Summary
Energy Transfer LP (ET) filed an 8-K on November 1, 2013, detailing the completion of a significant transaction originally agreed upon in August 2013. This transaction involved the redemption and exchange of ETP common units between ETE, ETE Holdings, and ETP. Specifically, ETP redeemed 50,160,000 common units owned by ETE Holdings and issued new 'Class H Units' in exchange. These Class H Units grant ETE Holdings a substantial economic interest in Sunoco Logistics Partners (SXL), including a share of profits, distributions, and a significant incremental cash distribution totaling $329 million over 15 quarters.
Key Highlights
- 1ETP redeemed 50,160,000 common units from ETE Holdings, issuing new Class H Units in exchange.
- 2Class H Units provide ETE Holdings with approximately 50.05% of profits and distributions attributable to Sunoco Logistics Partners' (SXL) incentive distribution rights (IDRs) and general partner interest.
- 3ETP will make incremental cash distributions of $329 million to ETE Holdings over 15 quarters (Q4 2013 - Q1 2017) to offset prior IDR subsidies.
- 4The transaction restructures ETE's ownership and economic exposure within ETP and SXL.
- 5A new Unitholders Agreement grants ETE consent rights over key SXL GP decisions and a right of first refusal on certain SXL-related interests.
- 6Amendments to ETE's credit agreements were made to incorporate the EBITDA of Class H Units, permit certain asset dispositions with conditions, allow relinquishment of Reimbursed IDRs, and consent to these transactions, waiving mandatory prepayments under the Term Loan.
Frequently Asked Questions
The primary purpose was to complete a material definitive agreement between ETE, ETE Holdings, and ETP. This involved ETP redeeming common units from ETE Holdings and issuing new Class H Units, which effectively restructured ETE's economic and control interests in ETP and its stake in Sunoco Logistics Partners (SXL).
The Class H Units provide ETE Holdings with approximately 50.05% of the profits and distributions attributable to Sunoco Logistics Partners' (SXL) incentive distribution rights and general partner interest. Additionally, ETE Holdings will receive $329 million in incremental cash distributions from ETP over 15 quarters, intended to offset previous IDR subsidies.
A new Unitholders Agreement was put in place. This agreement requires ETP to obtain ETE's consent for significant decisions related to SXL GP's role, such as amending agreements, mergers, asset sales, or ETP's withdrawal as general partner. ETE also secured a right of first refusal on certain SXL-related interests and a drag-along right.
Amendments were made to ETE's Senior Secured Term Loan and Amended and Restated Credit Agreements. These amendments incorporated the EBITDA of the Class H Units into valuation concepts, permitted certain dispositions of ETP and Regency Energy Partners LP units under specific conditions, allowed for the potential relinquishment of Reimbursed IDRs, officially consented to the transaction, and waived any mandatory prepayment under the Term Loan Agreement that would have resulted from this deal.