Energy Transfer Partners is confident that Sunoco will continue to grow into the future.

Energy Transfer Partners (ETP) L.P. and Sunoco LP have announced an approaching dropdown transaction. The dropdown will equate to approximately $2.226 billion, and it includes the dropdown if of the remaining 68.42% interest in Sunoco LLC and 100% interest in the legacy Sunoco retail business to Sunoco.

The transaction will be effective as of Jan. 1, 2016 and is expected to close in February 2016.

Sunoco will pay to ETP approximately $2.2 billion in cash (including the expected value of working capital) and will issue to ETP approximately 5.7 million Sunoco common units valued at approximately $194 million based on the five-day volume-weighted average price of Sunoco’s common units as of Nov. 13, 2015. Pro forma for the dropdown transaction and related equity private placement, ETP will remain the largest unitholder of Sunoco with an approximate 46% LP interest , reflecting ETP’s continued confidence in Sunoco’s business and future growth prospects.

The timing of this dropdown transaction is driven by the view that accelerating the dropdown of the remaining retail marketing and wholesale fuel assets to Sunoco was in the best interest of all parties. Sunoco expects that, following the completion of this transaction, it will not need to raise any additional equity financing in 2016. The transaction is also expected to be credit neutral to Sunoco and to be accretive to distributable cash flow and expected distributions per unit for Sunoco in 2016 and thereafter.

This transaction will complete Sunoco’s transformation into one of the leading wholesale fuel and retail marketing platforms in the U.S. with tremendous geographic scale and a unique diversity of business drivers. With the completion of the dropdown program, Sunoco will be able to focus on a broad range of opportunities to grow via third-party acquisitions and capital projects. The strong growth in EBITDA at Susser Holdings Corporation, which was contributed to Sunoco earlier this year, and the legacy Sunoco retail business creates a favorable runway for increasing distributable cash flow beginning in 2016 and into 2017.

For ETP, this transaction is expected to be breakeven to distributable cash flow for 2016 and beyond and significantly reduces the amount of equity funding for ETP’s 2016 capital program. In addition, the Sunoco units ETP will receive in this transaction have a strong distribution growth profile and represent an attractive investment for ETP. The upfront cash helps fund ETP’s 2016 capital program and reduces the remaining equity required by ETP for 2016 to a modest amount that will be issued under its at-the-market program or through non-core asset monetization proceeds. The ability to pre-fund ETP’s capital needs, reduce its equity issuance requirements and retain an attractive LP investment in Sunoco results in an opportunity that is compelling for ETP.

A significant portion of the consideration for the transaction will be provided by a $2.035 billion term loan due October 2019 fully underwritten by Credit Suisse, Bank of America Merrill Lynch, Compass Bank, Mizuho Bank and Toronto Dominion. The terms of the term loan will substantially mirror Sunoco’s existing $1.5 billion revolving credit facility. The pricing of the term loan is LIBOR + 250 basis points (with stepdowns in pricing tied to Debt/EBITDA levels at Sunoco).

A group of private investors (for $685.5 million) and Energy Transfer Equity (ETE) (for $64.5 million) have also fully committed to purchase $750 million of Sunoco common units in an unregistered private placement, at a gross price of $31.00 per unit, prior to adjustments. The private placement is expected to close and fund in early December 2015, with the exception of ETE’s portion, which will fund at the closing of the dropdown transaction. The proceeds from the private placement will be used to repay borrowings under the revolving credit facility and for general partnership purposes.

Sunoco LLC distributes motor fuels across more than 26 states in the east, midwest and southeast regions of the U.S. to:

• Approximately 860 Sunoco-branded dealer locations under long-term fuel supply
• Other distributors of Sunoco-branded fuel that supply 3,700 third-party retail fuel outlets
• Approximately 400 other commercial customers under short-term

The fuel sold by Sunoco’s retail business is supplied by Sunoco LLC at 438 company-operated Sunoco and APlus branded convenience stores and other retail fuel outlets across the country.

All of the income from the Sunoco retail assets will be non-qualifying income to Sunoco and therefore those assets will be immediately contributed to Sunoco’s wholly owned corporate subsidiary, Susser Petroleum Property Co. LLC. Sunoco anticipates that cash taxes at Susser Petroleum going forward will remain minimal.

The dropdown transaction is expected to close in February 2016, subject to customary closing conditions.

Tudor, Pickering, Holt & Co. acted as financial advisor to the ETP conflicts committee. Akin Gump Strauss Hauer & Feld LLP acted as legal advisor to ETP and Richards Layton & Finger, Penn. acted as legal advisor to the ETP conflicts committee.

Perella Weinberg Partners acted as financial advisor to the Sunoco special committee. Andrews Kurth LLP acted as legal advisor to Sunoco and Potter Anderson & Corroon acted as legal advisor to the Sunoco special committee.