Energy Transfer Partners L.P. (ETP) and Energy Transfer Equity L.P. (ETE) have been strategically planning ways to maximize company success, struck a deal July 15, 2015, to move in that direction.
ETP and ETE have announced the exchange of 21 million ETP common units, currently owned by ETE, for 100% of the general partner (GP) interest and the incentive distribution rights (IDRs) of Sunoco LP (SUN). In addition, as part of this transaction, ETE has agreed to provide ETP a $35 million annual IDR subsidy for two years as described below.
The cash flow increase expected for ETP from this transaction is more than 30-cents per common unit per year, which will continue to support ETP’s attractive distribution growth going forward.
For ETE, this transaction continues its transition to a pure play general partner for the overall Energy Transfer group. With this transaction, ETE expects to maintain its distribution growth rate while migrating to its traditional 1.0x distribution coverage ratio.
In connection with the original acquisition of Susser Holdings Corp. (Susser) by ETP in August 2014, ETE agreed to provide ETP an annual $35 million IDR subsidy for 10 years, subject to automatic termination in the event that ETE acquired the GP interest and IDRs of SUN in exchange for ETP common units owned by ETE. As part of the current transaction, ETE has agreed to provide ETP a $35 million IDR subsidy for an additional two years (through June 30, 2017).
- Reduces ETP’s common unit count by almost 5% and has a commensurate reduction to the amount of distributions to be paid to ETE with respect to the ETP IDRs;
- Solidifies current distribution increases while continuing to strengthen its distribution coverage ratio;
- The IDR subsidy for two years provides additional near term cash flow benefits;
- Crystallizes tremendous value maximization from the overall Susser transaction in less than 12 months; and
- Together with ETP’s focus on its organic growth projects, this transaction should be a positive catalyst for ETP’s unit price and help improve its current cost of capital.
- Reinforces ETE’s strategy to become a traditional GP within the Energy Transfer family;
- Increases in value of the underlying SUN GP creates incremental upside to ETE;
- Direct benefit from expected dynamic drop down and third party growth at SUN; and
- Continued upside from ETP IDRs as ETP accelerates its future distribution growth. This transaction is expected to close in August 2015 after the record date for second quarter distributions for both the SUN GP interest and IDRs and ETP common units, but will be effective as of July 1, 2015.
ETP and ETE expect there will be no credit ratings impact from this transaction. Following this transaction, SUN will no longer be consolidated for accounting purposes by ETP, but instead will appear in the consolidated financial statements for ETE.