our consolidated financial statements) and $55.0 million of the proceeds from the DIP LC Loans (as defined in Note 1 to our consolidated financial statements) and the Existing Letters of Credit were deemed issued under the DIP Credit Agreement. The $55.0 million of DIP LC Loans (as defined in Note 1 to our consolidated financial statements) is considered restricted cash and is included in the restricted cash line item within our consolidated balance sheet as of June 30, 2019.

On May 7, 2019, the Bankruptcy Court entered the Final Order approving the DIP Facilities and allowing the Borrower to draw down on the remaining commitments with respect to the DIP Term Loans and to refinance the Rolled-Up Loans (as defined in Note 1 to our consolidated financial statements) with the DIP Roll-Up Loans (as defined in Note 1 to our consolidated financial statements). On May 9, 2019, we borrowed the remaining $42.5 million of DIP New Money Loans and made a payment of $127.5 million to our term loans outstanding under the Term Loan Agreement.

Borrowings of DIP New Money Loans bear interest, at the option of the Partnership, at a rate per annum equal to the Alternate Base Rate (as defined in the DIP Credit Agreement) plus 9.00% or the Adjusted LIBO Rate (as defined in the DIP Credit Agreement) plus 10.00%. DIP LC Loans bear interest at the Alternate Base Rate plus 9.00%, and DIP Roll-Up Loans will bear interest at the Alternate Base Rate plus 5.25%. Upon the occurrence and continuation of an event of default under the DIP Credit Agreement, the interest rate will increase by 2.00% per annum.

All borrowings under the DIP Facilities will mature on the date that is the earliest to occur of: (i) October 1, 2019 (provided that such date may be extended with the consent of DIP Lenders holding a majority of DIP Loans and unused commitments (the “Required DIP Lenders”) by an additional ninety days subject to certain conditions, including the payment of an extension premium of 1.00% of then outstanding DIP Loans of the consenting DIP Lenders); (ii) the effective date of any chapter 11 plan of the Debtors; (iii) the date on which all or substantially all of the assets of the Debtors are sold in a sale under a chapter 11 plan or pursuant to Section 363 of the Bankruptcy Code; and (iv) the acceleration of the maturity of the DIP Loans upon the occurrence of any event of default.

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On May 22, 2019, the Debtors filed with the Bankruptcy Court the Motion of Debtors for Entry of Orders (i)(a) Approving Bidding Procedures for Sale of Debtors’ Assets, (b) Authorizing the Selection of a Stalking Horse Bidder, the initial Bidder selected by the Partnership to make the first Bid on the Partnership’s remaining assets (the “Stalking Horse Bidder”), (c) Approving Bid Protections, (d) Scheduling Auction for, and Hearing To Approve, Sale of Debtors’ Assets, (e) Approving Form and Manner of Notices of Sale, Auction, and Sale Hearing, (f) Approving Assumption and Assignment Procedures, and (g) Granting Related Relief and (ii)(a) Approving Sale of Debtors’ Assets Free and Clear of Liens, Claims, Interests, and Encumbrances, (b) Authorizing Assumption and Assignment of Executory Contracts and Unexpired Leases, and (c) Granting Related Relief [D.I. 225] (the “Bidding Procedures Motion”).

On June 13, 2019, the Bankruptcy Court entered an order approving the Bidding Procedures Motion [D.I. 324] (the“Bidding Procedures Order”). Pursuant to the Bidding Procedures Order, the Debtors intend to sell all of their right, title and interest in and to the Assets free and clear of any pledges, liens, security interests, encumbrances, claims, charges, options, and interests thereon (collectively, the “Interests”) to the maximum extent permitted by section 363 of the Bankruptcy Code, with such Interests to attach to the net proceeds of the sale of the Assets with the same validity and priority as such Interests applied against the Assets. The deadline for the submission of bids that satisfies the requirements of the Bidding Procedures Order (each a “Qualified Bid,” and those parties who submit a Qualified Bid, each a “Qualified Bidder”) was July 24, 2019 at 6:00 p.m. (prevailing Eastern Time) (the “Bid Deadline”).

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For the duration of the of the Chapter 11 Cases, our operations and our ability to develop and execute our business plan are subject to significant risks and uncertainties associated with Chapter 11 Cases. As a result of these significant risks and uncertainties, our assets, liabilities, unitholders’ equity (deficit), officers and/or directors could be significantly different following the outcome of the Chapter 11 Cases, and the description of our operations, properties and capital plans included in this quarterly report on Form 10-Q may not accurately reflect our operations, properties and capital plans following the conclusion of the Chapter 11 Cases. See further discussion of the Chapter 11 Cases in Notes 1 and 2 to our consolidated financial statements.

Reorganization Expenses

Delisting of Common Units from NYSE

On February 27, 2019, the New York Stock Exchange (“NYSE”) notified the Partnership that the staff of NYSE Regulation, Inc. (the “NYSE Regulation”) had determined to commence proceedings to delist our common units. The NYSE Regulation reached its decision to delist our common units pursuant to Rule 802.01C of the NYSE’s Listed Company Manual, as the Partnership’s unit price had fallen below the NYSE’s continued listing standard with average closing price of less than $1.00 over a consecutive 30 trading-day period and the Partnership failed to cure this non-compliance within the required timeframe. The NYSE also suspended trading after the market close on the NYSE on February 27, 2019.

Holdings' Sale of Robstown Facility

Liquidity Constraints

On December 29, 2016, we entered into the fifth amendment (the "Fifth Amendment") to the Third Amended and Restated Revolving Credit Agreement with Wells Fargo, N.A., UBS Securities LLC, Barclays Bank PLC and a syndicate of lenders (the "Third A&R Revolving Credit Agreement"), pursuant to which, (i) the total aggregate commitments under the Third A&R Revolving Credit Agreement were reduced from $200 million to $115 million and the sublimit for letters of credit was also reduced from $75 million to $50 million; (ii) the Consolidated Total Leverage Ratio and Consolidated Senior Secured Leverage Ratio (each as defined in the Fifth Amendment) financial covenants were suspended until the quarter ending March 31, 2019; and (iii) the Consolidated Interest Coverage Ratio (as defined in the Fifth Amendment) financial covenant requirement was reduced from 2.50 to 1.00 to 1.50 to 1.00 for all periods ending on or prior to December 31, 2018 (the “Ratio Compliance Date”).

During management's ongoing assessment of the Partnership's financial forecast, the Holdings GP Board and the Partnership GP Board, together with our management, determined that in the then current corporate capital structure and absent continued access to equity cures from our Sponsors or a significant equity infusion from a third party, or absent additional amendments to its Third A&R Revolving Credit Agreement (which was scheduled to mature on August 4, 2019) or waivers of

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the March 31, 2019 requirement to comply with the Consolidated Total Leverage Ratio and minimum Adjusted EBITDA (both as defined in the Fifth Amendment) and Consolidated Interest Coverage Ratio (as defined in the Sixth Amendment), the Partnership was not expected to be able to comply with such financial covenants, which would have triggered an event of default under the Senior Credit Facilities. As a result of the Partnership’s expected inability to comply with its financial covenants within the twelve months from the issuance of the March 31, 2019, Form 10-Q, together with the maturity date of the Third A&R Revolving Credit Agreement being in less than twelve months, management determined that there were conditions and events that raise substantial doubt about the Partnership’s ability to continue as a going concern.

In March 2019, in light of (a) the August 4, 2019 maturity of the Third A&R Revolving Credit Agreement, (b) the impending non-compliance with our Consolidated Total Leverage Ratio, minimum Adjusted EBITDA and Consolidated Senior Secured Leverage Ratio (each as defined in the Fifth Amendment - see Note 6 to our consolidated financial statements) at March 31, 2019 that would result in an event of default under the Senior Credit Facilities, (c) our non-compliance with our minimum Adjusted EBITDA and Consolidated Interest Coverage Ratio as of December 31, 2018 (see Note 6 to our consolidated financial statements); and (d) the inclusion of a going concern uncertainty explanatory paragraph in the audit opinion on our consolidated financial statements in our 2018 Annual Form 10-K, which constitutes an event of default under the Senior Credit Facilities, we elected not to make the approximately $7.4 million interest payment on our Term Loan that was due on March 29, 2019, as well as the $1.1 million amortization payment on our Term Loan related to the period ending March 31, 2019. While were in discussions with our creditors, those discussions did not produce an agreement prior to the Petition Date that would enable us to address effectively, in a holistic manner, the impending issues adversely impacting our business.

Distribution Suspension

The Partnership GP Board suspended paying a quarterly distribution with respect to the fourth quarter of 2015 and every subsequent quarter of 2016, 2017, 2018 and the first and second quarter of 2019 to conserve any excess cash for the operation of our business and due to restrictions imposed by our debt instruments. See Notes 1 and 3 to our condensed consolidated financial statements. Further, as a result of the commencement of the Chapter 11 Cases, all distributions have been stayed.

Our Operations

Our integrated operations provide a full range of complementary services extending from wellhead to market, including gathering natural gas at the wellhead, treating natural gas to meet downstream pipeline and customer quality standards, processing natural gas to separate NGLs from natural gas, fractionating NGLs into the various components and selling or delivering pipeline quality natural gas, Y-grade and purity product NGLs to various industrial and energy markets as well as large pipeline systems. Through our network of pipelines, we connect supplies of natural gas to our customers, which include industrial, commercial and power generation customers and local distribution companies. All of our operations are managed as and presented in one reportable segment.

Our results are determined primarily by the volumes of natural gas we gather and process, the efficiency of our processing plants and NGL fractionation plant, the commercial terms of our contractual arrangements, natural gas and NGL prices and our operations and maintenance expense. We manage our business with the goal to maximize the gross operating margin we earn from contracts balanced against any risks we assume in our contracts. Our contracts vary in duration from one month to several years and the pricing under our contracts varies depending upon several factors, including our competitive position, our acceptance of risks associated with longer-term contracts and our desire to recoup over the term of the contract any capital expenditures that we are required to incur to provide service to our customers. We purchase, gather, process, treat, compress, transport and sell natural gas and purchase, fractionate, transport and sell NGLs. Contracts with a counterparty generally contain one or more of the following arrangements:

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•	Fixed-Fee. We receive a fixed-fee per unit of natural gas volume that we gather at the wellhead, process, treat, compress and/or transport for our customers, or we receive a fixed-fee per unit of NGL volume that we transport to fractionation. Some of our arrangements also provide for a fixed-fee for guaranteed transportation capacity on our systems.

•

Fixed-Spread. Under these arrangements, we purchase natural gas and NGLs from producers or suppliers at receipt points on our systems at an index-based price plus or minus a fixed price differential and sell these volumes of natural gas and NGLs at delivery points off our systems at the same index-based price, plus or minus a fixed price differential. By entering into such back-to-back purchases and sales, we are able to mitigate our risk associated with changes in the general commodity price levels of natural gas and NGLs. We remain subject to variations in our fixed-spreads to the extent we are unable to precisely match volumes purchased and sold in a given time period or are unable to secure the supply or to produce or market the necessary volume of products at our anticipated differentials to the index price.

•

We assess gross operating margin opportunities across our integrated value stream so that processing margins may be supplemented by gathering and transportation fees and opportunities to sell residue gas and NGLs at fixed-spreads. Gross operating margin earned under fixed-fee and fixed-spread arrangements is related directly to the volume of natural gas that flows through our systems and is generally independent from general commodity price levels. A sustained decline in commodity prices could result in a decline in volumes entering our system and, thus, a decrease in gross operating margin for our fixed-fee and fixed-spread arrangements. For our gathering, transportation and other services agreements with Holdings (see Note 9 to our consolidated financial statements), fee based revenue increases with no associated cost of natural gas and NGLs sold. We enter into primarily fixed-fee and fixed-spread deals.

How We Evaluate Our Operations

Our management uses a variety of financial and operational metrics to analyze our liquidity. We view these metrics as important factors in evaluating our profitability and review these measurements on at least a quarterly basis for consistency and trend analysis. These performance metrics include (i) volume, (ii) operations and maintenance expense, (iii) Adjusted EBITDA and (iv) distributable cash flow.

Volume — We determine and analyze volumes by operating unit, but report overall volumes after elimination of intercompany deliveries. The volume of natural gas and NGLs on our systems depends on the level of production from natural gas wells connected to our systems and also from wells connected with other pipeline systems that are interconnected with our systems.

Operations and Maintenance Expense — Our management seeks to maximize the profitability of our operations in part by controlling, to the extent appropriate, expenses directly tied to operating and maintaining our assets. Direct labor costs, insurance costs, ad valorem and property taxes, repair and non-capitalized maintenance costs, integrity management costs, utilities and contract services comprise the most significant portion of our operations and maintenance expense. These expenses are relatively stable and largely independent of volumes delivered through our systems, but may fluctuate depending on the activities performed during a specific period.

Adjusted EBITDA and Distributable Cash Flow — We believe that Adjusted EBITDA and distributable cash flow are widely accepted financial indicators of our liquidity and our ability to incur and service debt, fund capital expenditures and make distributions. Adjusted EBITDA and distributable cash flow are not measures calculated in accordance with GAAP.

We define Adjusted EBITDA as net income/loss, plus interest expense, income tax expense, depreciation and amortization expense, equity in losses of joint venture investments, reorganization items, certain non-cash charges (such as non-cash unit-based compensation, impairments, loss on extinguishment of debt and unrealized losses on derivative contracts), fees related to Chapter 11 Cases, major litigation costs net of recoveries, transaction-related costs, revenue deferral adjustment, loss on sale of assets, severance expense and selected charges that are unusual or non-recurring; less interest income, income tax benefit, unrealized gains on derivative contracts, equity in earnings of joint venture investments, gain on sale of assets and

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selected gains that are unusual or non recurring. Adjusted EBITDA should not be considered an alternative to net income, operating cash flow or any other measure of financial performance presented in accordance with GAAP.

Adjusted EBITDA is a key metric used in measuring our compliance with our financial covenants under our debt agreements and is used as a supplemental measure by our management and by external users of our financial statements, such as investors, commercial banks, research analysts and others, to assess:


•	the ability of our assets to generate cash sufficient to support our indebtedness and make future cash distributions;


•	operating performance and return on capital as compared to those of other companies in the midstream energy sector, without regard to financing or capital structure; and


•	the attractiveness of capital projects and acquisitions and the overall rates of return on investment opportunities.

We define distributable cash flow as Adjusted EBITDA, plus interest income and income tax benefit, less cash paid for interest, income tax expense and maintenance capital expenditures. We use distributable cash flow to analyze our liquidity. Distributable cash flow does not reflect changes in working capital balances.

Distributable cash flow is used to assess:


•	the ability of our assets to generate cash sufficient to support our indebtedness and make future cash distributions to our unitholders; and


•	the attractiveness of capital projects and acquisitions and the overall rates of return on alternative investment opportunities.

Non-GAAP Financial Measures

Adjusted EBITDA and distributable cash flow are not financial measures presented in accordance with GAAP. We believe that the presentation of these non-GAAP financial measures provides useful information to investors in assessing our financial condition, results of operations and cash flows from operations. Net income and net cash provided by operating activities are the GAAP measures most directly comparable to Adjusted EBITDA. The GAAP measure most directly comparable to distributable cash flow is net cash provided by operating activities. Our non-GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measure. Each of these non-GAAP financial measures has important limitations as an analytical tool because each excludes some but not all items that affect the most directly comparable GAAP financial measure. You should not consider Adjusted EBITDA or distributable cash flow in isolation or as a substitute for analysis of our results as reported under GAAP. Because Adjusted EBITDA and distributable cash flow may be defined differently by other companies in our industry, our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility across industry lines.

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Reconciliations of Non-GAAP Financial Measures

The following table presents reconciliations of net cash provided by operating activities to net loss, Adjusted EBITDA and distributable cash flow (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net cash provided by (used in) operating activities	$	(39,501	)	$	3,708		$	(47,177	)	$	2,793
Add (deduct):
Depreciation and amortization	(8,512		)	(17,906		)	(20,750		)	(35,762		)
Unit-based compensation	—			(105		)	—			(170		)
Amortization of deferred financing costs, original issuance discount and PIK interest	(1,513		)	(1,495		)	(2,902		)	(2,770		)
Gain on sale of assets	—			553			—			553
Unrealized gain (loss) on financial instruments	(1		)	(4		)	(11		)	1
Equity in losses of joint venture investments	(2,514		)	(3,152		)	(5,171		)	(6,288		)
Impairment of assets	(26,619		)	—			(26,619		)	—
Non-cash reorganization items (Note 2)	(8,893		)	—			(8,893		)	—
Other, net	63			63			126			126
Changes in operating assets and liabilities:
Trade accounts receivable, including affiliates	1,213			684			(19,641		)	(7,545		)
Prepaid expenses and other current assets	7,416			(102		)	19,020			7,123
Other non-current assets	(6,949		)	(600		)	(3		)	(535		)
Accounts payable and accrued liabilities, including affiliates	6,851			(922		)	17,258			10,352
Other liabilities	7,516			722			(4,386		)	(4,664		)
Net loss	$	(71,443	)	$	(18,556	)	$	(99,149	)	$	(36,786	)
Add (deduct):
Depreciation and amortization	$	8,512		$	17,906		$	20,750		$	35,762
Interest expense	15,933			11,095			27,402			21,105
Reorganization items (Note 2)	18,490			—			18,490			—
Income tax expense	4			—			4			—
Impairment of assets	26,619			—			26,619			—
Gain on sale of assets	—			(553		)	—			(553		)
Revenue deferral adjustment	(104		)	(104		)	(208		)	(208		)
Unit-based compensation	—			105			—			170
Fees related to Chapter 11 Cases	6,518			—			13,258			—
Transaction-related costs	—			197			—			818
Equity in losses of joint venture investments	2,514			3,152			5,171			6,288
Other, net	943			1,015			4,072			1,345
Adjusted EBITDA	$	7,986		$	14,257		$	16,409		$	27,941
Cash interest, net of capitalized costs	(15,527		)	(9,326		)	(17,615		)	(18,484		)
Income tax expense	(4		)	—			(4		)	—
Maintenance capital expenditures	(1,871		)	(866		)	(3,716		)	(1,751		)
Distributable cash flow	$	(9,416	)	$	4,065		$	(4,926	)	$	7,706

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Subsequent to the issuance of the June 30, 2018 interim financial statements, the Partnership identified an error in the accounts receivable - affiliates and revenues financial statement line items related to the reconciliation of residue imbalances between the Partnership and Holdings. As a result, the Partnership corrected previously reported amounts for the respective period as indicated in the table below. The correction resulted in a decrease to revenue and adjusted EBITDA for the three and six months ended June 30, 2018. The Partnership has assessed this error and determined it to be not material to our financial statements. All prior period amounts have been adjusted.



	Three Months Ended			Six Months Ended
	June 30,			June 30,
	2018			2018
Revenues, as previously reported	$	137,420		$	294,050
Effect of error	(648		)	(2,041		)
Revenues, as corrected	136,772			292,009

Net loss, as previously reported	(17,908		)	(34,745		)
Effect of error	(648		)	(2,041		)
Net loss, as corrected	(18,556		)	(36,786		)

Trade accounts receivable, including affiliates, as previously reported on the condensed consolidated statements of cash flows ⁽¹⁾	—			5,504
Effect of error ⁽¹⁾	—			2,041
Trade accounts receivable, including affiliates, as corrected on the condensed consolidated statements of cash flows ⁽¹⁾	—			7,545

Adjusted EBITDA, as previously reported	14,905			29,982
Effect of error	(648		)	(2,041		)
Adjusted EBITDA, as corrected	14,257			27,941

Basic and diluted net loss per common unit, as originally reported	(0.22		)	(0.43		)
Effect of error	(0.01		)	(0.02		)
Basic and diluted net loss per common unit, as corrected	(0.23		)	(0.45		)

Basic and diluted net loss per subordinated unit, as originally reported	(0.22		)	(0.43		)
Effect of error	0.11			0.09
Basic and diluted net loss per subordinated unit, as corrected	(0.11		)	(0.34		)


(1)	The Partnership does not present the condensed consolidated statements of cash flows for the three months Ended June 30, 2018.

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Results of Operations

The following table summarizes our results of operations (in thousands, except operating data):



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Revenues:
Revenues	$	85,134	$	78,343	$	195,338	$	182,204
Revenues - affiliates	11,401		58,429		23,125		109,805
Total revenues	96,535		136,772		218,463		292,009
Expenses:
Cost of natural gas and liquids sold	67,275		104,411		159,807		227,928
Operations and

Southcross Energy Partners, L.P. 10-Q