The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1.
|
Organization and
Principles of Consolidation
|
The Partnership was formed in June 2012 by Susser Holdings Corporation (“Susser”) and its wholly owned subsidiary, Sunoco GP LLC (formerly known as Susser Petroleum Partners GP LLC), our general partner (“General Partner”). On September 25, 2012, we completed our initial public offering (“IPO”) of 10,925,000 common units representing limited partner interests.
On April 27, 2014, Susser entered into an Agreement and Plan of Merger with Energy Transfer Partners, L.P. (“ETP”) and certain other related entities, under which ETP acquired the outstanding common shares of Susser (the “ETP Merger”). The ETP Merger was completed on August 29, 2014. By acquiring Susser, ETP acquired 100% of the non-economic general partner interest and incentive distribution rights (“IDRs”) in the Partnership, which have subsequently been distributed to Energy Transfer Equity, L.P. (“ETE”). Additionally, ETP directly and indirectly acquired approximately 11.0 million common and subordinated units in the Partnership (representing approximately 50.1% of the then outstanding units). Unvested phantom units that were outstanding on April 27, 2014 vested upon completion of the ETP Merger. See Note 14 for further information.
Effective October 27, 2014, the Partnership changed its name from Susser Petroleum Partners LP (NYSE: SUSP) to Sunoco LP (“SUN”, NYSE: SUN). These changes align the Partnership's legal and marketing name with that of ETP's iconic brand, Sunoco. As used in this document, the terms “Partnership”, “SUN”, “we”, “us”, or “our” should be understood to refer to Sunoco LP and our consolidated subsidiaries, unless the context clearly indicates otherwise.
The consolidated financial statements are composed of Sunoco LP, a publicly traded Delaware limited partnership, our majority-owned subsidiaries, and variable interest entities (“VIE”s) in which we were the primary beneficiary (through December 23, 2015). We distribute motor fuels across 32 states throughout the East Coast, Midwest, and Southeast regions of the United States from Maine to Florida and from Florida to New Mexico, as well as Hawaii. We are also an operator of convenience retail stores across 21 states, primarily in Texas, Pennsylvania, New York, Virginia, Florida, and Hawaii.
Effective April 1, 2015, we acquired a 31.58% membership interest and 50.1% voting interest in Sunoco, LLC (“Sunoco LLC”).
Effective January 1, 2016, we acquired the remaining 68.42% membership interest and 49.9% voting interest in Sunoco LLC as well as 100% of the interest in Sunoco Retail LLC (“Sunoco Retail”).
Results of operations for the Mid-Atlantic Convenience Stores, LLC (“MACS”), Sunoco LLC, Sunoco Retail, and Susser acquisitions, deemed transactions between entities under common control, have been included in our consolidated results of operations since September 1, 2014, the date of common control.
We operate our business as two segments, which are primarily engaged in wholesale fuel distribution and retail fuel and merchandise sales, respectively. Our primary operations are conducted by the following consolidated subsidiaries:
Wholesale Subsidiaries
|
•
|
Susser Petroleum Operating Company LLC (“SPOC”), a Delaware limited liability company, distributes motor fuel to Stripes’ retail locations, consignment locations, as well as third party customers in Louisiana, New Mexico, Oklahoma and Texas.
|
|
•
|
Sunoco Energy Services LLC, a Texas limited liability company, distributes motor fuels, propane and lubricating oils, primarily in Texas, Oklahoma, New Mexico and Kansas.
|
|
•
|
Sunoco LLC, a Delaware limited liability company formed on June 1, 2014, primarily distributes motor fuels in 27 states throughout the East Coast, Midwest and Southeast regions of the United States.
|
|
•
|
Southside Oil, LLC, a Virginia limited liability company, distributes motor fuel, primarily in Georgia, Maryland, New York, Tennessee, and Virginia.
|
|
•
|
Aloha Petroleum, LLC, a Delaware limited liability company, distributes motor fuel and operates terminal facilities on the Hawaiian Islands.
|
5
Retail Subsidiaries
|
•
|
Susser Petroleum Property Company LLC (“PropCo”), a Delaware limited liability company, primarily owns and leases convenience store properties.
|
|
•
|
Susser, a Delaware corporation, sells motor fuel and merchandise in Texas, New Mexico, and Oklahoma through Stripes-branded convenience stores and transports motor fuel under GoPetro Transport LLC.
|
|
•
|
Sunoco Retail, a Pennsylvania limited liability company formed on December 16, 2015, distributes motor fuel and owns and operates convenience stores that sell motor fuel and merchandise primarily in Pennsylvania, New York, and Florida.
|
|
•
|
MACS Retail LLC, a Virginia limited liability company, owns and operates convenience stores, primarily in Virginia, Maryland, and Tennessee.
|
|
•
|
Aloha Petroleum, Ltd. (“Aloha”), a Hawaii corporation, owns and operates convenience stores on the Hawaiian Islands.
|
All significant intercompany accounts and transactions have been eliminated in consolidation.
Certain items have been reclassified for presentation purposes to conform to the accounting policies of the consolidated entity. These reclassifications had no impact on gross margin, income from operations, net income and comprehensive income, or the balance sheets or statements of cash flows.
2.
|
Summary of Significant Accounting Policies
|
Interim Financial Statements
The accompanying interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). Pursuant to Regulation S-X, certain information and disclosures normally included in the annual financial statements have been condensed or omitted. The consolidated financial statements and notes included herein should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on February 25, 2016.
Significant Accounting Policies
As of March 31, 2016, there were no changes in significant accounting policies from those described in the December 31, 2015 audited consolidated financial statements.
Recently Issued Accounting Pronouncements
FASB ASU No. 2016-02.
In February 2016, the FASB issued ASU No. 2016-02 “
Leases (Topic 842)
” which amends the FASB Accounting Standards Codification and creates Topic 842, Leases. This Topic requires Balance Sheet recognition of lease assets and lease liabilities for leases classified as operating leases under previous GAAP, excluding short-term leases of 12 months or less. This ASU is effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the effect that the updated standard will have on our consolidated balance sheets and related disclosures.
6
Sunoco LLC and Sunoco Retail LLC Acquisitions
On April 1, 2015, we acquired a 31.58% membership interest and 50.1% voting interest in Sunoco LLC from ETP Retail Holdings, LLC (“ETP Retail”), an indirect wholly-owned subsidiary of ETP, for total consideration of approximately $775.0 million in cash (the “Sunoco Cash Consideration”) and $40.8 million in common units representing limited partner interests of the Partnership, based on the five day volume weighted average price of the Partnership’s common units as of March 20, 2015. The Sunoco Cash Consideration was financed through issuance by the Partnership and its wholly owned subsidiary, Sunoco Finance Corp. (“SUN Finance”), of 6.375% Senior Notes due 2023 on April 1, 2015. The common units issued to ETP Retail were issued and sold in a private transaction exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). Pursuant to the terms of the Sunoco LLC Contribution Agreement, ETP guaranteed all of the obligations of ETP Retail.
On November 15, 2015, we entered into a Contribution Agreement (the “ETP Dropdown Contribution Agreement”) with Sunoco LLC, Sunoco, Inc., ETP Retail, our General Partner and ETP. Pursuant to the terms of the ETP Dropdown Contribution Agreement, we agreed to acquire from ETP Retail, effective January 1, 2016, (a) 100% of the issued and outstanding membership interests of Sunoco Retail, an entity that was formed by Sunoco, Inc. (R&M), an indirect wholly owned subsidiary of Sunoco, Inc., prior to the closing of the ETP Dropdown Contribution Agreement, and (b) 68.42% of the issued and outstanding membership interests of Sunoco LLC (the “ETP Dropdown”). Pursuant to the terms of the ETP Dropdown Contribution Agreement, ETP agreed to guarantee all of the obligations of ETP Retail.
Immediately prior to the closing of the ETP Dropdown, Sunoco Retail owned all of the retail assets previously owned by Sunoco, Inc. (R&M), the ethanol plant located in Fulton, NY, 100% of the issued and outstanding membership interests in Sunmarks, LLC, and all the retail assets previously owned by Atlantic Refining & Marketing Corp., a wholly owned subsidiary of Sunoco, Inc.
Subject to the terms and conditions of the ETP Dropdown Contribution Agreement, at the closing of the ETP Dropdown, we paid to ETP Retail approximately $2.2 billion in cash on March 31, 2016, which included working capital adjustments, and issued to ETP Retail 5,710,922 common units representing limited partner interests in the Partnership (the “ETP Dropdown Unit Consideration”). The ETP Dropdown Unit Consideration was issued in a private transaction exempt from registration under Section 4(a)(2) of the Securities Act.
The Sunoco LLC and Sunoco Retail acquisitions were accounted for as a transaction between entities under common control. Specifically, the Partnership recognized acquired assets and assumed liabilities at their respective carrying values with no goodwill created. The Partnership’s results of operations include Sunoco LLC’s and Sunoco Retail’s results of operations beginning September 1, 2014, the date of common control. As a result, the Partnership retrospectively adjusted its financial statements to include the balances and operations of Sunoco LLC and Sunoco Retail from August 31, 2014. Accordingly, the Partnership retrospectively adjusted its consolidated statement of operations and comprehensive income to include $2.7 billion of Sunoco LLC and Sunoco Retail revenues and $24.5 million of Sunoco LLC and Sunoco Retail net income for the three months ended March 31, 2015. The equity of Sunoco LLC and Sunoco Retail prior to the respective acquisitions is presented as predecessor equity in our consolidated financial statements.
The following table summarizes the final recording of assets and liabilities at their respective carrying values as of August 31, 2014 (in thousands):
|
|
Sunoco LLC
|
|
|
Sunoco Retail
|
|
|
Total
|
|
Current assets
|
|
$
|
1,107,007
|
|
|
$
|
426,231
|
|
|
$
|
1,533,238
|
|
Property and equipment
|
|
|
384,100
|
|
|
|
596,139
|
|
|
|
980,239
|
|
Goodwill
|
|
|
—
|
|
|
|
1,289,398
|
|
|
|
1,289,398
|
|
Intangible assets
|
|
|
182,477
|
|
|
|
293,928
|
|
|
|
476,405
|
|
Other noncurrent assets
|
|
|
2,238
|
|
|
|
—
|
|
|
|
2,238
|
|
Current liabilities
|
|
|
(641,400
|
)
|
|
|
(403,498
|
)
|
|
|
(1,044,898
|
)
|
Other noncurrent liabilities
|
|
|
(7,293
|
)
|
|
|
(47,962
|
)
|
|
|
(55,255
|
)
|
Net assets
|
|
$
|
1,027,129
|
|
|
$
|
2,154,236
|
|
|
$
|
3,181,365
|
|
Net deemed contribution
|
|
|
|
|
|
|
|
|
|
|
(206,365
|
)
|
Cash acquired
|
|
|
|
|
|
|
|
|
|
|
(24,276
|
)
|
Total cash consideration, net of cash acquired (1)
|
|
|
|
|
|
|
|
|
|
$
|
2,950,724
|
|
|
(1)
|
Total cash consideration, net of cash acquired, includes $775.0 million paid on April, 1 2015 and $2.2 billion paid on March 31, 2016.
|
|
7
Susser Acquisition
On July 31, 2015, we acquired 100% of the issued and outstanding shares of capital stock of Susser from Heritage Holdings, Inc., a wholly owned subsidiary of ETP (“HHI”), and ETP Holdco Corporation, a wholly owned subsidiary of ETP (“ETP Holdco” and together with HHI, the “Contributors”), for total consideration of approximately $966.9 million in cash (the “Susser Cash Consideration”), subject to certain post-closing working capital adjustments, and issued to the Contributors 21,978,980 Class B Units representing limited partner interests of the Partnership (“Class B Units”) (the “Susser Acquisition”). The Class B Units were identical to the common units in all respects, except such Class B Units were not entitled to distributions payable with respect to the second quarter of 2015. The Class B Units converted, on a one-for-one basis, into common units on August 19, 2015.
Pursuant to the terms of the Contribution Agreement dated as of July 14, 2015 among Susser, HHI, ETP Holdco, our General Partner, and ETP (the “Susser Contribution Agreement”), (i) Susser caused its wholly owned subsidiary to exchange its 79,308 common units for 79,308 Class A Units representing limited partner interests in the Partnership (“Class A Units”) and (ii) the 10,939,436 subordinated units held by wholly owned subsidiaries of Susser were converted into 10,939,436 Class A Units. The Class A Units were entitled to receive distributions on a pro rata basis with the common units, except that the Class A Units (a) did not share in distributions of cash to the extent such cash was derived from or attributable to any distribution received by the Partnership from PropCo, the Partnership’s indirect wholly owned subsidiary, the proceeds of any sale of the membership interests of PropCo, or any interest or principal payments received by the Partnership with respect to indebtedness of PropCo or its subsidiaries and (b) were subordinated to the common units during the subordination period for the subordinated units and were not entitled to receive any distributions until holders of the common units had received the minimum quarterly distribution plus any arrearages in payment of the minimum quarterly distribution from prior quarters.
In addition, the Partnership issued 79,308 common units and 10,939,436 subordinated units to the Contributors (together with the Class B Units, the “Susser Unit Consideration”) to restore the economic benefit of common units and subordinated units held by wholly owned subsidiaries of Susser that were exchanged or converted, as applicable, into Class A Units. The Susser Unit Consideration was issued and sold to the Contributors in private transactions exempt from registration under Section 4(a)(2) of the Securities Act. Pursuant to the terms of the Susser Contribution Agreement, ETP guaranteed all then existing obligations of the Contributors.
The Susser Acquisition was accounted for as a transaction between entities under common control. Specifically, the Partnership recognized acquired assets and assumed liabilities at their respective carrying values with no additional goodwill created. The Partnership’s results of operations include Susser’s results of operations beginning September 1, 2014, the date of common control. As a result, the Partnership retrospectively adjusted its financial statements to include the balances and operations of Susser from August 31, 2014. Accordingly, the Partnership retrospectively adjusted its consolidated statement of operations and comprehensive income to include $500.0 million of Susser revenues and $6.8 million of net income for the period from January 1, 2015 through March 31, 2015.
The following table summarizes the final recording of assets and liabilities at their respective carrying values as of the date presented (in thousands):
|
|
August 31, 2014
|
|
Current assets
|
|
$
|
217,244
|
|
Property and equipment
|
|
|
983,900
|
|
Goodwill
|
|
|
976,631
|
|
Intangible assets
|
|
|
541,054
|
|
Other noncurrent assets
|
|
|
38,216
|
|
Current liabilities
|
|
|
(246,009
|
)
|
Other noncurrent liabilities
|
|
|
(842,310
|
)
|
Net assets
|
|
|
1,668,726
|
|
Net deemed contribution
|
|
|
(701,871
|
)
|
Cash acquired
|
|
|
(63,801
|
)
|
Total cash consideration, net of cash acquired
|
|
$
|
903,054
|
|
8
Other Acquisitions
On August 10, 2015, we acquired 27 convenience stores in the Upper Rio Grande Valley from Aziz Convenience Stores, L.L.C. (“Aziz”) for $41.6 million. Management allocated the total purchase consideration to assets acquired based on the preliminary estimate of their respective fair values at the purchase date. Management is reviewing the valuation and confirming the results to determine the final purchase price allocation. As a result, material adjustments to this preliminary allocation may occur in the future. The acquisition preliminarily increased goodwill by $4.3 million.
On December 16, 2015, we acquired a wholesale motor fuel distribution business serving the Northeastern United States from Alta East, Inc. (“Alta East”) for approximately $57.1 million plus the value of inventory on hand at closing (the “Alta East acquisition”). As part of the Alta East acquisition, we also acquired a total of 32 fee and leased properties, including 30 properties operated by third party dealers or commission agents and two non-operating surplus locations. The Alta East acquisition also included supply contracts with the dealer-owned and operated sites. The Alta East acquisition was funded using amounts available under our revolving credit facility with the total purchase consideration allocated to assets acquired based on the preliminary estimate of their respective fair values at the purchase date. Management is reviewing the valuation and confirming the results to determine the final purchase price allocation. As a result, material adjustments to this preliminary allocation may occur in the future. The acquisition preliminarily increased goodwill by $14.6 million.
Additional acquisitions by the Partnership during 2015 totaled $24.6 million in consideration paid and preliminarily increased goodwill by $10.1 million. Management is reviewing the valuations and confirming the results to determine the final purchase price allocations. As a result, material adjustments to these preliminary allocations may occur in the future.
We have entered into agreements totaling approximately $115.0 million to acquire 14 convenience stores and a wholesale distribution business in and around College Station, Texas, and 18 convenience stores and 9 associated operations in upstate New York. Both transactions are scheduled to close in the second quarter of 2016, subject to confirmatory due diligence and other closing conditions
.
Accounts receivable, excluding receivables from affiliates, consisted of the following (in thousands):
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
Accounts receivable, trade
|
|
$
|
173,119
|
|
|
$
|
160,783
|
|
Credit card receivables
|
|
|
99,844
|
|
|
|
98,484
|
|
Vendor receivables for rebates, branding, and other
|
|
|
13,398
|
|
|
|
14,561
|
|
Other receivables
|
|
|
35,079
|
|
|
|
38,381
|
|
Allowance for doubtful accounts
|
|
|
(3,872
|
)
|
|
|
(3,924
|
)
|
Accounts receivable, net
|
|
$
|
317,568
|
|
|
$
|
308,285
|
|
Due to changes in fuel prices, we recorded a write-down on the value of fuel inventory of $84.8 million at December 31, 2015.
Inventories consisted of the following (in thousands):
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
Fuel-retail
|
|
$
|
44,571
|
|
|
$
|
42,779
|
|
Fuel-other wholesale
|
|
|
161,228
|
|
|
|
283,021
|
|
Fuel-consignment
|
|
|
3,644
|
|
|
|
3,801
|
|
Merchandise
|
|
|
116,179
|
|
|
|
116,694
|
|
Equipment and maintenance spare parts
|
|
|
10,510
|
|
|
|
13,162
|
|
Corn
|
|
|
5,285
|
|
|
|
4,788
|
|
Other
|
|
|
3,042
|
|
|
|
3,046
|
|
Inventories, net
|
|
$
|
344,459
|
|
|
$
|
467,291
|
|
9
6.
|
Property and Equipment
|
Property and equipment consisted of the following (in thousands):
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
Land
|
|
$
|
1,051,041
|
|
|
$
|
1,032,017
|
|
Buildings and leasehold improvements
|
|
|
1,174,146
|
|
|
|
1,150,701
|
|
Equipment
|
|
|
1,216,545
|
|
|
|
1,214,328
|
|
Construction in progress
|
|
|
117,161
|
|
|
|
97,412
|
|
Total property and equipment
|
|
|
3,558,893
|
|
|
|
3,494,458
|
|
Less: accumulated depreciation
|
|
|
396,940
|
|
|
|
339,632
|
|
Property and equipment, net
|
|
$
|
3,161,953
|
|
|
$
|
3,154,826
|
|
7.
|
Goodwill and Other Intangible Assets
|
Goodwill is not amortized, but is tested annually for impairment, or more frequently if events and circumstances indicate that the asset might be impaired. The annual impairment test is performed as of the first day of the fourth quarter of the fiscal year. At both March 31, 2016 and December 31, 2015, we had $3.1 billion of goodwill recorded in conjunction with past business combinations. The 2015 impairment analysis indicated no impairment in goodwill. During 2016, we continued our evaluation of the Aziz, Alta East, and other acquisition purchase accounting analyses with the assistance of a third party valuation firm. See Note 3 for the preliminary estimated fair value of assets and liabilities as of the dates of acquisition.
As of March 31, 2016, we evaluated potential impairment indicators. We believe no impairment events occurred during the first quarter of 2016, and we believe the assumptions used in the analysis performed in 2015 are still relevant and indicative of our current operating environment. As a result, no impairment was recorded to goodwill during the period from January 1, 2016 through March 31, 2016.
The Partnership has indefinite-lived intangible assets recorded that are not amortized. These indefinite-lived assets consist of tradenames, contractual rights, and liquor licenses. Tradenames and liquor licenses relate to our retail segment while contractual rights relate to our wholesale segment.
In accordance with ASC 350 “
Intangibles-Goodwill and Other
,” the Partnership has finite-lived intangible assets recorded that are amortized. The finite-lived assets consist of supply agreements, customer relations, favorable leasehold arrangements, non-competes, and loan origination costs, all of which are amortized over the respective lives of the agreements or over the period of time the assets are expected to contribute directly or indirectly to the Partnership's future cash flows. Customer relations and supply agreements have a remaining weighted-average life of approximately 8 years. Favorable leasehold arrangements have a remaining weighted-average life of approximately 10 years. Non-competition agreements have a remaining weighted-average life of approximately 1 year. Loan origination costs have a remaining weighted-average life of approximately 3 years.
Prior to December 31, 2014, our Stripes and Laredo Taco Company tradenames were amortized over 30 years. As of January 1, 2015, management deemed the Stripes and Laredo Taco Company tradenames to be indefinite-lived assets and ceased amortization.
We evaluate the estimated benefit periods and recoverability of other intangible assets when facts and circumstances indicate that the lives may not be appropriate and/or the carrying values of the assets may not be recoverable. If the carrying value is not recoverable, impairment is measured as the amount by which the carrying value exceeds estimated fair value.
10
Gross carrying amounts and accum
ulated amortization for each major class of intangible assets, excluding goodwill, consisted of the following (in thousands):
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Net Book Value
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Net Book Value
|
|
Indefinite-lived
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradenames
|
|
$
|
784,058
|
|
|
$
|
6,508
|
|
|
$
|
777,550
|
|
|
$
|
784,058
|
|
|
$
|
6,508
|
|
|
$
|
777,550
|
|
Contractual rights
|
|
|
33,850
|
|
|
|
—
|
|
|
|
33,850
|
|
|
|
33,850
|
|
|
|
—
|
|
|
|
33,850
|
|
Liquor licenses
|
|
|
16,000
|
|
|
|
—
|
|
|
|
16,000
|
|
|
|
16,000
|
|
|
|
—
|
|
|
|
16,000
|
|
Finite-lived
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relations including supply agreements
|
|
|
574,926
|
|
|
|
161,191
|
|
|
|
413,735
|
|
|
|
551,033
|
|
|
|
150,101
|
|
|
|
400,932
|
|
Favorable leasehold arrangements, net
|
|
|
22,863
|
|
|
|
1,419
|
|
|
|
21,444
|
|
|
|
22,863
|
|
|
|
1,188
|
|
|
|
21,675
|
|
Loan origination costs
|
|
|
9,769
|
|
|
|
2,667
|
|
|
|
7,102
|
|
|
|
9,358
|
|
|
|
2,172
|
|
|
|
7,186
|
|
Other intangibles
|
|
|
4,690
|
|
|
|
2,883
|
|
|
|
1,807
|
|
|
|
3,675
|
|
|
|
1,428
|
|
|
|
2,247
|
|
Intangible assets, net
|
|
$
|
1,446,156
|
|
|
$
|
174,668
|
|
|
$
|
1,271,488
|
|
|
$
|
1,420,837
|
|
|
$
|
161,397
|
|
|
$
|
1,259,440
|
|
8.
|
Accrued Expenses and Other Current Liabilities
|
Current accrued expenses and other current liabilities consisted of the following (in thousands):
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
Wage and other employee-related accrued expenses
|
|
$
|
32,864
|
|
|
$
|
26,019
|
|
Franchise agreement termination accrual
|
|
|
3,041
|
|
|
|
4,399
|
|
Accrued tax expense
|
|
|
134,144
|
|
|
|
102,473
|
|
Accrued insurance
|
|
|
33,041
|
|
|
|
32,716
|
|
Accrued environmental
|
|
|
7,029
|
|
|
|
7,600
|
|
Accrued interest expense
|
|
|
32,079
|
|
|
|
28,494
|
|
Deposits and other
|
|
|
19,419
|
|
|
|
106,238
|
|
Total
|
|
$
|
261,617
|
|
|
$
|
307,939
|
|
Long-term debt consisted of the following (in thousands):
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
Term loan
|
|
$
|
2,035,000
|
|
|
$
|
—
|
|
Sale leaseback financing obligation
|
|
|
120,878
|
|
|
|
121,992
|
|
2014 Revolver, bearing interest at Prime or LIBOR plus an applicable margin
|
|
|
675,000
|
|
|
|
450,000
|
|
6.375% Senior Notes Due 2023
|
|
|
800,000
|
|
|
|
800,000
|
|
5.500% Senior Notes Due 2020
|
|
|
600,000
|
|
|
|
600,000
|
|
Capital lease obligations and notes payable, bearing interest at 4%, 6%, and 7%
|
|
|
3,652
|
|
|
|
3,975
|
|
Total debt
|
|
|
4,234,530
|
|
|
|
1,975,967
|
|
Less: current maturities
|
|
|
4,824
|
|
|
|
5,084
|
|
Less: debt issuance costs
|
|
|
36,794
|
|
|
|
18,352
|
|
Long-term debt, net of current maturities
|
|
$
|
4,192,912
|
|
|
$
|
1,952,531
|
|
11
Term Loan
On March 31, 2016, we entered into a term loan agreement (the “Term Loan”) to finance a portion of the costs associated with the ETP Dropdown. The Term Loan provides secured financing in an aggregate principal amount of up to $2.035 billion, which we borrowed in full. The Partnership used the proceeds to fund a portion of the ETP Dropdown and to pay fees and expenses incurred in connection with the ETP Dropdown and Term Loan.
Obligations under the Term Loan are secured equally and ratably with the 2014 Revolver (as defined below) by substantially all tangible and intangible assets of the Partnership and certain of our subsidiaries, subject to certain exceptions and permitted liens. Obligations under the Term Loan are guaranteed by certain of the Partnership’s subsidiaries. In addition, ETP Retail provided a limited contingent guaranty of collection with respect to the payment of the principal amount of the Term Loan. The maturity date of the Term Loan is October 1, 2019. The Partnership is not required to make any amortization payments with respect to the loans under the Term Loan. Amounts borrowed under the Term Loan bear interest at either LIBOR or base rate plus an applicable margin based on the election of the Partnership for each interest period. Until the Partnership first receives an investment grade rating, the applicable margin for LIBOR rate loans ranges from 1.500% to 2.500% and the applicable margin for base rate loans ranges from 0.500% to 1.500%, in each case based on the Partnership’s leverage ratio.
The Partnership may voluntarily prepay borrowings under the Term Loan at any time without premium or penalty, subject to any applicable breakage costs for loans bearing interest at LIBOR. Under certain circumstances, the Partnership is required to repay borrowings under the Term Loan in connection with the issuance by the Partnership of certain types of indebtedness for borrowed money. The Term Loan also includes certain (i) representations and warranties, (ii) affirmative covenants, including delivery of financial and other information to the administrative agent, notice to the administrative agent upon the occurrence of certain material events, preservation of existence, payment of material taxes and other claims, maintenance of properties and insurance, access to properties and records for inspection by administrative agent and lenders, further assurances and provision of additional guarantees and collateral, (iii) negative covenants, including restrictions on the Partnership and our restricted subsidiaries’ ability to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets, make loans, advances or investments, pay dividends, sell or otherwise transfer assets or enter into transactions with shareholders or affiliates and (iv) events of default, in each case substantially similar to the representations and warranties, affirmative and negative covenants and events of default in the Partnership’s existing revolving credit facility.
The Term Loan also requires the maintenance of a maximum funded debt to EBITDA ratio (i) as of the last day of each fiscal quarter through March 31, 2017, of 6.25 to 1.0 at any time with respect to the Partnership and (ii) as of the last day of each fiscal quarter thereafter, of 5.5 to 1.0 at any time with respect to the Partnership (subject to increases to 6.0 to 1.0 in connection with certain future specified acquisitions). During the continuance of an event of default, the lenders under the Term Loan may take a number of actions, including declaring the entire amount then outstanding under the Term Loan due and payable.
5.500% Senior Notes Due 2020
On July 20, 2015, we and our wholly owned subsidiary, SUN Finance (together with the Partnership, the “2020 Issuers”), completed a private offering of $600.0 million 5.500% senior notes due 2020 (the “2020 Senior Notes”). The terms of the 2020 Senior Notes are governed by an indenture dated July 20, 2015, among the 2020 Issuers, our General Partner, and certain other subsidiaries of the Partnership (the “2020 Guarantors”) and U.S. Bank National Association, as trustee (the “2020 Trustee”). The 2020 Senior Notes will mature on August 1, 2020 and interest is payable semi-annually on February 1 and August 1 of each year, commencing February 1, 2016. The 2020 Senior Notes are senior obligations of the 2020 Issuers and are guaranteed on a senior basis by all of the Partnership’s existing subsidiaries. The 2020 Senior Notes and guarantees are unsecured and rank equally with all of the 2020 Issuers’ and each 2020 Guarantor’s existing and future senior obligations. The 2020 Senior Notes are senior in right of payment to any of the 2020 Issuers’ and each 2020 Guarantor’s future obligations that are, by their terms, expressly subordinated in right of payment to the 2020 Senior Notes and guarantees. The 2020 Senior Notes and guarantees are effectively subordinated to the 2020 Issuers’ and each 2020 Guarantor’s secured obligations, including obligations under the Partnership’s revolving credit facility, to the extent of the value of the collateral securing such obligations, and structurally subordinated to all indebtedness and obligations, including trade payables, of the Partnership’s subsidiaries that do not guarantee the 2020 Senior Notes.
Net proceeds of approximately $592.5 million were used to fund a portion of the Susser Cash Consideration.
6.375% Senior Notes Due 2023
On April 1, 2015, we and our wholly owned subsidiary, SUN Finance (together with the Partnership, the “2023 Issuers”), completed a private offering of $800.0 million 6.375% senior notes due 2023 (the “2023 Senior Notes”). The terms of the 2023 Senior Notes are governed by an indenture dated April 1, 2015, among the 2023 Issuers, our General Partner, and certain other subsidiaries of the Partnership (the “2023 Guarantors”) and U.S. Bank National Association, as trustee (the “2023 Trustee”). The 2023 Senior Notes will mature on April 1, 2023 and interest is payable semi-annually on April 1 and October 1 of each year, commencing
12
October 1, 2015. The 2023 Senior Notes are senior obligations of the 2023 Issuers and are guaranteed on a senior basis by all of the P
artnership’s existing subsidiaries. The 2023 Senior Notes and guarantees are unsecured and rank equally with all of the 2023 Issuers’ and each 2023 Guarantor’s existing and future senior obligations. The 2023 Senior Notes are senior in right of payment to
any of the 2023 Issuers’ and each 2023 Guarantor’s future obligations that are, by their terms, expressly subordinated in right of payment to the 2023 Senior Notes and guarantees. The 2023 Senior Notes and guarantees are effectively subordinated to the 202
3 Issuers’ and each 2023 Guarantor’s secured obligations, including obligations under the Partnership’s revolving credit facility, to the extent of the value of the collateral securing such obligations, and structurally subordinated to all indebtedness and
obligations, including trade payables, of the Partnership’s subsidiaries that do not guarantee the 2023 Senior Notes. ETP Retail provided a guarantee of collection to the 2023 Issuers with respect to the payment of the principal amount of the 2023 Senior
Notes. ETP Retail is not subject to any of the covenants under the 2023 Indenture.
In connection with our issuance of the 2023 Senior Notes, we entered into a registration rights agreement with the initial purchasers pursuant to which we agreed to complete an offer to exchange the 2023 Senior Notes for an issue of registered notes with terms substantially identical to the 2023 Senior Notes on or before April 1, 2016 (the “Target Date”). We have not completed this exchange offer and, as a result, we are required to pay each holder of 2023 Senior Notes liquidated damages in the form of additional interest equal to 0.25% per annum of the principal amount of 2023 Senior Notes held by such holder, with respect to the first 90 days after the Target Date (which rate will be increased by an additional 0.25% per annum for each subsequent 90 day period that such liquidated damages continue to accrue), in each case until the exchange offer is completed; provided, however, that at no time will the amount of liquidated damages accruing exceed in the aggregate 1.00% per annum.
Net proceeds of approximately $786.5 million were used to fund Sunoco Cash Consideration and to repay borrowings under our 2014 Revolver (as defined below).
Revolving Credit Agreement
On September 25, 2014, we entered into a new $1.25 billion revolving credit facility (the “2014 Revolver”) with a syndicate of banks expiring September 25, 2019 (which date may be extended in accordance with the terms of the 2014 Revolver). The 2014 Revolver includes an accordion feature providing flexibility to increase the facility by an additional $250 million, subject to certain conditions. Borrowings under the 2014 Revolver were used to repay and cancel the $400 million revolving credit facility (the “2012 Revolver”) entered into in connection with the IPO.
Borrowings under the 2014 Revolver bear interest at a base rate (a rate based off of the higher of (i) the Federal Funds Rate (as defined therein) plus 0.50%, (ii) Bank of America’s prime rate or (iii) one-month LIBOR (as defined therein) plus 1.00%) or LIBOR, in each case plus an applicable margin ranging from 1.50% to 2.50%, in the case of a LIBOR loan, or from 0.50% to 1.50%, in the case of a base rate loan (determined with reference to the Partnership’s Leverage Ratio (as defined therein)). Upon the first achievement by the Partnership of an investment grade credit rating, the applicable margin will decrease to a range of 1.125% to 2.0%, in the case of a LIBOR loan, or from 0.125% to 1.00%, in the case of a base rate loan (determined with reference to the credit rating for the Partnership’s senior, unsecured, non-credit enhanced long-term debt). Interest is payable quarterly if the base rate applies, at the end of the applicable interest period if LIBOR applies and at the end of the month if daily floating LIBOR applies. In addition, the unused portion of the 2014 Revolver is subject to a commitment fee ranging from 0.250% to 0.350%, based on the Partnership’s Leverage Ratio (as defined therein). Upon the first achievement by the Partnership of an investment grade credit rating, the commitment fee will decrease to a range of 0.125% to 0.275%, based on the Partnership’s credit rating as described above.
The 2014 Revolver requires the Partnership to maintain a Leverage Ratio of not more than 5.50 to 1.00. The maximum Leverage Ratio is subject to upwards adjustment of not more than 6.00 to 1.00 for a period not to exceed three fiscal quarters in the event the Partnership engages in an acquisition of assets, equity interests (as defined therein), operating lines or divisions by the Partnership, a subsidiary (as defined therein), an unrestricted subsidiary (as defined therein) or a joint venture for a purchase price of not less than $50 million. Effective April 8, 2015, in connection with the Sunoco LLC acquisition, we entered into a Specified Acquisition Period (as defined in the 2014 Revolver) in which our leverage ratio compliance requirements were adjusted upward. Such Specified Acquisition Period ended on August 19, 2015, and concurrently in connection with the Susser acquisition, we entered into a new Specified Acquisition Period. On December 2, 2015, in connection with the consummation of the transactions contemplated by the ETP Dropdown Contribution Agreement, we entered into an amendment to the 2014 Revolver to temporarily increase the maximum leverage ratio to 6.25 to 1.00 for the period beginning upon the closing of the ETP Dropdown through the fourth quarterly testing date following the closing of the ETP Dropdown (the “Post Dropdown Period”).
Indebtedness under the 2014 Revolver is secured by a security interest in, among other things, all of the Partnership’s present and future personal property and all of the present and future personal property of its guarantors, the capital stock of its material subsidiaries (or 66% of the capital stock of material foreign subsidiaries), and any intercompany debt. Upon the first achievement by the Partnership of an investment grade credit rating, all security interests securing the 2014 Revolver will be released.
13
On April 10, 2015, the Partnership entered into the First Amendment to Credit Agreement and Increase Agreement (the “First Amendment”) with the lenders party thereto and Bank of America, N.A. in its capacity as administr
ative agent and collateral agent, pursuant to which the lenders thereto severally agreed to (i) provide $250 million in aggregate incremental commitments under the 2014 Revolver and (ii) make certain amendments to the 2014 Revolver as described in the Firs
t Amendment. After giving effect to the First Amendment, the 2014 Revolver permits the Partnership to borrow up to $1.5 billion on a revolving credit basis.
On December 2, 2015, the Partnership entered into the Second Amendment to the Credit Agreement (the “Second Amendment”) with the lenders party thereto and Bank of America, N.A., in its capacity as a letter of credit issuer, as swing line lender, and as administrative agent pursuant to which the lenders thereto generally agreed to, among other matters, (i) permit the incurrence of a term loan credit facility in connection with the consummation of the ETP Dropdown, (ii) permit such term loan credit facility to be secured on a pari passu basis with the indebtedness incurred under the Credit Agreement (as amended by the Amendment) pursuant to a collateral trust arrangement whereby a financial institution agrees to act as common collateral agent for all pari passu indebtedness and (iii) temporarily increase the maximum leverage ratio permitted under the 2014 Revolver (as amended by the Second Amendment) in connection with the consummation of the ETP Dropdown.
As of March 31, 2016, the balance on the 2014 Revolver was $675.0 million, and $22.3 million in standby letters of credit were outstanding. The unused availability on the 2014 Revolver at March 31, 2016 was $802.7 million. The Partnership was in compliance with all financial covenants at March 31, 2016.
Guaranty by Susser of the 2014 Revolver
Susser entered into a Guaranty of Collection (the “Guaranty”) in connection with the 2012 Revolver, which was transferred to the 2014 Revolver. Pursuant to the Guaranty, Susser guaranteed the collection of the principal amount outstanding under the 2014 Revolver. Susser’s obligation under the Guaranty was limited to $180.7 million. Susser was not required to make payments under the Guaranty unless and until (i) the Partnership failed to make a payment on the 2014 Revolver, (ii) the obligations under such facilities were accelerated, (iii) all remedies of the applicable lenders to collect the unpaid amounts due under such facilities, whether at law or equity, were exhausted and (iv) the applicable lenders failed to collect the full amount owing on such facilities. In addition, Susser entered into a Reimbursement Agreement with PropCo, whereby Susser was obligated to reimburse PropCo for any amounts paid by PropCo under the Guaranty executed by our subsidiaries. Susser’s exposure under this reimbursement agreement was limited, when aggregated with its obligation under the Guaranty, to $180.7 million. Subsequent to the closing of the Susser acquisition, Susser and its material subsidiaries (as defined by the 2014 Revolver) were joined to the 2014 Revolver as subsidiary guarantors and Susser was released from the Guaranty.
Sale Leaseback Financing Obligation
On April 4, 2013, MACS completed a sale leaseback transaction with two separate companies for 50 of its dealer operated sites. As MACS did not meet the criteria for sale leaseback accounting, this transaction was accounted for as a financing arrangement over the course of the lease agreement. The obligations mature in varying dates through 2033, require monthly interest and principal payments, and bear interest at 5.125%. The obligation related to this transaction is included in long-term debt and the balance outstanding as of March 31, 2016 was $120.9 million.
Other Debt
On July 8, 2010, we entered into a mortgage note for an aggregate initial borrowing amount of $1.2 million. Pursuant to the terms of the mortgage note, we make monthly installment payments that are comprised of principal and interest through the maturity date of July 1, 2016. The balance outstanding at March 31, 2016 and December 31, 2015 was $1.0 million. The mortgage note bears interest at a fixed rate of 6.0%. The mortgage note is secured by a first priority security interest in a property owned by the Partnership.
In September 2013, we assumed a $3.0 million term loan as part of the acquisition of Gainesville Fuel, Inc.(now Sunoco Energy Services LLC). The balance outstanding at March 31, 2016 and December 31, 2015 was $2.5 million. The term loan bears interest at a fixed rate of 4.0%.
The estimated fair value of long-term debt is calculated using Level 3 inputs (see Note 10). The fair value of debt as of March 31, 2016, is estimated to be approximately $4.2 billion, based on outstanding balances as of the end of the period using current interest rates for similar securities.
14
10.
|
Fair Value Measurements
|
We use fair value measurements to measure, among other items, purchased assets and investments, leases and derivative contracts. We also use them to assess impairment of properties, equipment, intangible assets and goodwill. Fair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair value is based on observable market prices or parameters, or is derived from such prices or parameters. Where observable prices or inputs are not available, use of unobservable prices or inputs is used to estimate the current fair value, often using an internal valuation model. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the item being valued.
ASC 820 “
Fair Value Measurements and Disclosures”
prioritizes the inputs used in measuring fair value into the following hierarchy:
|
Level 1
|
Quoted prices (unadjusted) in active markets for identical assets or liabilities;
|
|
Level 2
|
Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable;
|
|
Level 3
|
Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.
|
Debt or equity securities are classified into the following reporting categories: held-to-maturity, trading, or available-for-sale securities. The investments in debt securities, which typically mature in one year or less, are classified as held-to-maturity and valued at amortized cost, which approximates fair value. The fair value of marketable securities is measured using Level 1 inputs. There were none outstanding as of March 31, 2016 or December 31, 2015.
11.
|
Commitments and Contingencies
|
Leases
The Partnership leases certain convenience store and other properties under non-cancellable operating leases whose initial terms are typically 5 to 15 years, with some having a term of 30 years or more, along with options that permit renewals for additional periods. Minimum rent is expensed on a straight-line basis over the term of the lease. In addition, certain leases require additional contingent payments based on sales or motor fuel volumes. We typically are responsible for payment of real estate taxes, maintenance expenses and insurance. These properties are either sublet to third parties or used for our convenience store operations.
Net rent expense consisted of the following (in thousands):
|
|
For the Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Cash rent:
|
|
|
|
|
|
|
|
|
Store base rent
|
|
$
|
28,210
|
|
|
$
|
29,247
|
|
Equipment and other rent (1)
|
|
|
4,890
|
|
|
|
4,936
|
|
Total cash rent
|
|
|
33,100
|
|
|
|
34,183
|
|
Non-cash rent:
|
|
|
|
|
|
|
|
|
Straight-line rent
|
|
|
357
|
|
|
|
(604
|
)
|
Amortization of deferred gain
|
|
|
—
|
|
|
|
(253
|
)
|
Net rent expense
|
|
$
|
33,457
|
|
|
$
|
33,326
|
|
|
(1)
|
Equipment rent consists primarily of store equipment and vehicles.
|
|
15
12.
|
Interest Expense and Interest Income
|
Net interest expense consisted of the following (in thousands):
|
|
For the Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Interest expense (1)
|
|
$
|
27,288
|
|
|
$
|
8,911
|
|
Amortization of loan costs
|
|
|
1,240
|
|
|
|
381
|
|
Interest income
|
|
|
(839
|
)
|
|
|
(1,315
|
)
|
Interest expense, net
|
|
$
|
27,689
|
|
|
$
|
7,977
|
|
|
(1)
|
Interest expense related to the VIEs was approximately $2.4 million for the three months ended March 31, 2015.
|
|
As a partnership, we are generally not subject to federal income tax and most state income taxes. However, the Partnership conducts certain activities through corporate subsidiaries which are subject to federal and state income taxes.
Our effective tax rate differs from the statutory rate primarily due to Partnership earnings that are not subject to U.S. federal and most state income taxes at the Partnership level. A reconciliation of income tax expense at the U. S. federal statutory rate to net income tax expense is presented below (in thousands):
|
|
For the Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Tax at statutory federal rate
|
|
$
|
22,361
|
|
|
$
|
21,399
|
|
Partnership earnings not subject to tax
|
|
|
(32,768
|
)
|
|
|
(12,183
|
)
|
State and local tax, net of federal benefit
|
|
|
10,735
|
|
|
|
524
|
|
Other
|
|
|
1,784
|
|
|
|
(1,677
|
)
|
Net income tax expense
|
|
$
|
2,112
|
|
|
$
|
8,063
|
|
As of March 31, 2016, ETE and ETP or their subsidiaries owned 45,750,826 common units, which constitute 40.9% of the limited partner ownership interest in us. As of March 31, 2016, our fully consolidating subsidiaries owned 16,410,780 Class C units representing limited partner interests in the Partnership (the “Class C Units”) and the public owned 49,588,960 common units.
Common Units
In connection with the closing of the Partnership’s previously announced sale (the “PIPE Transaction”) of 2,263,158 common units in a private placement to ETE, the Partnership entered into a registration rights agreement, dated as of March 31, 2016 (the “Registration Rights Agreement”), with ETE. Pursuant to the Registration Rights Agreement, the Partnership is required to file a shelf registration statement to register the common units, upon the request of the holders of a majority of the then-outstanding common units. The Partnership shall use its reasonable best efforts to file the registration statement within 45 days of any such request and cause it to be effective as soon as reasonably practicable thereafter, subject to certain exceptions. ETE owns the general partner interests and incentive distribution rights in the Partnership.
The following table presents the activity of our common units for the three months ended March 31, 2016:
|
|
Number of Units
|
|
Number of common units at December 31, 2015
|
|
|
87,365,706
|
|
Common units issued in connection with the ETP Dropdown
|
|
|
5,710,922
|
|
Common units issued in connection with the PIPE Transaction
|
|
|
2,263,158
|
|
Number of common units at March 31, 2016
|
|
|
95,339,786
|
|
16
Allocations of Net Income
Our partnership agreement contains provisions for the allocation of net income and loss to the unitholders. For purposes of maintaining partner capital accounts, the partnership agreement specifies that items of income and loss shall be allocated among the partners in accordance with their respective percentage interest. Normal allocations according to percentage interests are made after giving effect, if any, to priority income allocations in an amount equal to incentive cash distributions allocated 100% to ETE.
The calculation of net income allocated to the partners is as follows (in thousands, except per unit amounts):
|
|
For the Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Attributable to Common Units
|
|
|
|
|
|
|
|
|
Distributions (a)
|
|
$
|
77,921
|
|
|
$
|
16,057
|
|
Distributions in excess of income
|
|
|
(39,843
|
)
|
|
|
(5,525
|
)
|
Limited partners' interest in net income
|
|
$
|
38,078
|
|
|
$
|
10,532
|
|
|
|
|
|
|
|
|
|
|
Attributable to Subordinated Units
|
|
|
|
|
|
|
|
|
Distributions (a)
|
|
$
|
—
|
|
|
$
|
7,056
|
|
Distributions in excess of income
|
|
|
—
|
|
|
|
(2,275
|
)
|
Limited partners' interest in net income
|
|
$
|
—
|
|
|
$
|
4,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Distributions declared per unit to unitholders as of record date
|
|
$
|
0.8173
|
|
|
$
|
0.6450
|
|
Class C Units
On January 1, 2016, the Partnership issued an aggregate of 16,410,780 Class C Units consisting of (i) 5,242,113 Class C Units that were issued by the Partnership to Aloha as consideration for the contribution by Aloha to an indirect wholly owned subsidiary of the Partnership of all of Aloha’s assets relating to the wholesale supply of fuel and lubricants, and (ii) 11,168,667 Class C Units that were issued by the Partnership to indirect wholly owned subsidiaries of the Partnership in exchange for all of the outstanding Class A Units held by such subsidiaries. The Class C Units were valued at $38.5856 per Class C Unit (the “Class C Unit Issue Price”), based on the volume-weighted average price of the Partnership’s Common Units for the five-day trading period ending on December 31, 2015. The Class C Units were issued in private transactions exempt from registration under section 4(a)(2) of the Securities Act.
Class C Units (i) are not convertible or exchangeable into Common Units or any other units of the Partnership and are non-redeemable; (ii) are entitled to receive distributions of available cash of the Partnership (other than available cash derived from or attributable to any distribution received by the Partnership from PropCo, the proceeds of any sale of the membership interests of PropCo, or any interest or principal payments received by the Partnership with respect to indebtedness of PropCo or its subsidiaries), at a fixed rate equal to $0.8682 per quarter for each Class C Unit outstanding, (iii) do not have the right to vote on any matter except as otherwise required by any non-waivable provision of law, (iv) are not allocated any items of income, gain, loss, deduction or credit attributable to the Partnership’s ownership of, or sale or other disposition of, the membership interests of PropCo, or the Partnership’s ownership of any indebtedness of PropCo or any of its subsidiaries (“PropCo Items”), (v) will be allocated gross income (other than from PropCo Items) in an amount equal to the cash distributed to the holders of Class C Units and (vi) will be allocated depreciation, amortization and cost recovery deductions as if the Class C Units were Common Units and 1% of certain allocations of net termination gain (other than from PropCo Items).
Pursuant to the terms described above, these distributions do not have an impact on the Partnership’s consolidated cash flows and as such, are excluded from total cash distributions and allocation of limited partners’ interest in net income. For the three months ended March 31, 2016, Class C distributions declared totaled $14.2 million.
Incentive Distribution Rights
The following table illustrates the percentage allocations of available cash from operating surplus between our common unitholders and the holder of our IDRs based on the specified target distribution levels, after the payment of distributions to Class C unitholders. The amounts set forth under “marginal percentage interest in distributions” are the percentage interests of our IDR holder and the common unitholders in any available cash from operating surplus we distribute up to and including the corresponding amount
17
i
n the column “total quarterly distribution per unit target amount.” The percentage interests shown for our common unitholders and our IDR holder for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than
the minimum quarterly distribution. Effective August 21, 2015, ETE exchanged 21.0 million ETP common units, owned by ETE, the owner of ETP’s general partner interest, for 100% of the general partner interest and all of our IDRs. ETP had previously owned o
ur IDRs since September 2014, prior to that date the IDRs were owned by Susser.
|
|
|
|
Marginal percentage interest
in distributions
|
|
|
Total quarterly distribution per unit
target amount
|
|
Unitholders
|
|
Holder of IDRs
|
Minimum Quarterly Distribution
|
|
$0.4375
|
|
100%
|
|
—
|
First Target Distribution
|
|
Above $0.4375 up to $0.503125
|
|
100%
|
|
—
|
Second Target Distribution
|
|
Above $0.503125 up to $0.546875
|
|
85%
|
|
15%
|
Third Target Distribution
|
|
Above $0.546875 up to $0.656250
|
|
75%
|
|
25%
|
Thereafter
|
|
Above $0.656250
|
|
50%
|
|
50%
|
Cash Distributions
Our partnership agreement, as amended, sets forth the calculation to be used to determine the amount and priority of cash distributions that the common unitholders receive.
The following table presents our cash distributions paid or payable during 2016 (in thousands, except for per unit distributions):
|
|
Limited Partners
|
|
|
|
|
|
Payment Date
|
|
Per Unit Distribution
|
|
|
Total Cash Distribution
|
|
|
Distribution to IDR Holders
|
|
May 16, 2016
|
|
$
|
0.8173
|
|
|
$
|
77,921
|
|
|
$
|
19,566
|
|
February 16, 2016
|
|
|
0.8013
|
|
|
|
70,006
|
|
|
|
16,532
|
|
15.
|
Unit-Based Compensation
|
Unit-based compensation expense related to the Partnership included in our Consolidated Statements of Operations and Comprehensive Income was as follows (in thousands):
|
|
For the Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Phantom common units
|
|
$
|
2,663
|
|
|
$
|
1,358
|
|
Allocated expense from ETP
|
|
|
521
|
|
|
|
—
|
|
Total equity-based compensation expense
|
|
$
|
3,184
|
|
|
$
|
1,358
|
|
Phantom Common Unit Awards
Prior to the ETP Merger, there were phantom unit awards issued to certain directors and employees under the Sunoco LP 2012 Long-Term Incentive Plan. The fair value of each phantom unit on the grant date was equal to the market price of our common unit on that date reduced by the present value of estimated dividends over the vesting period, since the phantom units did not receive dividends until vested. The estimated fair value of our phantom units was amortized over the vesting period using the straight-line method. Non-employee director awards vested over a one-to-three-year period and employee awards vested ratably over a two-to-five-year service period. Concurrent with the ETP Merger, all unvested phantom units vested and compensation cost of $0.4 million was recognized.
Subsequent to the ETP Merger, phantom units were issued which also have the right to receive distributions prior to vesting. During the three months ended March 31, 2016, 7,578 phantom units were issued. The units vest 60% after three years and 40% after five years. The fair value of these units is the market prices of our common units on the grant date, and is amortized over the five-year vesting period using the straight-line method. Unrecognized compensation cost related to our nonvested restricted phantom units totaled $34.3 million as of March 31, 2016, which is expected to be recognized over a weighted average period of 3.16 years. The fair value of nonvested service phantom units outstanding as of March 31, 2016 totaled $46.8 million.
18
A summary of our phantom unit award activity is set forth below:
|
|
Number of Phantom Common Units
|
|
|
Weighted-Average Grant Date Fair Value
|
|
Nonvested at December 31, 2014
|
|
|
241,235
|
|
|
$
|
45.50
|
|
Granted
|
|
|
993,134
|
|
|
|
40.63
|
|
Forfeited
|
|
|
(87,321
|
)
|
|
|
50.71
|
|
Nonvested at December 31, 2015
|
|
|
1,147,048
|
|
|
|
41.19
|
|
Granted
|
|
|
7,578
|
|
|
|
39.59
|
|
Forfeited
|
|
|
(15,953
|
)
|
|
|
41.41
|
|
Nonvested at March 31, 2016
|
|
|
1,138,673
|
|
|
$
|
41.14
|
|
Cash Awards
In January 2015, the Partnership granted 30,710 awards that are settled in cash under the terms of the Sunoco LP Long-Term Cash Restricted Unit Plan. An additional 1,000 awards were granted in September 2015. During the three months ended March 31, 2016, 1,440 units were forfeited. These awards do not have the right to receive distributions prior to vesting. The awards vest 100% after three years. Unrecognized compensation cost related to our nonvested cash awards totaled $0.7 million as of March 31, 2016, which is expected to be recognized over a weighted average period of 1.68 years. The fair value of nonvested cash awards outstanding as of March 31, 2016 totaled $1.6 million.
Segment information is prepared on the same basis that our Chief Operating Decision Maker (“CODM”) reviews financial information for operational decision-making purposes. We operate our business in two primary segments, wholesale and retail, both of which are included as reportable segments. No operating segments have been aggregated in identifying the two reportable segments.
We allocate shared revenue and costs to each segment based on the way our CODM measures segment performance. Partnership overhead costs, interest and other expenses not directly attributable to a reportable segment are allocated based on segment gross profit. These costs were previously allocated based on segment EBITDA.
We report EBITDA and Adjusted EBITDA by segment as a measure of segment performance. We define EBITDA as net income before net interest expense, income tax expense and depreciation, amortization and accretion expense. We define Adjusted EBITDA to include adjustments for non-cash compensation expense, gains and losses on disposal of assets, unrealized gains and losses on commodity derivatives and inventory fair value adjustments.
Wholesale Segment
Our wholesale segment purchases motor fuel primarily from independent refiners and major oil companies and supplies it to our retail segment, to independently-operated dealer stations under long-term supply agreements, and to distributers and other consumers of motor fuel. Also included in the wholesale segment are motor fuel sales to consignment locations. We distribute motor fuels across 32 states throughout the East Coast and Southeast regions of the United States from Maine to Florida and from Florida to New Mexico, as well as Hawaii. Sales of fuel from the wholesale segment to our retail segment are delivered at cost plus a profit margin. These amounts are reflected in intercompany eliminations of motor fuel revenue and motor fuel cost of sales. Also included in our wholesale segment is rental income from properties that we lease or sub-lease.
Retail Segment
Our retail segment operates branded retail convenience stores across 21 states throughout the East Coast and Southeast regions of the United States from Maine to Florida and from Florida to New Mexico, as well as Hawaii. These stores offer motor fuel, merchandise, foodservice, and a variety of other services including car washes, lottery, ATM, money orders, prepaid phone cards, wireless services and movie rentals.
19
The following table presents financial information by segment for the three months ended March 31, 2016 and 2015:
Segment Financial Data
(
in thousands
)
|
|
For the Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Wholesale
|
|
|
Retail
|
|
|
Intercompany
Eliminations
|
|
|
Total
|
|
|
Wholesale
|
|
|
Retail
|
|
|
Intercompany
Eliminations
|
|
|
Total
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail motor fuel sales
|
|
$
|
—
|
|
|
$
|
1,115,715
|
|
|
|
|
|
|
$
|
1,115,715
|
|
|
$
|
—
|
|
|
$
|
1,367,656
|
|
|
|
|
|
|
$
|
1,367,656
|
|
Wholesale motor fuel sales to third parties
|
|
|
1,495,874
|
|
|
|
—
|
|
|
|
|
|
|
|
1,495,874
|
|
|
|
2,436,502
|
|
|
|
—
|
|
|
|
|
|
|
|
2,436,502
|
|
Wholesale motor fuel sales to affiliates
|
|
|
7,129
|
|
|
|
—
|
|
|
|
|
|
|
|
7,129
|
|
|
|
644
|
|
|
|
—
|
|
|
|
|
|
|
|
644
|
|
Merchandise sales
|
|
|
—
|
|
|
|
524,094
|
|
|
|
|
|
|
|
524,094
|
|
|
|
—
|
|
|
|
483,123
|
|
|
|
|
|
|
|
483,123
|
|
Rental income
|
|
|
18,720
|
|
|
|
3,404
|
|
|
|
|
|
|
|
22,124
|
|
|
|
11,509
|
|
|
|
8,273
|
|
|
|
|
|
|
|
19,782
|
|
Other
|
|
|
5,941
|
|
|
|
31,436
|
|
|
|
|
|
|
|
37,377
|
|
|
|
5,612
|
|
|
|
29,069
|
|
|
|
|
|
|
|
34,681
|
|
Intersegment sales
|
|
|
70,901
|
|
|
|
—
|
|
|
|
(70,901
|
)
|
|
|
—
|
|
|
|
91,170
|
|
|
|
—
|
|
|
|
(91,170
|
)
|
|
|
—
|
|
Total revenues
|
|
|
1,598,565
|
|
|
|
1,674,649
|
|
|
|
(70,901
|
)
|
|
|
3,202,313
|
|
|
|
2,545,437
|
|
|
|
1,888,121
|
|
|
|
(91,170
|
)
|
|
|
4,342,388
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail motor fuel
|
|
|
—
|
|
|
|
131,273
|
|
|
|
|
|
|
|
131,273
|
|
|
|
—
|
|
|
|
109,106
|
|
|
|
|
|
|
|
109,106
|
|
Wholesale motor fuel
|
|
|
151,159
|
|
|
|
—
|
|
|
|
|
|
|
|
151,159
|
|
|
|
130,981
|
|
|
|
—
|
|
|
|
|
|
|
|
130,981
|
|
Merchandise
|
|
|
—
|
|
|
|
166,379
|
|
|
|
|
|
|
|
166,379
|
|
|
|
—
|
|
|
|
148,201
|
|
|
|
|
|
|
|
148,201
|
|
Rental and other
|
|
|
23,367
|
|
|
|
26,565
|
|
|
|
|
|
|
|
49,932
|
|
|
|
15,565
|
|
|
|
37,239
|
|
|
|
|
|
|
|
52,804
|
|
Total gross profit
|
|
|
174,526
|
|
|
|
324,217
|
|
|
|
|
|
|
|
498,743
|
|
|
|
146,546
|
|
|
|
294,546
|
|
|
|
|
|
|
|
441,092
|
|
Total operating expenses
|
|
|
77,127
|
|
|
|
329,806
|
|
|
|
|
|
|
|
406,933
|
|
|
|
78,403
|
|
|
|
297,343
|
|
|
|
|
|
|
|
375,746
|
|
Income (loss) from operations
|
|
|
97,399
|
|
|
|
(5,589
|
)
|
|
|
|
|
|
|
91,810
|
|
|
|
68,143
|
|
|
|
(2,797
|
)
|
|
|
|
|
|
|
65,346
|
|
Interest expense, net
|
|
|
12,128
|
|
|
|
15,561
|
|
|
|
|
|
|
|
27,689
|
|
|
|
1,002
|
|
|
|
6,975
|
|
|
|
|
|
|
|
7,977
|
|
Income (loss) before income taxes
|
|
|
85,271
|
|
|
|
(21,150
|
)
|
|
|
|
|
|
|
64,121
|
|
|
|
67,141
|
|
|
|
(9,772
|
)
|
|
|
|
|
|
|
57,369
|
|
Income tax expense (benefit)
|
|
|
(748
|
)
|
|
|
2,860
|
|
|
|
|
|
|
|
2,112
|
|
|
|
1,041
|
|
|
|
7,022
|
|
|
|
|
|
|
|
8,063
|
|
Net income (loss) and comprehensive income (loss)
|
|
$
|
86,019
|
|
|
$
|
(24,010
|
)
|
|
|
|
|
|
$
|
62,009
|
|
|
$
|
66,100
|
|
|
$
|
(16,794
|
)
|
|
|
|
|
|
$
|
49,306
|
|
Depreciation, amortization and accretion
|
|
|
16,853
|
|
|
|
61,213
|
|
|
|
|
|
|
|
78,066
|
|
|
|
18,791
|
|
|
|
47,952
|
|
|
|
|
|
|
|
66,743
|
|
Interest expense, net
|
|
|
12,128
|
|
|
|
15,561
|
|
|
|
|
|
|
|
27,689
|
|
|
|
1,002
|
|
|
|
6,975
|
|
|
|
|
|
|
|
7,977
|
|
Income tax expense (benefit)
|
|
|
(748
|
)
|
|
|
2,860
|
|
|
|
|
|
|
|
2,112
|
|
|
|
1,041
|
|
|
|
7,022
|
|
|
|
|
|
|
|
8,063
|
|
EBITDA
|
|
|
114,252
|
|
|
|
55,624
|
|
|
|
|
|
|
|
169,876
|
|
|
|
86,934
|
|
|
|
45,155
|
|
|
|
|
|
|
|
132,089
|
|
Non-cash compensation expense
|
|
|
2,369
|
|
|
|
815
|
|
|
|
|
|
|
|
3,184
|
|
|
|
430
|
|
|
|
928
|
|
|
|
|
|
|
|
1,358
|
|
Loss (gain) on disposal of assets
|
|
|
(446
|
)
|
|
|
1,660
|
|
|
|
|
|
|
|
1,214
|
|
|
|
159
|
|
|
|
(190
|
)
|
|
|
|
|
|
|
(31
|
)
|
Unrealized loss (gain) on commodity derivatives
|
|
|
(2,725
|
)
|
|
|
—
|
|
|
|
|
|
|
|
(2,725
|
)
|
|
|
1,406
|
|
|
|
—
|
|
|
|
|
|
|
|
1,406
|
|
Inventory fair value adjustments
|
|
|
(11,222
|
)
|
|
|
(1,440
|
)
|
|
|
|
|
|
|
(12,662
|
)
|
|
|
(6,921
|
)
|
|
|
262
|
|
|
|
|
|
|
|
(6,659
|
)
|
Adjusted EBITDA
|
|
$
|
102,228
|
|
|
$
|
56,659
|
|
|
|
|
|
|
$
|
158,887
|
|
|
$
|
82,008
|
|
|
$
|
46,155
|
|
|
|
|
|
|
$
|
128,163
|
|
Capital expenditures
|
|
$
|
36,629
|
|
|
$
|
59,593
|
|
|
|
|
|
|
$
|
96,222
|
|
|
$
|
65,765
|
|
|
$
|
35,267
|
|
|
|
|
|
|
$
|
101,032
|
|
Total assets at end of period
|
|
$
|
2,883,721
|
|
|
$
|
5,918,921
|
|
|
|
|
|
|
$
|
8,802,642
|
|
|
$
|
2,925,842
|
|
|
$
|
5,915,977
|
|
|
|
|
|
|
$
|
8,841,819
|
|
20
Net income per unit applicable to limited partners (including subordinated unitholders prior to the conversion of our subordinated units on November 30, 2015) is computed by dividing limited partners’ interest in net income by the weighted-average number of outstanding common and subordinated units. Our net income is allocated to the limited partners in accordance with their respective partnership percentages, after giving effect to any priority income allocations for incentive distributions and distributions on employee unit awards. Earnings in excess of distributions are allocated to the limited partners based on their respective ownership interests. Payments made to our unitholders are determined in relation to actual distributions declared and are not based on the net income allocations used in the calculation of net income per unit.
In addition to the common and subordinated units, we identify the IDRs as participating securities and use the two-class method when calculating net income per unit applicable to limited partners, which is based on the weighted-average number of common units outstanding during the period. Diluted net income per unit includes the effects of potentially dilutive units on our common units, consisting of unvested phantom units. Basic and diluted net income per unit applicable to subordinated limited partners are the same because there are no potentially dilutive subordinated units outstanding.
We also disclose limited partner units issued and outstanding. A reconciliation of the numerators and denominators of the basic and diluted per unit computations is as follows (in thousands, except units and per unit amounts):
|
|
For the Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Net income and comprehensive income
|
|
$
|
62,009
|
|
|
$
|
49,306
|
|
Less: Net income and comprehensive income attributable to noncontrolling interest
|
|
|
—
|
|
|
|
846
|
|
Less: Preacquisition income allocated to general partner
|
|
|
—
|
|
|
|
31,388
|
|
Net income and comprehensive income attributable to partners
|
|
|
62,009
|
|
|
|
17,072
|
|
Less: Incentive distribution rights
|
|
|
19,566
|
|
|
|
1,449
|
|
Less: Distributions on nonvested phantom unit awards
|
|
|
931
|
|
|
|
310
|
|
Limited partners’ interest in net income
|
|
$
|
41,512
|
|
|
$
|
15,313
|
|
Weighted average limited partner units outstanding:
|
|
|
|
|
|
|
|
|
Common - basic
|
|
|
87,453,333
|
|
|
|
24,099,177
|
|
Common - equivalents
|
|
|
21,354
|
|
|
|
37,671
|
|
Common - diluted
|
|
|
87,474,687
|
|
|
|
24,136,848
|
|
|
|
|
|
|
|
|
|
|
Subordinated - basic and diluted
|
|
|
—
|
|
|
|
10,939,436
|
|
Net income per limited partner unit:
|
|
|
|
|
|
|
|
|
Common - basic and diluted
|
|
$
|
0.47
|
|
|
$
|
0.44
|
|
Subordinated - basic and diluted
|
|
$
|
—
|
|
|
$
|
0.44
|
|
18.
|
Related-Party Transactions
|
Through Sunoco LLC, we are party to the following fee-based commercial agreements with various subsidiaries of ETP:
|
•
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Philadelphia Energy Solutions Offtake Contract – A 1-year supply agreement with Philadelphia Energy Solutions LLC (“PES”). Sunoco, Inc. owns a 33% non-operating noncontrolling interest in PES.
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Sunoco Logistics Partners L.P. Transportation and Terminalling Contracts – Sunoco LLC is party to various agreements with subsidiaries of Sunoco Logistics Partners L.P. for pipeline, terminalling and storage services. Sunoco LLC also has agreements for the purchase and sale of fuel.
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We are party to the Susser Distribution Contract, a 10-year agreement under which we are the exclusive distributor of motor fuel at cost (including tax and transportation costs), plus a fixed profit margin of three cents per gallon to Susser’s existing Stripes convenience stores and independently operated consignment locations. This profit margin is eliminated through consolidation in the accompanying consolidated statements of operations and comprehensive income.
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We are party to the Sunoco Retail Distribution Contract, a 10-year agreement under which Sunoco L
LC is the exclusive wholesale distributor of motor fuel to Sunoco Retail’s convenience stores. Pursuant to the agreement, pricing is cost plus a fixed margin of four cents per gallon. This profit margin is eliminated through consolidation in the accompanyi
ng consolidated statements of operations and comprehensive income.
In connection with the closing of our IPO on September 25, 2012, we also entered into an Omnibus Agreement with Susser (the “Omnibus Agreement”). Pursuant to the Omnibus Agreement, among other things, the Partnership received a three-year option to purchase from Susser up to 75 of Susser's new or recently constructed Stripes convenience stores at Susser's cost and lease the stores back to Susser at a specified rate for a 15-year initial term. The Partnership is the exclusive distributor of motor fuel to such stores for a period of ten years from the date of purchase. We have completed all 75 sale-leaseback transactions under the Omnibus Agreement.
Summary of Transactions
Affiliate activity related to the Consolidated Balance Sheets and Statements of Operations and Comprehensive Income is as follows:
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Net advances to affiliates was $386.3 million and $365.5 million as of March 31, 2016 and December 31, 2015, respectively, which are primarily related to the treasury services agreements between Sunoco LLC and Sunoco, Inc. (R&M) and Sunoco Retail and Sunoco Inc. (R&M), which are in place for purposes of cash management.
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Net accounts receivable from affiliates were $1.6 million and $8.1 million as of March 31, 2016 and December 31, 2015, respectively, which are primarily related to motor fuel purchases from us.
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Net accounts payable to affiliates was $11.0 million and $15.0 million as of March 31, 2016 and December 31, 2015, respectively, which are related to operational expenses and fuel pipeline purchases.
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Motor fuel sales to affiliates of $7.1 million and $0.6 million for the three months ended March 31, 2016 and March 31, 2015, respectively.
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Bulk fuel purchases from affiliates of $340.2 million and $655.4 million for the three months ended March 31, 2016 and March 31, 2015, respectively.
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On April 7, 2016, we and certain of our wholly owned subsidiaries, including SUN Finance (together with the Partnership, the “2021 Issuers”), completed a private offering of $800.0 million 6.250% senior notes due 2021 (the “2021 Senior Notes”). The terms of the 2021 Senior Notes are governed by an indenture dated April 7
, 2016
, among the 2021 Issuers, our General Partner, and certain other subsidiaries of the Partnership (the “2021 Guarantors”) and U.S. Bank National Association, as trustee. The 2021 Senior Notes will mature on April 15, 2021 and interest is payable semi-annually on April 15 and October 15 of each year, commencing October 15, 2016. The 2021 Senior Notes are senior obligations of the 2021 Issuers and are guaranteed on a senior basis by all of the Partnership’s existing subsidiaries and certain of its future subsidiaries. The 2021 Senior Notes and guarantees are unsecured and rank equally with all of the 2021 Issuers’ and each 2021 Guarantor’s existing and future senior obligations. The 2021 Senior Notes are senior in right of payment to any of the 2021 Issuers’ and each 2021 Guarantor’s future obligations that are, by their terms, expressly subordinated in right of payment to the 2021 Senior Notes and guarantees. The 2021 Senior Notes and guarantees are effectively subordinated to the 2021 Issuers’ and each 2021 Guarantor’s secured obligations, including obligations under the Partnership’s 2014 Revolver, to the extent of the value of the collateral securing such obligations, and structurally subordinated to all indebtedness and obligations, including trade payables, of the Partnership’s subsidiaries that do not guarantee the 2021 Senior Notes.
Net proceeds of approximately $789.4 million were used to repay a portion of the borrowings outstanding under our Term Loan.
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