EXCHANGE OFFERS
Purpose and Effect of the Exchange Offers
In connection with the sale of the 2023 private notes on April 1, 2015, we, Sunoco Finance, the guarantors and ETP Retail entered into a
registration rights agreement (the 2023 registration rights agreement) with the initial purchasers of the 2023 private notes, which requires us to file a registration statement under the Securities Act with respect to the 2023 exchange
notes and, upon the effectiveness of the registration statement, offer to the holders of the 2023 private notes the opportunity to exchange their 2023 private notes for a like principal amount of 2023 exchange notes. The 2023 exchange notes will be
issued without a restrictive legend and generally may be reoffered and resold without registration under the Securities Act.
Additionally, in connection with the sale of the 2021 private notes on April 7, 2016, we, Sunoco Finance, the guarantors and ETP Retail
entered into a registration rights agreement with the initial purchasers of the 2021 private notes (the 2021 registration rights agreement, and, together with the 2023 registration rights agreement, the registration rights
agreements), which requires us to file a registration statement under the Securities Act with respect to the 2021 exchange notes and, upon the effectiveness of the registration statement, offer to the holders of the 2021 private notes the
opportunity to exchange their 2021 private notes for a like principal amount of 2021 exchange notes. The 2021 exchange notes will be issued without a restrictive legend and generally may be reoffered and resold without registration under the
Securities Act.
The registration rights agreements provide that we must use our reasonable efforts to consummate the exchange offers not
later than 365 days after the original issuance of the 2023 private notes and the 2021 private notes, respectively. The registration rights agreements further provide that we must file a shelf registration statement for the resale of the private
notes under certain circumstances and use reasonable best efforts to cause such registration statement to become effective under the Securities Act and to keep such registration statement effective for a period of one year, or such shorter period
that will terminate when all private notes covered by the shelf registration statement have been sold.
For each private note surrendered
to us pursuant to the exchange offers, the holder of such private note will receive an exchange note having a principal amount equal to that of the surrendered private note. Interest payments on the 2023 exchange notes will be made semi-annually in
cash, on April 1 and October 1 of each year. Interest payments on the 2021 exchange notes will be made semi-annually in cash, on April 15 and October 15 of each year, commencing on October 15, 2016. The registration rights
agreements also provide an agreement to include in the prospectus for the exchange offers certain information necessary to allow a broker-dealer who holds private notes that were acquired for its own account as a result of market-making activities
or other trading activities (other than private notes acquired directly from us or one of our affiliates) to exchange such private notes pursuant to the exchange offers and to satisfy the prospectus delivery requirements in connection with resales
of exchange notes received by such broker-dealer in the exchange offers. We agreed to use reasonable efforts to maintain the effectiveness of the exchange offers registration statement for these purposes for a period of 180 days after the completion
of the exchange offers, which period may be extended under certain circumstances.
The preceding agreement is needed because any
broker-dealer who acquires private notes for its own account as a result of market-making activities or other trading activities is required to deliver a prospectus meeting the requirements of the Securities Act. This prospectus covers the offer and
sale of the exchange notes pursuant to the exchange offers and the resale of exchange notes received in the exchange offers by any broker-dealer who held private notes acquired for its own account as a result of market-making activities or other
trading activities (other than private notes acquired directly from us or one of our affiliates).
Holders that are broker-dealers may be
deemed underwriters within the meaning of the Securities Act in connection with any resale of exchange notes acquired in the exchange offers. Holders that are broker-dealers
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must acknowledge that they acquired their private notes in market-making activities or other trading activities and must deliver a prospectus when they resell the exchange notes they acquire in
the exchange offers in order not to be deemed an underwriter.
Based on interpretations by the staff of the SEC set forth in no-action
letters issued to third parties, we believe that the exchange notes issued in exchange for private notes may be offered for resale, resold and otherwise transferred by any exchange noteholder without compliance with the registration and prospectus
delivery provisions of the Securities Act, if:
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such holder is not an affiliate of ours within the meaning of Rule 405 under the Securities Act;
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such exchange notes are acquired in the ordinary course of the holders business; and
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the holder does not intend to participate in the distribution of such exchange notes.
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Any
holder who tenders notes in the exchange offers with the intention of participating in any manner in a distribution of the exchange notes:
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cannot rely on the position of the staff of the SEC set forth in Exxon Capital Holdings Corp., SEC
No-Action
Letter (April 13, 1988); Morgan Stanley & Co. Inc., SEC No-Action
Letter (June 5, 1991); Shearman & Sterling, SEC No-Action Letter (July 2, 1993) or similar interpretive letters; and
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must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction.
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If, as stated above, a holder cannot rely on the position of the staff of the SEC set forth in Exxon Capital Holdings Corporation
or similar interpretive letters, any effective registration statement used in connection with a secondary resale transaction must contain the selling security holder information required by Item 507 of Regulation S-K under the Securities Act.
Each holder of the private notes (other than certain specified holders) who desires to exchange private notes for the exchange notes in the
exchange offers will be required to make the representations described below under Procedures for TenderingYour Representations to Us.
In the event that (i) we determine that the exchange offers registration provided for in the registration rights agreements is not available
or the exchange offers may not be completed as soon as practicable after the last exchange date because it would violate any applicable law or applicable interpretations of the SEC; (ii) the exchange offers are not for any other reason completed by
the respective Target Registration Dates (as defined below) or (iii) upon receipt of a written request (a Shelf Request) from any initial purchaser representing that it holds registrable securities (as defined in the registration rights
agreements) that are or were ineligible to be exchanged in the exchange offers, we will use our reasonable best efforts to cause to be filed as soon as practicable after such determination, date or Shelf Request, as the case may be, a shelf
registration statement providing for the sale of all the registrable securities by the holders thereof and to have such shelf registration statement become effective.
If (i) on or prior to the time the exchange offers are completed existing law or SEC interpretations are changed such that the exchange notes
would not generally be freely transferable after the exchange offers without further registration under the Securities Act; (ii) the exchange offers registration statement is not declared effective by 365 days after the issue date of the 2023
private notes or the 2021 private notes, respectively, or (iii) the exchange offers have not been completed within 20 business days of the exchange offers registration statement being declared effective, then we will use our reasonable best efforts
to file and to have become effective a shelf registration statement relating to resales of the exchange notes and to keep that shelf registration statement effective until the date that the exchange notes cease to be registrable
securities (as defined in the registration rights agreements), including when all exchange notes covered by the shelf registration statement
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have been sold pursuant to the shelf registration statement. We will, in the event of such a shelf registration, provide to each participating holder of exchange notes copies of a prospectus,
notify each participating holder of exchange notes when the shelf registration statement has become effective and take certain other actions to permit resales of the exchange notes. A holder of exchange notes that sells exchange notes under the
shelf registration statement generally will be required to make certain representations to us (as described in the registration rights agreements), to be named as a selling security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with those sales and will be bound by the provisions of the registration rights agreements that are applicable to such a holder of
exchange notes (including certain indemnification obligations). Holders of exchange notes will also be required to suspend their use of the prospectus included in the shelf registration statement under specified circumstances upon receipt of notice
from us. Under applicable interpretations of the staff of the SEC, our affiliates will not be permitted to exchange their private notes for registered notes in the exchange offers.
If the exchange offers are not completed (or, if required, the shelf registration statement is not declared effective) on or before the date
that is 365 days after the issue date of the 2023 private notes or the 2021 private notes, respectively (the Target Registration Dates), then we agree to pay each holder of 2023 private notes or 2021 private notes, as applicable,
liquidated damages in the form of additional interest in an amount equal to 0.25% per annum of the principal amount of notes held by such holder, with respect to the first 90 days after the Target Registration Dates (which rate shall 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 applicable exchange offer is completed or the shelf registration statement is declared effective;
provided
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however
, that at no time will the amount of liquidated damages accruing with respect to the 2023 private notes or the 2021 private notes, as applicable, exceed in the aggregate 1.0% per annum. We have not completed the
exchange offer with respect to our 2023 private notes and, as a result, we are required to pay each holder of 2023 private notes liquidated damages in accordance with the terms above. Upon the completion of the applicable exchange offer (or, if
required, the effectiveness of the shelf registration statement) liquidated damages described in this paragraph with respect to the 2023 private notes or the 2021 private notes, as applicable, will cease to accrue.
If we effect the registered exchange offers, we will be entitled to close the registered exchange offers 20 business days after their
commencement as long as we have accepted all private notes validly tendered in accordance with the terms of the exchange offers and no brokers or dealers continue to hold any private notes.
This summary of the material provisions of the registration rights agreements does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the registration rights agreements, copies of which are incorporated by reference into this prospectus.
Except as set forth above, after consummation of the exchange offers, holders of private notes that are the subject of the exchange offers
have no registration or exchange rights under the registration rights agreements. See Consequences of Failure to Exchange.
Terms of
the Exchange Offers
Subject to the terms and conditions described in this prospectus and in the letter of transmittal, we will accept
for exchange any 2023 private notes or 2021 private notes properly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the applicable expiration date. We will issue exchange notes in principal amount equal to the principal amount
of private notes surrendered in the exchange offers. Private notes may be tendered only for exchange notes and only in minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof.
Neither of the exchange offers is conditioned upon any minimum aggregate principal amount of 2023 private notes or 2021 private notes, as
applicable, being tendered for exchange.
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As of the date of this prospectus, $800.0 million in aggregate principal amount of the 2023
private notes are outstanding and $800.0 million in aggregate principal amount of the 2021 private notes are outstanding. This prospectus and the letter of transmittal are being sent to all registered holders of private notes. There will be no fixed
record date for determining registered holders of private notes entitled to participate in the exchange offers.
We intend to conduct the
exchange offers in accordance with the provisions of the registration rights agreements, the applicable requirements of the Securities Act and the Exchange Act and the rules and regulations of the SEC. Private notes that the holders thereof do not
tender for exchange in the exchange offers will remain outstanding and continue to accrue interest. These private notes will continue to be entitled to the rights and benefits such holders have under the indenture relating to the applicable private
notes.
We will be deemed to have accepted for exchange properly tendered private notes when we have given oral (promptly followed in
writing) or written notice of the acceptance to the exchange agent and complied with the applicable provisions of the registration rights agreements. The exchange agent will act as agent for the tendering holders for the purposes of receiving the
exchange notes from us.
If you tender private notes in the exchange offers, you will not be required to pay brokerage commissions or fees
or, subject to the letter of transmittal, transfer taxes with respect to the exchange of private notes. We will pay all charges and expenses, other than certain applicable taxes described below, in connection with the exchange offers. It is
important that you read the section entitled Fees and Expenses for more details regarding fees and expenses incurred in the exchange offers.
We will return any private notes that we do not accept for exchange for any reason without expense to their tendering holder promptly after
the expiration or termination of the applicable exchange offer.
Expiration Date
Each exchange offer will expire at 5:00 p.m., New York City time, on October 3, 2016, unless extended, in which case the expiration date
will mean the latest date and time to which we extend such exchange offer.
Delays in Acceptance, Extensions, Termination or Amendment
We expressly reserve the right, at any time or various times, to extend the period of time during which each exchange offer is open. We may
delay acceptance of any private notes by giving oral (promptly followed in writing) or written notice of such delay to their holders. During any such extensions, any private notes previously tendered will remain subject to the applicable exchange
offer, and we may accept them for exchange.
In order to extend an exchange offer, we will notify the exchange agent by giving oral
(promptly followed in writing) or written notice of such extension. We will notify the registered holders of the 2023 private notes or the 2021 private notes, as applicable, of the extension no later than 9:00 a.m., New York City time, on the
business day after the previously scheduled expiration date.
If any of the conditions described below under Conditions to the
Exchange Offers have not been satisfied with respect to an exchange offer, we reserve the right, in our sole discretion:
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to delay accepting for exchange any private notes in such exchange offer;
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to extend such exchange offer; or
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to terminate such exchange offer,
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by giving oral (promptly followed in writing) or written notice of such
delay, extension or termination to the exchange agent. Subject to the terms of the registration rights agreements, we also reserve the right to amend the terms of the exchange offers in any manner.
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Any such delay in acceptance, extension, termination or amendment will be followed promptly by
oral (promptly followed in writing) or written notice thereof to the registered holders of the 2023 private notes or the 2021 private notes, as applicable. If we amend an exchange offer in a manner that we determine to constitute a material change,
we will promptly disclose such amendment by means of a prospectus supplement. The supplement will be distributed to the registered holders of the 2023 private notes or the 2021 private notes, as applicable. Depending upon the significance of the
amendment and the manner of disclosure to the registered holders, we may extend the applicable exchange offer. In the event of a material change in an exchange offer, including the waiver by us of a material condition, we will extend the exchange
offer period if necessary so that at least five business days remain in the exchange offer following notice of the material change.
Conditions to the
Exchange Offers
We will not be required to accept for exchange, or exchange any exchange notes for, any private notes if the exchange
offers, or the making of any exchange by a holder of private notes, would violate applicable law or any applicable interpretation of the staff of the SEC. Similarly, we may terminate the exchange offers as provided in this prospectus before
accepting private notes for exchange in the event of such a potential violation.
In addition, we will not be obligated to accept for
exchange the private notes of any holder that has not made to us the representations described under Purpose and Effect of the Exchange Offers, Procedures for Tendering and Plan of Distribution and
such other representations as may be reasonably necessary under applicable SEC rules, regulations or interpretations to allow us to use an appropriate form to register the exchange notes under the Securities Act.
We expressly reserve the right to amend or terminate the exchange offers, and to reject for exchange any private notes not previously accepted
for exchange, upon the occurrence of any of the conditions to the exchange offers specified above. We will give prompt oral (promptly followed in writing) or written notice of any extension, amendment, non-acceptance or termination to the holders of
the private notes as promptly as practicable.
These conditions are for our sole benefit, and we may assert them or waive them in whole or
in part at any time or at various times in our sole discretion. If we fail at any time to exercise any of these rights, this failure will not mean that we have waived our rights. Each such right will be deemed an ongoing right that we may assert at
any time or at various times.
In addition, we will not accept for exchange any private notes tendered, and will not issue exchange notes
in exchange for any such private notes, if at such time any stop order has been threatened or is in effect with respect to the exchange offers registration statement of which this prospectus constitutes a part or the qualification of the indentures
governing the exchange notes under the Trust Indenture Act of 1939.
Procedures for Tendering
In order to participate in the exchange offers, you must properly tender your 2023 private notes or 2021 private notes, as applicable, to the
exchange agent as described below. It is your responsibility to properly tender your private notes. We have the right to waive any defects. However, we are not required to waive defects and are not required to notify you of defects in your tender.
If you have any questions or need help in exchanging your private notes, please call the exchange agent, whose address and phone number
are set forth in Prospectus SummaryThe Exchange OffersExchange Agent.
All of the private notes were issued in
book-entry form, and all of the private notes are currently represented by global certificates held for the account of DTC. We have confirmed with DTC that the private notes may be
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tendered using the ATOP instituted by DTC. The exchange agent will establish an account with DTC for purposes of each exchange offer promptly after the commencement of such exchange offer and DTC
participants may electronically transmit their acceptance of such exchange offer by causing DTC to transfer their 2023 private notes or 2021 private notes, as applicable, to the exchange agent using the ATOP procedures. In connection with the
transfer, DTC will send an agents message to the exchange agent. The agents message will be deemed to state that DTC has received instructions from the participant to tender such 2023 private notes or 2021 private notes, as
applicable, and that the participant agrees to be bound by the terms of the letter of transmittal.
By using the ATOP procedures to
exchange private notes, you will not be required to deliver a letter of transmittal to the exchange agent. However, you will be bound by its terms just as if you had signed it.
There is no procedure for guaranteed late delivery of the private notes.
Determinations Under the Exchange Offers
We will determine in our sole discretion all questions as to the validity, form, eligibility, time of receipt, acceptance of tendered private
notes and withdrawal of tendered private notes. Our determination will be final and binding. We reserve the absolute right to reject any private notes not properly tendered or any private notes our acceptance of which would, in the opinion of our
counsel, be unlawful. We also reserve the right to waive any defects, irregularities or conditions of tender as to particular private notes. Our interpretation of the terms and conditions of the exchange offers, including the instructions in the
letter of transmittal, will be final and binding on all parties. Unless waived, all defects or irregularities in connection with tenders of private notes must be cured within such time as we shall determine. Although we intend to notify holders of
defects or irregularities with respect to tenders of private notes, neither we, the exchange agent nor any other person will incur any liability for failure to give such notification. Tenders of private notes will not be deemed made until such
defects or irregularities have been cured or waived. Any private notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned to the tendering
holder, unless otherwise provided in the letter of transmittal, promptly following the expiration date of the applicable exchange offer.
When We Will
Issue Exchange Notes
In all cases, we will issue exchange notes for private notes that we have accepted for exchange under the
exchange offers only after the exchange agent timely receives:
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a book-entry confirmation of such private notes into the exchange agents account at DTC; and
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a properly transmitted agents message.
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Return of Private Notes Not Accepted or Exchanged
If we do not accept any tendered private notes for exchange or if private notes are submitted for a greater principal amount than the holder
desires to exchange, the unaccepted or non-exchanged private notes will be returned without expense to their tendering holder. Such non-exchanged private notes will be credited to an account maintained with DTC. These actions will occur promptly
after the expiration or termination of the applicable exchange offer.
Your Representations to Us
By agreeing to be bound by the letter of transmittal, you will represent to us that, among other things:
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any exchange notes that you receive will be acquired in the ordinary course of your business;
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you have no arrangement or understanding with any person or entity to participate in the distribution of the exchange notes;
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you are not our affiliate, as defined in Rule 405 of the Securities Act; and
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if you are a broker-dealer that will receive exchange notes for your own account in exchange for private notes, you acquired those private notes as a result of market-making activities or other trading activities and
you will deliver a prospectus (or to the extent permitted by law, make available a prospectus) in connection with any resale of such exchange notes.
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Withdrawal of Tenders
Except as
otherwise provided in this prospectus, you may withdraw your tender at any time prior to 5:00 p.m., New York City time, on the expiration date for the applicable exchange offer. For a withdrawal to be effective you must comply with the appropriate
procedures of DTCs ATOP system. Any notice of withdrawal must specify the name and number of the account at DTC to be credited with withdrawn private notes and otherwise comply with the procedures of DTC.
We will determine all questions as to the validity, form, eligibility and time of receipt of notice of withdrawal. Our determination shall be
final and binding on all parties. We will deem any private notes so withdrawn not to have been validly tendered for exchange for purposes of an exchange offer.
Any private notes that have been tendered for exchange but are not exchanged for any reason will be credited to an account maintained with DTC
for the private notes. This crediting will take place as soon as practicable after withdrawal, rejection of tender or termination of the applicable exchange offer. You may re-tender properly withdrawn private notes by following the procedures
described under Procedures for Tendering above at any time prior to 5:00 p.m., New York City time, on the expiration date for the applicable exchange offer.
Fees and Expenses
We will bear the
expenses of soliciting tenders. The principal solicitation is being made by mail; however, we may make additional solicitation by facsimile, telephone, electronic mail or in person by our officers and regular employees and those of our affiliates.
We have not retained any dealer-manager in connection with the exchange offers and will not make any payments to broker-dealers or others
soliciting acceptances of the exchange offers. We will, however, pay the exchange agent reasonable and customary fees for its services and reimburse it for its related reasonable out-of-pocket expenses.
We will pay the cash expenses to be incurred in connection with the exchange offers. They include:
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all registration and filing fees and expenses;
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all fees and expenses of compliance with federal securities and state blue sky or securities laws;
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accounting fees, legal fees incurred by us, disbursements and printing, messenger and delivery services, and telephone costs; and
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related fees and expenses.
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Transfer Taxes
We will pay all transfer taxes, if any, applicable to the exchange of private notes under the exchange offers. The tendering holder, however,
will be required to pay any transfer taxes, whether imposed on the registered holder or any other person, if a transfer tax is imposed for any reason other than the exchange of private notes under the exchange offers.
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Consequences of Failure to Exchange
If you do not exchange your private notes for exchange notes under the exchange offers, you will remain subject to the existing restrictions on
transfer of the private notes. In general, you may not offer or sell the private notes unless the offer or sale is either registered under the Securities Act or exempt from registration under the Securities Act and applicable state securities laws.
Except as required by the registration rights agreements, we do not intend to register resales of the private notes under the Securities Act.
Accounting Treatment
We will record the
exchange notes in our accounting records at the same carrying value as the private notes. This carrying value is the aggregate principal amount of the private notes plus or minus any bond premium or discount, as reflected in our accounting records
on the date of exchange. Accordingly, we will not recognize any gain or loss for accounting purposes in connection with the exchange offers.
Other
Participation in the exchange offers is voluntary, and you should carefully consider whether to accept. You are urged to consult your
financial and tax advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered private
notes in open market or privately negotiated transactions, through subsequent exchange offers or otherwise. We have no present plans to acquire any private notes that are not tendered in the exchange offers or to file a registration statement to
permit resales of any untendered private notes.
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DESCRIPTION OF THE EXCHANGE NOTES
You can find the definitions of certain terms used in this description under the subheading Certain Definitions. In this
description, the term Sunoco LP refers only to Sunoco LP and not to any of its subsidiaries, the term Finance Corp. refers to Sunoco Finance Corp. and the term Issuers refers to Sunoco LP and
Finance Corp.
The Issuers issued the 2023 private notes, and will issue the 2023 exchange notes, under an indenture dated as of April 1,
2015 among themselves, the Guarantors and U.S. Bank National Association, as trustee (as amended, the 2023 Indenture). The Issuers issued the 2021 private notes, and will issue the 2021 exchange notes under an indenture dated as of April
7, 2016 among themselves, the Guarantors and U.S. Bank National Association, as trustee (as amended, the 2021 Indenture) References to Indenture refer to any or all of the 2023 Indenture or the 2021 Indenture, as the context
requires. The terms of the 2023 private notes and the 2021 private notes include, and the 2023 exchange notes and the 2021 exchange notes will include, those stated in the 2023 Indenture and the 2021 Indenture, respectively, and those made part
thereof by reference to the Trust Indenture Act of 1939, as amended (the Trust Indenture Act).
The following description is a
summary of the material provisions of the Indenture. It does not restate the Indenture in its entirety. We urge you to read the Indenture because it, and not this description, defines your rights as holders of notes. Copies of the 2023 Indenture and
the 2021 Indenture are available as set forth below under Additional Information. Certain defined terms used in this description but not defined below under Certain Definitions have the meanings assigned to them
in the Indenture.
The registered holder of a note will be treated as its owner for all purposes. Only registered holders will have rights
under the Indenture. Unless the context otherwise requires for all purposes of the Indenture, and for this Description of the Exchange Notes, all references to the notes include the private notes, the exchange notes and any
additional notes actually issued under the Indenture.
General
The Notes
The notes:
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are general unsecured obligations of the Issuers;
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are
pari passu
in right of payment with all existing and future senior Indebtedness of the Issuers;
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are senior in right of payment to any future subordinated Indebtedness of the Issuers; and
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are unconditionally guaranteed by the Guarantors.
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The notes, however, are effectively
subordinated to all secured Indebtedness under the Credit Agreement and Sunoco LPs $1.4 billion term loan (the Term Loan), which are secured by substantially all of the assets of Sunoco LP and the Guarantors, to the extent of
the value of the collateral securing that Indebtedness. The notes will also be structurally subordinated to any Indebtedness of our Subsidiaries that do not guarantee the notes. See Risk FactorsRisks Related to Our Indebtedness and the
NotesThe notes and the guarantees are unsecured and effectively subordinated to the Issuers and the guarantors existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness and
The notes are structurally subordinated to all liabilities of any non-guarantor subsidiaries.
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The Note Guarantees
Each guarantee of the notes:
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is a general unsecured obligation of the Guarantor;
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is
pari passu
in right of payment with all existing and future senior Indebtedness of that Guarantor; and
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is senior in right of payment to any future subordinated Indebtedness of that Guarantor.
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The
Note Guarantees, however, are effectively subordinated to all secured Indebtedness of the Guarantors, including their guarantees of Indebtedness under the Credit Agreement and the Term Loan, to the extent of the value of the collateral securing
those guarantees.
All of Sunoco LPs current significant Subsidiaries, with the exception of Finance Corp., guarantee the notes. The
notes will also be guaranteed by any of Sunoco LPs future Domestic Subsidiaries that incurs Indebtedness under a Credit Facility and by any Restricted Subsidiaries that guarantee Indebtedness of an Issuer or a Guarantor under a Credit
Facility. In the event of a bankruptcy, liquidation or reorganization of any of our non-guaranteeing Subsidiaries, such non-guaranteeing Subsidiaries will pay the holders of their debt and their trade creditors before they will be able to distribute
any of their assets to us and, as a result, the obligations of our non-guaranteeing subsidiaries will be structurally senior to the notes and Note Guarantees. See Risk FactorsRisks Related to Our Indebtedness and the NotesThe notes
and the guarantees are unsecured and effectively subordinated to the Issuers and the guarantors existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness and The notes
are structurally subordinated to all liabilities of any non-guarantor subsidiaries.
ETP Retail provided a limited contingent
guarantee of our obligations to pay the principal of the 2023 notes and the 2021 notes (the ETP Retail contingent guarantees). Under the ETP Retail contingent guarantees, ETP Retail generally has no obligation to make principal payments
with respect to the 2023 notes or the 2021 notes, as applicable, unless and until all remedies, including in the context of bankruptcy proceedings, have first been fully exhausted against us with respect to such payment obligations, and holders of
2023 notes or 2021 notes, as applicable, are still owed amounts in respect of the principal of the 2023 notes or the 2021 notes, as applicable. Two other subsidiaries of ETP, Sunoco R&M and Atlantic Refining, entered into separate support
agreements with ETP Retail and us, pursuant to which they agreed to provide contingent residual support to ETP Retail with respect to ETP Retails obligations under the ETP Retail contingent guarantees, subject to specified liability caps that
aggregate to the principal amount of the 2023 notes and the 2021 notes, respectively. References in this Description of the Exchange Notes to the Note Guarantees or Guarantors do not include the ETP Retail contingent guarantees or ETP
Retail, respectively.
All of our Subsidiaries are Restricted Subsidiaries. Under the circumstances described below under the
caption Certain CovenantsDesignation of Restricted and Unrestricted Subsidiaries, however, we are permitted to designate certain of our existing and future Subsidiaries as Unrestricted Subsidiaries. Our
Unrestricted Subsidiaries are not subject to the restrictive covenants in the Indenture. Our Unrestricted Subsidiaries do not guarantee the notes.
Principal, Maturity and Interest
The Issuers will issue up to $800 million in aggregate principal amount of 2023 exchange notes and $800 million in aggregate principal amount
of 2021 exchange notes in the exchange offers. The Issuers may issue additional notes under the Indenture from time to time after this offering. Any issuance of additional notes is subject to all the covenants in the Indenture, including the
covenant described below under the caption Certain CovenantsIncurrence of Indebtedness and Issuance of Disqualified Equity. The 2023 exchange notes and any additional notes subsequently issued under the 2023 Indenture will be
treated as a single class for all purposes under the 2023 Indenture, including waivers, amendments, redemptions and offers to purchase. The 2021 exchange notes and any additional notes subsequently issued under the 2021 Indenture will be treated as
a single class for all purposes under the 2021 Indenture, including waivers, amendments, redemptions and offers to
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purchase. The Issuers have issued the notes in denominations of $2,000 and integral multiples of $1,000 in excess thereof. The 2023 notes will mature on April 1, 2023 and the 2021 notes will
mature on April 15, 2021.
Interest on the 2023 notes accrues at the rate of 6.375% per annum and is payable semi-annually in arrears on
April 1 and October 1 of each year. Interest on the 2021 notes accrues at the rate of 6.250% per annum and is payable semi-annually in arrears on April 15 and October 15 of each year. Interest on overdue principal and interest
accrues at the interest rate on the 2023 notes and the 2021 notes, as applicable. The Issuers will make each interest payment with respect to the 2023 notes, to the holders of record on the March 15 and September 15 immediately preceding
each payment date, and with respect to the 2021 notes, to the holders of record on April 1 and October 1 immediately preceding each payment date. Additional interest will accrue on each series of notes as liquidated damages in certain
circumstances described in the applicable registration rights agreement. All references in this Description of the Exchange Notes include any such additional interest to the extent payable.
Interest on each series of notes accrues from the date of original issuance or, if interest has already been paid, from the date it was most
recently paid. Interest is computed on the basis of a 360-day year comprised of twelve 30-day months.
Methods of Receiving Payments on
the Notes
Interest on global notes will be paid in accordance with the procedures of the applicable depositary. If a holder of
$5.0 million or more in principal amount of any series of notes held in certificated form has given wire transfer instructions to Sunoco LP, to an account in the United States, the Issuers will pay all principal of, and interest and
premium, if any, on, that holders notes in accordance with those instructions. All other payments on certificated notes will be made at the office or agency of the paying agent and registrar unless the Issuers elect to make interest payments
by check mailed to the holders of notes at their addresses set forth in the register of holders.
Paying Agent and Registrar for the
Notes
The trustee acts as paying agent and registrar. The Issuers may change the paying agent or registrar without prior notice to the
holders of notes, and Sunoco LP, Finance Corp. or any of Sunoco LPs other Subsidiaries may act as paying agent or registrar.
Transfer and Exchange
A
holder may transfer or exchange notes in accordance with the provisions of the Indenture. The registrar and the trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents in connection with a
transfer of notes. No service charge will be imposed by the Issuers or the trustee or registrar for any transfer or exchange of notes, except that holders will be required to pay all taxes due on transfer. The Issuers will not be required to
transfer or exchange any note selected for redemption. Also, the Issuers will not be required to transfer or exchange any note for a period of 15 days before a selection of notes to be redeemed.
Note Guarantees
The notes
are guaranteed by each of Sunoco LPs current significant Subsidiaries, with the exception of Finance Corp. The notes may also be guaranteed by certain of Sunoco LPs future Restricted Subsidiaries under the circumstances described
under Certain CovenantsAdditional Guarantees. These Note Guarantees are joint and several obligations of the Guarantors. The obligations of each Guarantor under its Note Guarantee are limited as necessary to prevent that Note
Guarantee from constituting a fraudulent conveyance under applicable law. See Risk FactorsRisks Related to Our Indebtedness and the NotesFederal and state statutes allow courts, under specific circumstances, to void subsidiary
guarantees and require noteholders to return payments received from subsidiary guarantors.
40
A Guarantor may not sell or otherwise dispose of all or substantially all of its properties or
assets to, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another Person, other than the Issuers or another Guarantor, unless:
|
(1)
|
immediately after giving effect to that transaction, no Default or Event of Default exists; and
|
|
(a)
|
the Person acquiring the assets in any such sale or other disposition or the Person formed by or surviving any such consolidation or merger (if other than the Guarantor) assumes all the obligations of that Guarantor
under the Indenture and its Note Guarantee pursuant to a supplemental indenture substantially in the form specified in the Indenture; or
|
|
(b)
|
the Net Proceeds of such sale or other disposition are applied in accordance with the Asset Sales provisions of the Indenture.
|
The Note Guarantee of a Guarantor will be released:
|
(1)
|
in connection with any sale or other disposition of all or substantially all of the properties or assets of that Guarantor (including by way of merger or consolidation) to a Person that is not (either before or after
giving effect to such transaction) Sunoco LP or a Restricted Subsidiary of Sunoco LP, if (for the avoidance of doubt, at the time thereof) the sale or other disposition does not violate the Asset Sales provisions of the
Indenture;
|
|
(2)
|
in connection with any sale or other disposition of all the Capital Stock of that Guarantor to a Person that is not (either before or after giving effect to such transaction) Sunoco LP or a Restricted Subsidiary of
Sunoco LP, if (for the avoidance of doubt, at the time thereof) the sale or other disposition does not violate the Asset Sales provisions of the Indenture;
|
|
(3)
|
if Sunoco LP designates any Restricted Subsidiary that is a Guarantor to be an Unrestricted Subsidiary in accordance with the applicable provisions of the Indenture;
|
|
(4)
|
at such time as the Guarantor ceases to guarantee any other Indebtedness of an Issuer or another Guarantor,
provided
that, if it is also a Domestic Subsidiary, it is then no longer an obligor with respect to any
Indebtedness under any Credit Facility;
provided
,
however
, that if, at any time following such release, that Guarantor incurs a guarantee under a Credit Facility, then such Guarantor shall be required to provide a Note Guarantee at
such time;
|
|
(5)
|
upon legal or covenant defeasance or satisfaction and discharge of the Indenture as provided below under the captions Legal Defeasance and Covenant Defeasance and Satisfaction and
Discharge; or
|
|
(6)
|
the first day on which the notes achieve an Investment Grade Rating.
|
See
Repurchase at the Option of HoldersAsset Sales.
Optional Redemption
Except pursuant to this section relating to optional redemption, or as described below in the last paragraph under Repurchase at
the Option of HoldersChange of Control, the notes are not redeemable at the Issuers option.
2023 Notes
At any time prior to April 1, 2018, the Issuers may, on one or more occasions, redeem up to 35% of the aggregate principal amount of the
2023 notes issued under the Indenture at a redemption price of 106.375% of the principal amount of the 2023 notes redeemed, plus accrued and unpaid interest, if any, to, but excluding, the
41
redemption date (subject to the right of holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the redemption date), in an
amount not greater than the net cash proceeds of one or more Equity Offerings,
provided
that:
|
(1)
|
at least 65% of the aggregate principal amount of the 2023 notes issued under the Indenture remains outstanding immediately after the occurrence of such redemption (excluding 2023 notes held by Sunoco LP and its
Subsidiaries); and
|
|
(2)
|
the redemption occurs within 180 days of the date of the closing of each such Equity Offering.
|
On and after April 1, 2018, the Issuers may, on one or more occasions, redeem all or a part of the 2023 notes at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, on the 2023 notes redeemed to the applicable redemption date (subject to the right of holders of record on the relevant record date to receive
interest due on an interest payment date that is on or prior to the redemption date), if redeemed during the
twelve-month
period beginning on April 1 of the years indicated below:
|
|
|
|
|
Year
|
|
Percentages
|
|
2018
|
|
|
104.781
|
%
|
2019
|
|
|
103.188
|
%
|
2020
|
|
|
101.594
|
%
|
2021 and thereafter
|
|
|
100.000
|
%
|
Prior to April 1, 2018, the Issuers may, on one or more occasions, redeem all or part of the 2023 notes
at a redemption price equal to the sum of the principal amount thereof, plus the 2023 Notes Applicable Premium at the redemption date, plus accrued and unpaid interest, if any, to, but excluding, the redemption date (subject to the right of holders
of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the redemption date).
Unless the Issuers default in the payment of the redemption price, interest will cease to accrue on the 2023 notes or portions thereof called
for redemption on the applicable redemption date.
2021 Notes
At any time prior to April 15, 2018, the Issuers may, on one or more occasions, redeem up to 35% of the aggregate principal amount of the 2021
notes issued under the Indenture at a redemption price of 106.250% of the principal amount of the 2021 notes redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date (subject to the right of holders of record on the
relevant record date to receive interest due on an interest payment date that is on or prior to the redemption date), in an amount not greater than the net cash proceeds of one or more Equity Offerings;
provided
that:
|
(1)
|
at least 65% of the aggregate principal amount of the 2021 notes issued under the Indenture remains outstanding immediately after the occurrence of such redemption (excluding notes held by Sunoco LP and its
Subsidiaries); and
|
|
(2)
|
the redemption occurs within 180 days of the date of the closing of each such Equity Offering.
|
On and after April 15, 2018, the Issuers may, on one or more occasions, redeem all or a part of the 2021 notes at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, on the 2021 notes redeemed to the applicable redemption date (subject to the right of holders of record on the relevant record date to receive
interest due on an interest payment date that is on or prior to the redemption date), if redeemed during the twelve-month period beginning on April 15 of the years indicated below:
|
|
|
|
|
Year
|
|
Percentages
|
|
2018
|
|
|
103.125
|
%
|
2019
|
|
|
101.563
|
%
|
2020
|
|
|
100.000
|
%
|
42
Prior to April 15, 2018, the Issuers may, on one or more occasions, redeem all or part of the
2021 notes at a redemption price equal to the sum of the principal amount thereof, plus the 2021 Notes Applicable Premium at the redemption date, plus accrued and unpaid interest, if any, to, but excluding, the redemption date (subject to the right
of holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the redemption date).
Unless the Issuers default in the payment of the redemption price, interest will cease to accrue on the 2021 notes or portions thereof called
for redemption on the applicable redemption date.
Selection and Notice
If less than all of a series of notes is to be redeemed at any time, the trustee will select the applicable notes for redemption as follows:
|
(1)
|
if the notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the notes are listed; or
|
|
(2)
|
if the notes are not listed on any national securities exchange, on a pro rata basis, by lot or by such other method as the trustee deems fair (except that any notes represented by a note in global form will be selected
by such method as The Depository Trust Company (DTC) or its nominee or successor may require or, where such nominee or successor is the trustee, a method that most nearly approximates pro rata selection as the trustee deems fair and
appropriate unless otherwise required by law).
|
No notes of $2,000 or less can be redeemed in part. Notices of redemption
will be sent at least 30 but not more than 60 days before the redemption date to each holder of notes to be redeemed at its registered address, except that redemption notices may be sent more than 60 days prior to a redemption date if the
notice is issued in connection with a defeasance of the notes or a satisfaction and discharge of the Indenture. Any such redemption may, at Sunoco LPs discretion, be subject to one or more conditions precedent.
If any note is to be redeemed in part only, the notice of redemption that relates to that note will state the portion of the principal amount
of that note that is to be redeemed. A new note in principal amount equal to the unredeemed portion of the original note will be issued in the name of the holder of notes upon cancellation of the original note. Notes called for redemption become due
on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on notes or portions of notes called for redemption.
Mandatory Redemption
The
Issuers are not required to make mandatory redemption or sinking fund payments with respect to either series of notes.
Repurchase at
the Option of Holders
Change of Control
If a Change of Control occurs, Sunoco LP will make an offer to each holder of each series of notes to repurchase all or any part (equal to
$2,000 or an integral multiple of $1,000 in excess thereof) of that holders notes pursuant to the offer described below (the Change of Control Offer) on the terms set forth in the Indenture. In the Change of Control Offer,
Sunoco LP will offer a payment in cash (the Change of Control Payment) equal to 101% of the aggregate principal amount of the applicable series of notes repurchased, plus accrued and unpaid interest on such notes repurchased to, but
excluding, the date of purchase (the Change of Control Payment Date), subject to the rights of holders of notes on the relevant record date to receive interest
43
due on an interest payment date that is on or prior to the Change of Control Payment Date. Within 30 days following any Change of Control, Sunoco LP will send a notice to each holder
describing the transaction or transactions that constitute the Change of Control and offering to repurchase the applicable series of notes on the Change of Control Payment Date specified in the notice, which date will be no earlier than 30 days
and no later than 60 days from the date such notice is sent, pursuant to the procedures required by the Indenture and described in such notice. In making the Change of Control Offer, Sunoco LP will comply with all applicable requirements
of Rule 14e-1 under the Exchange Act and other securities laws and regulations. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the Indenture, Sunoco LP
will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Change of Control provisions of the Indenture by virtue of such compliance.
Promptly following the expiration of the Change of Control Offer, Sunoco LP will, to the extent lawful, accept for payment all notes or
portions of notes properly tendered pursuant to the Change of Control Offer. Promptly thereafter on the Change of Control Payment Date, Sunoco LP will:
|
(1)
|
deposit with the paying agent an amount equal to the Change of Control Payment in respect of all notes or portions of notes properly tendered; and
|
|
(2)
|
deliver or cause to be delivered to the trustee the notes properly accepted together with an officers certificate stating the aggregate principal amount of notes or portions of notes being purchased by
Sunoco LP.
|
The paying agent will promptly mail to each holder of notes properly tendered the Change of Control Payment
for such notes (or, to the extent the notes are in global form, make such payment through the facilities of DTC), and the trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each holder a new note equal in
principal amount to any unpurchased portion of the notes surrendered;
provided
, that each new note will be in a principal amount of $2,000 or an integral multiple of $1,000 in excess thereof. Sunoco LP will publicly announce the results
of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date.
These provisions relating to a
Change of Control Offer will be applicable whether or not any other provisions of the Indenture are applicable. Except with respect to a Change of Control, the Indenture does not contain provisions that permit the holders of either series of notes
to require that either of the Issuers repurchase or redeem such series of notes in the event of a takeover, recapitalization or similar transaction.
Sunoco LP will not be required to make a Change of Control Offer upon a Change of Control if (1) a third party makes the Change of
Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by Sunoco LP and purchases all notes properly tendered and not withdrawn under
the Change of Control Offer; (2) notice of redemption with respect to all outstanding notes has been given pursuant to the Indenture as described above under the caption Optional Redemption, unless and until there is a default
in payment of the applicable redemption price; or (3) in connection with, or in contemplation of, any publicly announced Change of Control, Sunoco LP has made an offer to purchase (an Alternate Offer) any and all notes properly
tendered at a cash price equal to or higher than the Change of Control Payment and has purchased all notes properly tendered in accordance with the terms of such Alternate Offer. Notwithstanding anything to the contrary contained in the Indenture, a
Change of Control Offer may be made in advance of a Change of Control, conditioned upon the consummation of such Change of Control, if a definitive agreement is in place for the Change of Control at the time the Change of Control Offer is made.
The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other
disposition of all or substantially all of the properties or assets of Sunoco LP and its Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase substantially
44
all, there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of notes to require Sunoco LP to repurchase its notes as a
result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of Sunoco LP and its Subsidiaries taken as a whole to another Person or group may be uncertain.
In the event that holders of not less than 90% of the aggregate principal amount of any series of notes accept a Change of Control Offer or
Alternate Offer and Sunoco LP purchases all of such notes held by such holders, Sunoco LP will have the right, upon not less than 15 nor more than 60 days prior notice, given not more than 30 days following the purchase
pursuant to the Change of Control Offer or Alternate Offer described above, to redeem all of the applicable series of notes that remain outstanding following such purchase at a redemption price equal to the Change of Control Payment or Alternate
Offer price, as applicable, plus, to the extent not included in the Change of Control Payment or Alternate Offer price, as applicable, accrued and unpaid interest thereon to, but excluding, the redemption date (subject to the right of the holders of
such notes on the relevant record date to receive interest due on an interest payment date that is on or prior to the redemption date).
The agreements governing Sunoco LPs other Indebtedness contain, and future agreements governing Sunoco LPs Indebtedness
may contain, prohibitions of certain events, including events that would constitute a Change of Control and including repurchases of or other prepayments in respect of the notes. The exercise by the holders of notes of their right to require
Sunoco LP to repurchase the notes upon a Change of Control could cause a default under these other agreements, even if the Change of Control itself does not, due to the financial effect of such repurchases on Sunoco LP or other
circumstances. If a Change of Control occurs at a time when Sunoco LP is prohibited from purchasing notes, Sunoco LP could seek the consent of the lenders or counterparties under those agreements or could attempt to repay or refinance such
borrowings. If Sunoco LP does not obtain an appropriate consent or repay those borrowings, Sunoco LP will remain prohibited from purchasing notes. In that case, Sunoco LPs failure to purchase tendered notes would constitute an
Event of Default under the Indenture which could, in all likelihood, constitute a default under the other indebtedness. Finally, Sunoco LPs ability to pay cash to the holders of notes upon a repurchase may be limited by
Sunoco LPs then existing financial resources. See Risk FactorsRisks Related to Our Indebtedness and the NotesWe may not have the funds necessary to finance the repurchase of the notes in connection with a change of
control offer required by the indentures.
Asset Sales
Sunoco LP will not consummate, and will not permit any of its Restricted Subsidiaries to consummate, an Asset Sale unless:
|
(1)
|
Sunoco LP (or the Restricted Subsidiary, as the case may be) receives consideration at the time of the Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or
otherwise disposed of;
|
|
(2)
|
such fair market value is determined by the Board of Directors of the General Partner if the value is $50.0 million or more, as evidenced by a resolution of such Board of Directors of the General Partner; and
|
|
(3)
|
at least 75% of the aggregate consideration received by Sunoco LP and its Restricted Subsidiaries in the Asset Sale and all other Asset Sales since the 2023 Notes Issue Date is in the form of cash or Cash
Equivalents. For purposes of this provision, each of the following will be deemed to be cash:
|
|
(a)
|
any liabilities, as shown on Sunoco LPs most recent consolidated balance sheet, of Sunoco LP or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms
subordinated to the notes or any Note Guarantees) that are assumed by the transferee of any such assets pursuant to a customary novation or indemnity agreement that releases Sunoco LP or such Restricted Subsidiary from or indemnifies against
further liability;
|
45
|
(b)
|
any securities, notes or other obligations received by Sunoco LP or any such Restricted Subsidiary from such transferee that are within 180 days after the Asset Sale (subject to ordinary settlement periods),
converted by Sunoco LP or such Restricted Subsidiary into cash or Cash Equivalents, to the extent of the cash or Cash Equivalents received in that conversion;
|
|
(c)
|
any Capital Stock or assets of the kind referenced in clause (2) or (4) of the next paragraph; and
|
|
(d)
|
any Designated Non-cash Consideration received by Sunoco LP or any of its Restricted Subsidiaries in such Asset Sale having an aggregate fair market value (as determined in good faith by Sunoco LP), taken
together with all other Designated Non-cash Consideration received pursuant to this clause (d), not to exceed the greater of (i) $30.0 million and (ii) 2.5% of Sunoco LPs Consolidated Net Tangible Assets (with the fair
market value of each item of Designated Non-cash Consideration being measured at the time received and without giving effect to subsequent changes in value).
|
Within 365 days after the receipt of any Net Proceeds from an Asset Sale (or within 180 days after such 365-day period in the event
Sunoco LP or any Restricted Subsidiary enters into a binding commitment with respect to such application), Sunoco LP (or any Restricted Subsidiary) may apply an amount equal to such Net Proceeds:
|
(1)
|
to repay Senior Indebtedness of Sunoco LP and/or its Restricted Subsidiaries (or to make an offer to repurchase or redeem such Indebtedness;
provided
that such repurchase or redemption closes within
45 days after the end of such 365-day period or any permitted extension thereof as contemplated by the first sentence of this paragraph);
|
|
(2)
|
to acquire all or substantially all of the assets of, or any Capital Stock of, another Permitted Business, if, after giving effect to any such acquisition of Capital Stock, the Permitted Business becomes a Restricted
Subsidiary of Sunoco LP;
|
|
(3)
|
to make a capital expenditure; or
|
|
(4)
|
to acquire other assets that are not classified as current assets under GAAP and that are used or useful in a Permitted Business.
|
Pending the final application of any Net Proceeds, Sunoco LP or any Restricted Subsidiary may temporarily reduce revolving credit
borrowings or otherwise invest the Net Proceeds in any manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales
that are not applied or invested as provided in the second paragraph of this covenant will constitute Excess Proceeds. When the aggregate amount of Excess Proceeds exceeds $30.0 million, within five business days thereof,
Sunoco LP will make an offer (an Asset Sale Offer) to all holders of notes and all holders of other Indebtedness that is
pari passu
with the notes containing provisions similar to those set forth in the Indenture with respect
to offers to purchase or redeem with the proceeds of sales of assets to purchase the maximum principal amount of notes and such other
pari passu
Indebtedness that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale
Offer will be equal to 100% of the principal amount of the notes plus accrued and unpaid interest to, but excluding, the date of purchase, subject to the rights of holders of notes on the relevant record date to receive interest due on an interest
payment date that is on or prior to the purchase date, and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, Sunoco LP may use those Excess Proceeds for any purpose not otherwise prohibited by the
Indenture. If the aggregate principal amount of notes and other
pari pass
u Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, then notes and such other
pari passu
Indebtedness will be purchased on a
pro rata basis (except that any notes represented by a note in global form will be selected by such method as DTC or its nominee or successor may require or, where such nominee or successor is the trustee, a method that most nearly approximates pro
rata selection as the trustee deems fair and appropriate unless otherwise required by law). Upon completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset at zero.
46
In making an Asset Sale Offer, Sunoco LP will comply with the applicable requirements of
Rule 14e-1 under the Exchange Act and other securities laws and regulations. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sales provisions of the Indenture, Sunoco LP will
comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Asset Sales provisions of the Indenture by virtue of such compliance.
Certain Covenants
Termination of
Covenants
If at any time following the date of the Indenture, the notes achieve an Investment Grade Rating and no Default or Event of
Default has occurred and is then continuing under the Indenture, Sunoco LP and its Restricted Subsidiaries will no longer be subject to the following provisions of the Indenture (Termination Event):
|
(1)
|
Repurchase at the Option of HoldersAsset Sales;
|
|
(2)
|
Restricted Payments;
|
|
(3)
|
Incurrence of Indebtedness and Issuance of Disqualified Equity;
|
|
(4)
|
Dividend and Other Payment Restrictions Affecting Subsidiaries;
|
|
(5)
|
Designation of Restricted and Unrestricted Subsidiaries;
|
|
(6)
|
Transactions with Affiliates;
|
|
(7)
|
Business Activities;
|
|
(8)
|
clause (4) of the covenant described below under the caption Merger, Consolidation or Sale of Assets;
|
|
(9)
|
Limitation on Sale and Leaseback Transactions; and
|
|
(10)
|
Additional Guarantees.
|
There can be no assurance that the notes will ever
achieve or maintain an Investment Grade Rating. Following a Termination Event, the foregoing covenants will continue to be terminated even if the Notes fall below Investment Grade Rating and a Default or Event of Default has occurred and is then
continuing under the Indenture.
Restricted Payments
Sunoco LP will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly:
|
(1)
|
declare or pay any dividend or make any other payment or distribution on account of its outstanding Equity Interests (including any payment in connection with any merger or consolidation involving Sunoco LP or any
of its Restricted Subsidiaries) or to the direct or indirect holders of Sunoco LPs or any of its Restricted Subsidiaries Equity Interests in their capacity as such (other than distributions or dividends payable in Equity Interests,
excluding Disqualified Equity, of Sunoco LP and other than distributions or dividends payable to Sunoco LP or a Restricted Subsidiary of Sunoco LP);
|
|
(2)
|
purchase, redeem or otherwise acquire or retire for value (including in connection with any merger or consolidation involving Sunoco LP) any Equity Interests of Sunoco LP or any direct or indirect parent of
Sunoco LP;
|
|
(3)
|
make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness of Sunoco LP or any Guarantor that is contractually subordinated to the notes or to any
Note Guarantee (excluding intercompany Indebtedness between or among Sunoco LP and any of its Restricted Subsidiaries), except a payment of interest or principal within one month of its Stated Maturity; or
|
47
|
(4)
|
make any Restricted Investment,
|
(all such payments and other actions set forth in these clauses (1)
through (4) above being collectively referred to as Restricted Payments), unless, at the time of and after giving effect to such Restricted Payment, no Default (except a Reporting Default) or Event of Default has occurred and is
continuing or would occur as a consequence of such Restricted Payment and either:
|
(1)
|
if the Fixed Charge Coverage Ratio for Sunoco LPs most recently ended four full fiscal quarters for which internal financial statements are available at the time of such Restricted Payment is not less than
1.75 to 1.0, such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by Sunoco LP and its Restricted Subsidiaries (excluding Restricted Payments permitted by clauses (2), (3), (4), (5), (6), (7),
(8), (9) and (10) of the next succeeding paragraph) during the quarter in which such Restricted Payment is made, is less than the sum, without duplication, of:
|
|
(a)
|
Available Cash from Operating Surplus as of the end of the immediately preceding quarter; plus
|
|
(b)
|
100% of the aggregate net proceeds received by Sunoco LP (including the Fair Market Value of any Permitted Business or long-term assets that are used or useful in a Permitted Business to the extent acquired in
consideration of Equity Interests of Sunoco LP (other than Disqualified Equity)) since the 2023 Notes Issue Date as a contribution to its common equity capital or from the issue or sale of Equity Interests of Sunoco LP (other than
Disqualified Equity) or from the issue or sale of convertible or exchangeable Disqualified Equity or convertible or exchangeable debt securities of Sunoco LP that have been converted into or exchanged for such Equity Interests (other than
Equity Interests (or Disqualified Equity or debt securities) sold to a Subsidiary of Sunoco LP); plus
|
|
(c)
|
to the extent that any Restricted Investment that was made after the 2023 Notes Issue Date is sold for cash or Cash Equivalents or otherwise liquidated or repaid for cash or Cash Equivalents, the return of capital with
respect to such Restricted Investment (less the cost of disposition, if any); plus
|
|
(d)
|
the net reduction in Restricted Investments resulting from dividends, repayments of loans or advances, or other transfers of assets in each case to Sunoco LP or any of its Restricted Subsidiaries from any Person
(including Unrestricted Subsidiaries) or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries, to the extent such amounts have not been included in Available Cash from Operating Surplus for any period commencing on or after
the 2023 Notes Issue Date (items (b), (c) and (d) being referred to as Incremental Funds); minus
|
|
(e)
|
the aggregate amount of Incremental Funds previously expended pursuant to this clause (1) and clause (2) below; or
|
|
(2)
|
if the Fixed Charge Coverage Ratio for Sunoco LPs most recently ended four full fiscal quarters for which internal financial statements are available at the time of such Restricted Payment is less than 1.75
to 1.0, such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by Sunoco LP and its Restricted Subsidiaries (excluding Restricted Payments permitted by clauses (2), (3), (4), (5), (6), (7), (8),
(9) and (10) of the next succeeding paragraph) during the quarter in which such Restricted Payment is made (such Restricted Payments for purposes of this clause (2) meaning only distributions on common units and subordinated units of
Sunoco LP, plus the related distribution on the general partner interest and any incentive distribution rights), is less than the sum, without duplication, of:
|
|
(a)
|
$200.0 million less the aggregate amount of all prior Restricted Payments made by Sunoco LP and its Restricted Subsidiaries pursuant to this clause 2(a) since the 2023 Notes Issue Date; plus
|
|
(b)
|
Incremental Funds to the extent not previously expended pursuant to this clause (2) or clause (1) above.
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48
The preceding provisions will not prohibit:
|
(1)
|
the payment of any dividend or distribution within 60 days after the date of its declaration, if at the date of declaration the payment would have complied with the provisions of the Indenture;
|
|
(2)
|
the redemption, repurchase, retirement, defeasance or other acquisition of subordinated Indebtedness of Sunoco LP or any Guarantor or of any Equity Interests of Sunoco LP in exchange for, or out of the net
cash proceeds of, a substantially concurrent (a) capital contribution to Sunoco LP from any Person (other than a Restricted Subsidiary of Sunoco LP) or (b) sale (other than to a Restricted Subsidiary of Sunoco LP) of Equity
Interests of Sunoco LP, with a sale being deemed substantially concurrent if such redemption, repurchase, retirement, defeasance or other acquisition occurs not more than 120 days after such sale;
provided
that the amount of any
such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition will be excluded or deducted from the calculation of Available Cash from Operating Surplus and Incremental Funds;
|
|
(3)
|
the defeasance, redemption, repurchase or other acquisition or retirement of any subordinated Indebtedness of Sunoco LP or any Guarantor with the net cash proceeds from an incurrence of, or in exchange for,
Permitted Refinancing Indebtedness;
|
|
(4)
|
the payment of any distribution or dividend by a Restricted Subsidiary of Sunoco LP to the holders of its Equity Interests (other than Disqualified Equity) on a pro rata basis;
|
|
(5)
|
so long as no Default (except a Reporting Default) has occurred and is continuing or would be caused thereby, the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of
Sunoco LP or any Restricted Subsidiary of Sunoco LP held by any current or former officer, director or employee of the General Partner, Sunoco LP or any of Sunoco LPs Restricted Subsidiaries pursuant to any equity
subscription agreement or plan, stock or unit option agreement, shareholders agreement or similar agreement;
provided
that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed
$2.0 million in any calendar year (with unused amounts in any calendar year being carried over to succeeding calendar years);
provided
further
that such amount in any calendar year may be increased by an amount not to exceed
(a) the cash proceeds received by Sunoco LP from the sale of Equity Interests of Sunoco LP to members of management or directors of the General Partner, Sunoco LP or its Restricted Subsidiaries that occurs after the 2023 Notes
Issue Date (to the extent the cash proceeds from the sale of such Equity Interests have not otherwise been applied to the payment of Restricted Payments by virtue of sections 1(b) or 2(b) of the preceding paragraph), plus (b) the cash
proceeds of key man life insurance policies received by Sunoco LP after the 2023 Notes Issue Date;
|
|
(6)
|
so long as no Default (except a Reporting Default) has occurred and is continuing or would be caused thereby, payments of dividends on Disqualified Equity issued pursuant to the covenant described under
Incurrence of Indebtedness and Issuance of Disqualified Equity;
|
|
(7)
|
repurchases of Capital Stock deemed to occur upon exercise of stock options, warrants or other convertible securities if such Capital Stock represents a portion of the exercise price of such options, warrants or other
convertible securities;
|
|
(8)
|
cash payments in lieu of the issuance of fractional shares in connection with the exercise of warrants, options or other securities convertible into or exchangeable for Capital Stock of Sunoco LP;
|
|
(9)
|
any purchases, redemptions or other acquisitions or retirements for value of Equity Interests made in lieu of withholding taxes in connection with any exercise or exchange of warrants, options or rights to acquire
Equity Interests;
|
|
(10)
|
the repurchase, redemption or other acquisition or redemption or other acquisition or retirement for value of any
subordinated Indebtedness pursuant to provisions similar to those described under Repurchase at the Option of HoldersChange of Control and Repurchase at the Option of HoldersAsset Sales;
provided
that prior to such repurchase, redemption or other acquisition
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49
|
Sunoco LP (or a third party to the extent permitted by the Indenture) shall have made a Change of Control Offer or Asset Sale Offer, as the case may be, with respect to the notes and shall
have repurchased all notes properly tendered and not withdrawn in connection with such Change of Control or Asset Sale Offer; or
|
|
(11)
|
in connection with an acquisition by Sunoco LP or any of its Restricted Subsidiaries, the return to Sunoco LP or any of its Restricted Subsidiaries of Equity Interests of Sunoco LP or its Restricted
Subsidiaries constituting a portion of the purchase consideration in settlement of indemnification claims.
|
The amount of
all Restricted Payments (other than cash) will be the Fair Market Value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by Sunoco LP or such Restricted Subsidiary, as the case may be,
pursuant to the Restricted Payment. The Fair Market Value of any assets or securities that are required to be valued by this covenant will be determined, in the case of amounts $50.0 million or more, by the Board of Directors of the General
Partner, whose resolution with respect thereto shall be delivered to the trustee. For the purposes of determining compliance with this Restricted Payments covenant, if a Restricted Payment meets the criteria of more than one of the
categories of Restricted Payments described in the preceding clauses (1)(11), Sunoco LP will be permitted to classify (or reclassify in whole or in part in its sole discretion) such Restricted Payment in any manner that complies with
this covenant.
Incurrence of Indebtedness and Issuance of Disqualified Equity
Sunoco LP will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, incur) any Indebtedness (including Acquired Debt), and Sunoco LP will not, and will not permit any of its
Restricted Subsidiaries to, issue any Disqualified Equity;
provided
,
however
, that Sunoco LP and any Restricted Subsidiary may incur Indebtedness (including Acquired Debt) and Sunoco LP and the Restricted Subsidiaries may
issue Disqualified Equity, if the Fixed Charge Coverage Ratio for Sunoco LPs most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Equity is issued, as the case may be, would have been at least 2.0 to 1.0, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred or the Disqualified Equity had been issued, as the case may be, at the beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of any of the following items of Indebtedness (collectively,
Permitted Debt) or the issuance of any Disqualified Equity described in clause (11) below:
|
(1)
|
the incurrence by Sunoco LP and any Restricted Subsidiary of additional Indebtedness (including letters of credit) under one or more Credit Facilities,
provided
that, after giving effect to such incurrence,
the aggregate principal amount of all Indebtedness incurred under this clause (1) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of Sunoco LP and its Restricted Subsidiaries
thereunder) and then outstanding does not exceed the greater of (a) $1,500.0 million and (b) the sum of $1,200.0 million and 25.0% of Sunoco LPs Consolidated Net Tangible Assets;
|
|
(2)
|
the incurrence by Sunoco LP and its Restricted Subsidiaries of the Existing Indebtedness;
|
|
(3)
|
the incurrence by Sunoco LP, Finance Corp. and the Guarantors of Indebtedness represented by the notes issued on the date of the Indenture, any notes issued in exchange for other notes pursuant to the terms of a
registration rights agreement, and the Note Guarantees;
|
|
(4)
|
the incurrence by Sunoco LP or any of its Restricted Subsidiaries of Indebtedness represented by Capital
Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement
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50
|
of property, plant or equipment used in the business of Sunoco LP or any of its Restricted Subsidiaries, including all Permitted Refinancing Indebtedness incurred to renew, refund,
refinance, replace, defease or discharge any Indebtedness incurred pursuant to this clause (4),
provided
that after giving effect to such incurrence the aggregate principal amount of all Indebtedness incurred pursuant to this
clause (4) and then outstanding does not exceed the greater of (a) $45.0 million and (b) 3.5% of Sunoco LPs Consolidated Net Tangible Assets;
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|
(5)
|
the incurrence by Sunoco LP or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, defease or
discharge, any Indebtedness (other than intercompany Indebtedness) that was permitted by the Indenture to be incurred under the first paragraph of this covenant or clauses (2) or (3) of this paragraph or this clause (5);
|
|
(6)
|
the incurrence by Sunoco LP or any of its Restricted Subsidiaries of intercompany Indebtedness between or among Sunoco LP and any of its Restricted Subsidiaries;
provided
,
however
, that:
|
|
(a)
|
if Sunoco LP or any Guarantor is the obligor on such Indebtedness and the payee is not Sunoco LP or a Guarantor, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all
Obligations then due with respect to the notes, in the case of Sunoco LP, or the Note Guarantee, in the case of a Guarantor; and
|
|
(b)
|
(i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than Sunoco LP or a Restricted Subsidiary of Sunoco LP and (ii) any sale
or other transfer of any such Indebtedness to a Person that is not either Sunoco LP or a Restricted Subsidiary of Sunoco LP, will be deemed, in each case, to constitute an incurrence of such Indebtedness by Sunoco LP or such
Restricted Subsidiary, as the case may be, that was not permitted by this clause (6);
|
|
(7)
|
the incurrence by Sunoco LP or any of its Restricted Subsidiaries of Hedging Obligations incurred in the ordinary course of business and not for speculative purposes;
|
|
(8)
|
the guarantee by Sunoco LP or any of its Restricted Subsidiaries of Indebtedness of Sunoco LP or a Restricted Subsidiary of Sunoco LP that was permitted to be incurred by another provision of this
covenant;
provided
that if the Indebtedness being guaranteed is subordinated to or
pari passu
with the notes, then the guarantee shall be subordinated or
pari passu
, as applicable, to the same extent as the Indebtedness
guaranteed;
|
|
(9)
|
the incurrence by Sunoco LP or any of its Restricted Subsidiaries of obligations relating to net gas balancing positions arising in the ordinary course of business and consistent with past practice;
|
|
(10)
|
the incurrence by Sunoco LP or any of its Restricted Subsidiaries of Acquired Debt in connection with a transaction meeting either one of the financial tests set forth in clause (4) under the caption
Merger, Consolidation or Sale of Assets;
|
|
(11)
|
the issuance by any of Sunoco LPs Restricted Subsidiaries to Sunoco LP or to any of its Restricted Subsidiaries of any Disqualified Equity;
provided
,
however
, that:
|
|
(a)
|
any subsequent issuance or transfer of Equity Interests that results in any such Disqualified Equity being held by a Person other than Sunoco LP or a Restricted Subsidiary of Sunoco LP; and
|
|
(b)
|
any sale or other transfer of any such Disqualified Equity to a Person that is not either Sunoco LP or a Restricted Subsidiary of Sunoco LP
|
will be deemed, in each case, to constitute an issuance of such Disqualified Equity by such Restricted Subsidiary that was not permitted by
this clause (11);
|
(12)
|
the incurrence by Sunoco LP or any of its Restricted Subsidiaries of liability in respect of the
Indebtedness of any Unrestricted Subsidiary of Sunoco LP or any Joint Venture but only to the extent that such liability is the result of Sunoco LPs or any such Restricted Subsidiarys being a general partner of such
Unrestricted Subsidiary or Joint Venture and not as guarantor of such Indebtedness and
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51
|
provided
that, after giving effect to any such incurrence, the aggregate principal amount of all Indebtedness incurred under this clause (12) and then outstanding does not exceed
$50.0 million; and
|
|
(13)
|
the incurrence by Sunoco LP or any of its Restricted Subsidiaries of additional Indebtedness;
provided
that, after giving effect to any such incurrence, the aggregate principal amount of all Indebtedness
incurred under this clause (13) and then outstanding does not exceed the greater of (a) $60.0 million and (b) 5.0% of Sunoco LPs Consolidated Net Tangible Assets.
|
Sunoco LP will not incur, and will not permit Finance Corp. or any Guarantor to incur, any Indebtedness (including Permitted Debt) that
is contractually subordinated in right of payment to any other Indebtedness of Sunoco LP, Finance Corp. or such Guarantor unless such Indebtedness is also contractually subordinated in right of payment to the notes and the applicable Note
Guarantee on substantially identical terms;
provided
,
however
, that no Indebtedness of a Person will be deemed to be contractually subordinated in right of payment to any other Indebtedness of such Person solely by virtue of being
unsecured or by virtue of being secured on a first or junior Lien basis.
For purposes of determining compliance with this
Incurrence of Indebtedness and Issuance of Disqualified Equity covenant, if an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through
(13) above, or is entitled to be incurred pursuant to the first paragraph of this covenant, Sunoco LP will be permitted to classify such item of Indebtedness on the date of its incurrence, or later reclassify all or a portion of such item
of Indebtedness, in any manner that complies with this covenant. Indebtedness under Credit Facilities outstanding on the date on which notes are first issued and authenticated under the Indenture will initially be deemed to have been incurred on
such date in reliance on the exception provided by clause (1) of the definition of Permitted Debt. The accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, the reclassification of preferred stock as Indebtedness due to a change in accounting principles, and the payment of dividends on Disqualified Equity in the form of additional shares of the same class of
Disqualified Equity will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Equity for purposes of this covenant;
provided
,
however
, in each such case, that the amount of any such accrual, accretion or
payment is included in Fixed Charges of Sunoco LP as accrued. Notwithstanding any other provision of this covenant, the maximum amount of Indebtedness that Sunoco LP or any Restricted Subsidiary may incur pursuant to this covenant shall
not be deemed to be exceeded solely as a result of fluctuations in exchange rates or currency values.
Liens
Sunoco LP will not and will not permit any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause to exist or become
effective any Lien of any kind (other than Permitted Liens) securing Indebtedness (including any Attributable Debt) upon any of their property or assets, now owned or hereafter acquired, unless all payments due under the notes and the Note
Guarantees are secured on an equal and ratable basis or on a senior basis with the obligations so secured until such time as such obligations are no longer secured by a Lien (other than Permitted Liens).
Dividend and Other Payment Restrictions Affecting Subsidiaries
Sunoco LP will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to:
|
(1)
|
pay dividends or make any other distributions on its Equity Interests to Sunoco LP or any of its Restricted Subsidiaries or to pay any indebtedness owed to Sunoco LP or any of its Restricted Subsidiaries;
|
|
(2)
|
make loans or advances to Sunoco LP or any of its Restricted Subsidiaries; or
|
|
(3)
|
sell, lease or transfer any of its properties or assets to Sunoco LP or any of its Restricted Subsidiaries.
|
52
The preceding restrictions will not, however, apply to encumbrances or restrictions existing
under or by reason of:
|
(1)
|
agreements as in effect on the date of the Indenture and any amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings of those agreements or the Indebtedness to which they
relate;
provided
that the amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend, distribution and other
payment restrictions than those contained in those agreements on the date of the Indenture;
|
|
(2)
|
the Indenture, the notes and the Note Guarantees;
|
|
(3)
|
applicable law, rule, regulation, order, licenses, permits or similar governmental, judicial or regulatory restriction;
|
|
(4)
|
any instrument governing Indebtedness or Equity Interests of a Person acquired by Sunoco LP or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness
or Equity Interests were incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or
assets of the Person, so acquired;
provided
,
however
, that, in the case of Indebtedness, the incurrence thereof was otherwise permitted by the terms of the Indenture;
|
|
(5)
|
customary non-assignment provisions in contracts for purchase, gathering, processing, sale, transportation or exchange of crude oil, natural gas liquids, condensate and natural gas, natural gas storage agreements,
transportation agreements or purchase and sale or exchange agreements, pipeline or terminaling agreements, or similar operational agreements or in licenses or leases, in each case entered into in the ordinary course of business;
|
|
(6)
|
purchase money obligations for property acquired in the ordinary course of business and Capital Lease Obligations that impose restrictions on the property purchased or leased of the nature described in clause (3)
of the preceding paragraph;
|
|
(7)
|
any agreement for the sale or other disposition of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending its sale or other disposition;
|
|
(8)
|
Permitted Refinancing Indebtedness;
provided
that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced;
|
|
(9)
|
Liens permitted to be incurred under the provisions of the covenant described above under the caption Liens that limit the right of the debtor to dispose of the assets subject to such Liens;
|
|
(10)
|
provisions limiting the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements, buy/sell agreements and other similar
agreements entered into in the ordinary course of business;
|
|
(11)
|
any agreement or instrument relating to any property or assets acquired after the date of the Indenture, so long as such encumbrance or restriction relates only to the property or assets so acquired and is not and was
not created in anticipation of such acquisitions;
|
|
(12)
|
restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; and
|
|
(13)
|
Hedging Obligations incurred in the ordinary course of business and not for speculative purposes from time to time.
|
53
Merger, Consolidation or Sale of Assets
Neither of the Issuers may, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not such Issuer is
the surviving entity); or (2) sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the properties or assets of Sunoco LP and its Subsidiaries, taken as a whole, in one or more related transactions, to
another Person, unless:
|
(1)
|
either: (a) such Issuer is the surviving entity; or (b) the Person formed by or surviving any such consolidation or merger (if other than such Issuer) or to which such sale, assignment, transfer, lease,
conveyance or other disposition has been made is a Person organized or existing under the laws of the United States, any state of the United States or the District of Columbia;
provided
,
however
, that Finance Corp. may not consolidate
or merge with or into any Person other than a corporation satisfying such requirement so long as Sunoco LP is not a corporation;
|
|
(2)
|
the Person formed by or surviving any such consolidation or merger (if other than such Issuer) or the Person to which such sale, assignment, transfer, lease, conveyance or other disposition has been made assumes all the
obligations of such Issuer under the notes and the Indenture pursuant to agreements reasonably satisfactory to the trustee;
|
|
(3)
|
immediately after such transaction, no Default or Event of Default exists;
|
|
(4)
|
in the case of a transaction involving Sunoco LP and not Finance Corp., Sunoco LP or the Person formed by or surviving any such consolidation or merger (if other than Sunoco LP), or to which such sale,
assignment, transfer, lease, conveyance or other disposition has been made will either:
|
|
(a)
|
be, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption Incurrence of Indebtedness and Issuance of Disqualified
Equity; or
|
|
(b)
|
have a Fixed Charge Coverage Ratio, on the date of such transaction and after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable
four-quarter period, not less than the Fixed Charge Coverage Ratio of Sunoco LP immediately prior to such transaction; and
|
|
(5)
|
such Issuer has delivered to the trustee an officers certificate and an opinion of counsel, each stating that such consolidation, merger or disposition and such supplemental indenture (if any) comply with the
Indenture and all conditions precedent therein relating to such transaction have been satisfied;
|
provided
that clauses (3) and
(4) shall not apply to any sale of assets of a Restricted Subsidiary to Sunoco LP or another Restricted Subsidiary or the merger or consolidation of a Restricted Subsidiary into any Restricted Subsidiary or Sunoco LP.
Notwithstanding the preceding paragraph, Sunoco LP is permitted to reorganize as any other form of entity in accordance with the
procedures established in the Indenture;
provided
that:
|
(1)
|
the reorganization involves the conversion (by merger, sale, legal conversion, contribution or exchange of assets or otherwise) of Sunoco LP into a form of entity other than a limited partnership formed under
Delaware law;
|
|
(2)
|
the entity so formed by or resulting from such reorganization is an entity organized or existing under the laws of the United States, any state thereof or the District of Columbia;
|
|
(3)
|
the entity so formed by or resulting from such reorganization assumes all the obligations of Sunoco LP under the notes and the Indenture pursuant to agreements reasonably satisfactory to the trustee;
|
|
(4)
|
immediately after such reorganization no Default or Event of Default exists; and
|
|
(5)
|
such reorganization is not materially adverse to the holders of notes (for purposes of this clause (5) it is
stipulated that such reorganization shall not be considered materially adverse to the holders of notes
|
54
|
solely because the successor or survivor of such reorganization (a) is subject to federal or state income taxation as an entity or (b) is considered to be an includible
corporation of an affiliated group of corporations within the meaning of Section 1504(b)(i) of the Code or any similar state or local law).
|
Upon compliance with the foregoing requirements with respect to any consolidation or merger or any sale, assignment, transfer, conveyance,
lease or other disposition of all or substantially all of the properties or assets of an Issuer in accordance with the foregoing in which such Issuer is not the surviving entity, the surviving Person formed by such consolidation or into or with
which such Issuer is merged or to which such sale, assignment, transfer, conveyance, lease or other disposition is made shall succeed to, and be substituted for, and may exercise every right and power of, such Issuer under the indenture with the
same effect as if such surviving Person had been named as such Issuer in the indenture, and thereafter (except in the case of a lease of all or substantially all of such Issuers properties or assets), such Issuer will be relieved of all
obligations and covenants under the indenture and the notes.
A Guarantor may not sell or otherwise dispose of all or substantially all of
its properties or assets to, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another Person, other than Sunoco LP or another Guarantor, unless it complies with the alternative conditions
described above under Note Guarantees.
Although there is a limited body of case law interpreting the phrase
substantially all, there is no precise established definition of the phrase under applicable law. Accordingly, there may be uncertainty as to whether a particular transaction would involve all or substantially all of the
properties or assets of a Person.
Transactions with Affiliates
Sunoco LP will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of
Sunoco LP (each, an Affiliate Transaction), unless:
|
(1)
|
the Affiliate Transaction is on terms that are no less favorable to Sunoco LP or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by Sunoco LP or such
Restricted Subsidiary with an unrelated Person; and
|
|
(2)
|
with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $50.0 million, Sunoco LP delivers to the trustee a resolution of the Board
of Directors of the General Partner set forth in an officers certificate certifying that such Affiliate Transaction or series of related Affiliate Transactions complies with clause (1) of this covenant and that such Affiliate Transaction
has been approved by a majority of the members of the Board of Directors of the General Partner meeting the independence standards prescribed by the exchange upon which Sunoco LPs common units representing limited partner interests in
Sunoco LP are listed for trading.
|
The following items will not be deemed to be Affiliate Transactions and, therefore,
will not be subject to the provisions of the prior paragraph:
|
(1)
|
any employment agreement, equity award, equity option or equity appreciation agreement or plan or any similar arrangement entered into by Sunoco LP or any of its Restricted Subsidiaries in the ordinary course of
business and payments pursuant thereto;
|
|
(2)
|
transactions between or among Sunoco LP and/or its Restricted Subsidiaries;
|
|
(3)
|
transactions with a Person (other than an Unrestricted Subsidiary of Sunoco LP) that is an Affiliate of Sunoco LP solely because Sunoco LP owns, directly or through a Restricted Subsidiary, an Equity
Interest in, or controls, such Person;
|
|
(4)
|
any issuance of Equity Interests (other than Disqualified Equity) of Sunoco LP to Affiliates of Sunoco LP;
|
55
|
(5)
|
Restricted Payments or Permitted Investments that do not violate the provisions of the Indenture described above under the caption Restricted Payments;
|
|
(6)
|
customary compensation, indemnification and other benefits made available to officers, directors or employees of Sunoco LP, a Restricted Subsidiary of Sunoco LP or the General Partner, including reimbursement
or advancement of out-of-pocket expenses and provisions of officers and directors liability insurance;
|
|
(7)
|
in the case of contracts for purchase, sale, transportation and marketing of crude oil, natural gas, condensate and natural gas liquids, hedging agreements, and handling, storage, or other operational contracts, any
such contracts are entered into in the ordinary course of business on terms substantially similar to those contained in similar contracts entered into by Sunoco LP or any of its Restricted Subsidiaries and third parties, or if neither
Sunoco LP nor any of its Restricted Subsidiaries has entered into a similar contract with a third party, that the terms are no less favorable than those available from third parties on an arms length basis, as determined by the Board of
Directors of the General Partner;
|
|
(8)
|
loans or advances to employees in the ordinary course of business not to exceed $2.5 million in the aggregate at any one time outstanding;
|
|
(9)
|
transactions effected in accordance with the terms of (a) the Partnership Agreement, (b) the Contribution Agreement, dated September 25, 2012, by and among Susser Petroleum Partners LP, Susser Petroleum Partners GP LLC,
Susser Holdings Corporation, Susser Holdings, L.L.C., Stripes LLC and Susser Petroleum Company LLC, (c) the Omnibus Agreement, dated September 25, 2012, by and among Susser Petroleum Partners LP, Susser Petroleum Partners GP LLC and Susser Holdings
Corporation, (d) the Transportation Agreement, dated September 25, 2012, between Susser Petroleum Operating Company LLC and Susser Petroleum Company LLC, (e) the Fuel Distribution Agreement, dated September 25, 2012, by and among Susser Petroleum
Operating Company LLC, Susser Holdings Corporation, Stripes LLC and Susser Petroleum Company LLC, (f) the Contribution Agreement, dated September 25, 2014, by and among Sunoco LP, Mid-Atlantic Convenience Stores, LLC, ETC M-A Acquisition LLC and
Energy Transfer Partners, L.P. (
ETP
), (g) the Contribution Agreement, dated March 23, 2015, by and among Sunoco LP, Sunoco LLC, ETP Retail and ETP, (h) the Contribution Agreement, dated July 14, 2015, by and among Sunoco LP,
Susser, Heritage Holdings, Inc., ETP Holdco Corporation, the General Partner and ETP, (i) the Contribution Agreement, dated November 15, 2015, by and among Sunoco LP, Sunoco LLC, Sunoco Inc., ETP Retail, the General Partner and ETP, and (j) each
other agreement in effect on the date of the Indenture that is described in the final Offering Memorandum of the Issuers dated April 1, 2015 (the 2023 Offering Memorandum), with respect to the 2023 Notes, and the final Offering
Memorandum of the Issuers dated April 4, 2016 (the 2021 Offering Memorandum), with respect to the 2021 Notes, as each such agreement is in effect on the date of the Indenture, and any amendment or extension of such agreement so long as
the terms of such amendment or extension, taken as a whole, are not less advantageous to Sunoco LP or the relevant Restricted Subsidiary (as determined by the Board of Directors of the General Partner in its reasonable good faith judgment) in
any material respect than the agreement so amended or extended; and
|
|
(10)
|
any transaction with respect to which Sunoco LP has obtained an opinion from an independent accounting, appraisal or investment banking firm of national standing to the effect that such transaction is fair from a
financial point of view to Sunoco LP and its Restricted Subsidiaries, as applicable.
|
Business Activities
Sunoco LP will not, and will not permit any of its Restricted Subsidiaries to, engage in any business other than Permitted Businesses,
except to such extent as would not be material to Sunoco LP and its Restricted Subsidiaries taken as a whole.
Finance Corp. will not
hold any material assets, become liable for any material obligations or engage in any significant business activities;
provided
that Finance Corp. may be a co-obligor or guarantor with respect to Indebtedness if Sunoco LP is an obligor
on such Indebtedness and the net proceeds of such Indebtedness are
56
received by Sunoco LP, Finance Corp. or one or more Guarantors. At any time after Sunoco LP is a corporation, Finance Corp. may consolidate or merge with or into Sunoco LP or any
Restricted Subsidiary.
Additional Guarantees
If, after the date of the Indenture, any Restricted Subsidiary of Sunoco LP that is not already a Guarantor guarantees any Indebtedness of
either of the Issuers or any Guarantor under a Credit Facility, or any Domestic Subsidiary, if not then a Guarantor, incurs any Indebtedness under any Credit Facility, then in either case that Subsidiary will become a Guarantor by executing a
supplemental indenture and delivering it to the trustee within 20 business days of the date on which it guaranteed or incurred such Indebtedness, as the case may be;
provided
,
however
, that the preceding shall not apply to Subsidiaries
of Sunoco LP that have been properly designated as Unrestricted Subsidiaries in accordance with the Indenture for so long as they continue to constitute Unrestricted Subsidiaries. Notwithstanding the preceding, any Note Guarantee of a
Restricted Subsidiary that was incurred pursuant to this paragraph as a result of its guarantee of any Indebtedness shall provide by its terms that it shall be automatically and unconditionally released upon the release or discharge of the guarantee
that resulted in the creation of such Restricted Subsidiarys Note Guarantee, except a discharge or release by, or as a result of payment under, such guarantee.
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors of the General Partner may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation
would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate Fair Market Value of all outstanding Investments owned by Sunoco LP and its Restricted Subsidiaries in the Subsidiary designated as
an Unrestricted Subsidiary will be deemed to be either an Investment made as of the time of the designation that will reduce the amount available for Restricted Payments under the covenant described above under the caption Restricted
Payments or a Permitted Investment under one or more clauses of the definition of Permitted Investments, as determined by Sunoco LP;
provided
that any designation will only be permitted if the Investment would be permitted at that
time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
Any designation of a Subsidiary of
Sunoco LP as an Unrestricted Subsidiary will be evidenced to the trustee by filing with the trustee a copy of a resolution of the Board of Directors of the General Partner giving effect to such designation and an officers certificate
certifying that such designation complied with the preceding conditions and was permitted by the covenant described above under the caption Restricted Payments. If, at any time, any Unrestricted Subsidiary would fail to meet the
preceding requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary will be deemed to be incurred by a Restricted Subsidiary of
Sunoco LP as of such date and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under the caption Incurrence of Indebtedness and Issuance of Disqualified Equity, Sunoco LP
will be in default of such covenant.
The Board of Directors of the General Partner may at any time designate any Unrestricted Subsidiary
to be a Restricted Subsidiary of Sunoco LP;
provided
that such designation will be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of Sunoco LP of any outstanding Indebtedness of such Unrestricted Subsidiary,
and such designation will only be permitted if (1) such Indebtedness is permitted under the covenant described under the caption Incurrence of Indebtedness and Issuance of Disqualified Equity, calculated on a pro forma basis
as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation.
Limitation on Sale and Leaseback Transactions
Sunoco LP will not, and will not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction;
provided
that Sunoco LP or any Restricted Subsidiary may enter into a sale and leaseback transaction if the transfer of assets in that sale and leaseback transaction is permitted by, and Sunoco LP or such
57
Restricted Subsidiary applies the proceeds of such transaction in compliance with, the covenant described above under the caption Repurchase at the Option of HoldersAsset
Sales.
Reports
Whether or not
required by the rules and regulations of the SEC, so long as any notes are outstanding, Sunoco LP will furnish (whether through hard copy or internet access) to the holders of notes or cause the trustee to furnish to the holders of notes,
within the time periods specified in the SECs rules and regulations:
|
(1)
|
all quarterly and annual reports that would be required to be filed with the SEC on Forms 10-Q and
10-K
if Sunoco LP were required to file such reports as a
non-accelerated filer; and
|
|
(2)
|
all current reports that would be required to be filed with the SEC on Form 8-K if Sunoco LP were required to file such reports.
|
All such reports will be prepared in all material respects in accordance with all of the rules and regulations applicable to such reports,
including Section 3-10 of Regulation S-X. Each annual report on Form 10-K will include a report on Sunoco LPs consolidated financial statements by Sunoco LPs independent registered public accounting firm. In
addition, Sunoco LP will file a copy of each of the reports referred to in clauses (1) and (2) above with the SEC for public availability within the time periods specified in the rules and regulations applicable to such reports
(unless the SEC will not accept such a filing) and will post the reports on its website within those time periods.
If, at any time
Sunoco LP is no longer subject to the periodic reporting requirements of the Exchange Act for any reason, Sunoco LP will nevertheless continue filing the reports specified in the preceding paragraphs of this covenant with the SEC within
the time periods specified above unless the SEC will not accept such a filing;
provided
that, for so long as Sunoco LP is not subject to the periodic reporting requirements of the Exchange Act for any reason, the time period for filing
reports on Form 8-K shall be 5 business days after the event giving rise to the obligation to file such report. Sunoco LP will not take any action for the purpose of causing the SEC not to accept any such filings. If, notwithstanding the
foregoing, the SEC will not accept Sunoco LPs filings for any reason, Sunoco LP will post the reports referred to in the preceding paragraphs on its website within the time periods that would apply if Sunoco LP were required to
file those reports with the SEC.
Sunoco LP will be deemed to have furnished such reports to the trustee and the holders of notes if
it has filed such reports with the SEC using the EDGAR filing system and such reports are publicly available.
Events of Default and
Remedies
Each of the following is an Event of Default with respect to each series of notes:
|
(1)
|
default for 30 days in the payment when due of interest on such notes;
|
|
(2)
|
default in the payment when due (at maturity, upon redemption or otherwise) of the principal of, or premium, if any, on, such notes;
|
|
(3)
|
failure by Sunoco LP or any Guarantor to (a) make a Change of Control Offer within the time periods set forth, or to consummate a purchase of such notes when required pursuant to the terms described, under the
caption Repurchase at the Option of HoldersChange of Control, (b) make an Asset Sale Offer within the time periods set forth, or to consummate a purchase of such notes when required pursuant to the terms described, under
the caption Repurchase at the Option of HoldersAsset Sales or (c) comply with the provisions described under the caption Certain CovenantsMerger, Consolidation or Sale of Assets;
provided
that, with respect to (b) and (c), such failure will not constitute an Event of Default for 30 days if such failure is capable of cure;
|
|
(4)
|
failure by Sunoco LP for 180 days after notice by the trustee or holders of 25% in aggregate principal amount of such notes outstanding to comply with the provisions described under Reports;
|
58
|
(5)
|
failure by Sunoco LP or any Guarantor for 60 days after written notice by the trustee or holders of 25% in aggregate principal amount of such notes outstanding to comply with any of its other agreements in the
Indenture;
|
|
(6)
|
default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by Sunoco LP or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by Sunoco LP or any of its Restricted Subsidiaries), whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, if that default:
|
|
(a)
|
is caused by a failure to pay principal of, or interest or premium, if any, on Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a Payment
Default); or
|
|
(b)
|
results in the acceleration of such Indebtedness prior to its express maturity, and
|
in each
case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $50.0 million or
more,
provided
,
however
, that if, prior to any acceleration of such notes, (i) any such Payment Default is cured or waived, (ii) any such acceleration is rescinded, or (iii) such Indebtedness is repaid during the 10
business day period commencing upon the end of any applicable grace period for such Payment Default or the occurrence of such acceleration, as applicable, any Default or Event of Default (but not any acceleration of such notes) caused by such
Payment Default or acceleration shall automatically be rescinded, so long as such rescission does not conflict with any judgment, decree or applicable law;
|
(7)
|
failure by an Issuer or any of Sunoco LPs Restricted Subsidiaries to pay final judgments entered by a court or courts of competent jurisdiction aggregating in excess of $50.0 million, which judgments are
not paid, discharged or stayed for a period of 60 days;
|
|
(8)
|
except as permitted by the Indenture, any Note Guarantee is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force and effect, or any Guarantor, or any Person acting
on behalf of any Guarantor, denies or disaffirms its Obligations under its Note Guarantee; and
|
|
(9)
|
certain events of bankruptcy or insolvency described in the Indenture with respect to Finance Corp., Sunoco LP or any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of its Restricted
Subsidiaries that, taken together, would constitute a Significant Subsidiary.
|
In the case of an Event of Default with
respect to a series of notes arising from certain events of bankruptcy or insolvency, with respect to Finance Corp., Sunoco LP or any Restricted Subsidiary of Sunoco LP that is a Significant Subsidiary or any group of Restricted
Subsidiaries of Sunoco LP that, taken together, would constitute a Significant Subsidiary, all outstanding notes of such series will become due and payable immediately without further action or notice. If any other Event of Default occurs and
is continuing, the trustee or the holders of at least 25% in aggregate principal amount of the then outstanding notes of any series may declare all the notes of such series to be due and payable immediately.
Subject to certain limitations, holders of a majority in aggregate principal amount of the then outstanding notes of any series may direct the
trustee in its exercise of any trust or power. The trustee may withhold from holders of notes notice of any continuing Default or Event of Default known to it if it determines that withholding notice is in their interest, except a Default or Event
of Default relating to the payment of principal, interest or premium, if any.
Subject to the provisions of the Indenture relating to the
duties of the trustee, in case an Event of Default occurs and is continuing, the trustee will be under no obligation to exercise any of the rights or powers under the
59
Indenture at the request or direction of any holders of notes unless such holders have offered to the trustee indemnity or security satisfactory to the trustee in its sole discretion against any
loss, liability or expense. No holder of a note may pursue any remedy with respect to the Indenture unless:
|
(1)
|
such holder has previously given the trustee notice that an Event of Default is continuing;
|
|
(2)
|
holders of at least 25% in aggregate principal amount of the then outstanding series of notes have requested the trustee to pursue the remedy;
|
|
(3)
|
such holders have offered the trustee security or indemnity satisfactory to the trustee in its sole discretion against any loss, liability or expense;
|
|
(4)
|
the trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity; and
|
|
(5)
|
holders of a majority in aggregate principal amount of the then outstanding series of notes have not given the trustee a direction inconsistent with such request within such 60-day period.
|
The holders of a majority in aggregate principal amount of the then outstanding series of notes by notice to the trustee may, on behalf of the
holders of all of the notes of such series rescind an acceleration or waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or premium, if
any, on, or the principal of, such notes.
The Issuers and the Guarantors are required to deliver to the trustee annually a statement
regarding compliance with the Indenture. Within ten business days of becoming aware of any Default or Event of Default, the Issuers and the Guarantors are required to deliver to the trustee a statement specifying such Default or Event of Default.
No Recourse to Trustee, General Partner or Personal Liability of Directors, Officers, Employees and Stockholders
None of the trustee, the General Partner or any director, officer, partner, member, employee, incorporator, manager or unit holder or other
owner of any Equity Interest of the trustee, General Partner, the Issuers or any Guarantor, as such, will have any liability for any obligations of the Issuers or the Guarantors under the notes, the Indenture, the Note Guarantees or for any claim
based on, in respect of, or by reason of, such obligations or their creation. Each holder of notes by accepting a note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the notes and the
Note Guarantees. The waiver may not be effective to waive liabilities under the federal securities laws.
Legal Defeasance and Covenant Defeasance
The Issuers may, at their option and at any time, elect to have all of the Issuers obligations discharged with respect to the
outstanding notes of any series and all Obligations of the Guarantors discharged with respect to their Note Guarantees (Legal Defeasance) except for:
|
(1)
|
the rights of holders of outstanding notes of such series to receive payments in respect of the principal of, or interest or premium, if any, on, such notes when such payments are due from the trust referred to below;
|
|
(2)
|
the Issuers obligations with respect to such notes concerning issuing temporary notes, registration of notes, mutilated, destroyed, lost or stolen notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
|
|
(3)
|
the rights, powers, trusts, duties and immunities of the trustee, and the Issuers and the Guarantors Obligations in connection therewith; and
|
|
(4)
|
the Legal Defeasance and Covenant Defeasance provisions of the Indenture.
|
60
In addition, Sunoco LP may, at its option and at any time, elect to have the obligations of
the Issuers released with respect to certain covenants (including Sunoco LPs obligation to make Change of Control Offers and Asset Sale Offers) that are described in the Indenture (Covenant Defeasance) and all Obligations of
the Guarantors with respect to their Note Guarantees discharged, and thereafter any omission to comply with those covenants or Note Guarantees will not constitute a Default or Event of Default. If Covenant Defeasance occurs, certain events (not
including non-payment and bankruptcy, receivership, rehabilitation and insolvency events relating to Sunoco LP) described under Events of Default and Remedies will no longer constitute an Event of Default.
In order to exercise either Legal Defeasance or Covenant Defeasance:
|
(1)
|
the Issuers must irrevocably deposit with the trustee, in trust, for the benefit of the holders of notes, cash in U.S. dollars, non-callable Government Securities, or a combination of cash in U.S. dollars and
non-callable Government Securities, in amounts as will be sufficient, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants, to pay the principal of, or interest and premium, if any, on
the outstanding notes on the stated date for payment thereof or on the applicable redemption date, as the case may be, and the Issuers must specify whether the notes are being defeased to such stated date for payment or to a particular redemption
date;
|
|
(2)
|
in the case of Legal Defeasance, the Issuers must deliver to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that (a) the Issuers have received from, or there has been published
by, the Internal Revenue Service a ruling or (b) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel will confirm that,
the holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred;
|
|
(3)
|
in the case of Covenant Defeasance, the Issuers must deliver to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that the holders of the outstanding notes will not recognize income, gain
or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not
occurred;
|
|
(4)
|
no Default or Event of Default has occurred and is continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit);
|
|
(5)
|
such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than the Indenture) to which Sunoco LP or any of
its Subsidiaries is a party or by which Sunoco LP or any of its Subsidiaries is bound;
|
|
(6)
|
the Issuers must deliver to the trustee an officers certificate stating that the deposit was not made by the Issuers with the intent of preferring the holders of notes over the other creditors of the Issuers with
the intent of defeating, hindering, delaying or defrauding any creditors of the Issuers or others; and
|
|
(7)
|
the Issuers must deliver to the trustee an officers certificate and an opinion of counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied
with.
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Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture, the notes of any series or the related Note Guarantees may be amended
or supplemented with the consent of the holders of at least a majority in aggregate principal amount of the notes of such series then outstanding (including consents obtained in connection with a purchase of, or tender offer or exchange offer for,
such notes), and any existing Default or
61
Event of Default or compliance with any provision of the Indenture or such notes or the Note Guarantees may be waived with the consent of the holders of a majority in aggregate principal amount
of the then outstanding notes of such series (including consents obtained in connection with a purchase of, or tender offer or exchange offer for, such notes).
Without the consent of each holder of notes affected, an amendment, supplement or waiver may not (with respect to any notes of such series
held by a non-consenting holder):
|
(1)
|
reduce the principal amount of notes whose holders must consent to an amendment, supplement or waiver;
|
|
(2)
|
reduce the principal of or change the fixed maturity of any note or alter the provisions with respect to the redemption or repurchase of the notes (other than provisions relating to the covenants described above under
the caption Repurchase at the Option of Holders);
|
|
(3)
|
reduce the rate of or change the time for payment of interest, including default interest, on any note;
|
|
(4)
|
waive a Default or Event of Default in the payment of principal of, or interest or premium, if any, on, the notes (except a rescission of acceleration of the notes by the holders of at least a majority in aggregate
principal amount of the then outstanding notes of a particular series and a waiver of the payment default that resulted from such acceleration);
|
|
(5)
|
make any note payable in money other than that stated in the notes;
|
|
(6)
|
make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of holders of notes to receive payments of principal of, or interest or premium, if any, on, the notes (other than as
permitted by clause (7) below);
|
|
(7)
|
waive a redemption or repurchase payment with respect to any note (other than a payment required by one of the covenants described above under the caption Repurchase at the Option of Holders);
|
|
(8)
|
release any Guarantor from any of its obligations under its Note Guarantee or the Indenture, except in accordance with the terms of the Indenture; or
|
|
(9)
|
make any change in the preceding amendment, supplement and waiver provisions.
|
Notwithstanding
the preceding, without the consent of any holder of notes of a particular series, the Issuers, the Guarantors and the trustee may amend or supplement the Indenture, the notes of such series or the Note Guarantees:
|
(1)
|
to cure any ambiguity, defect or inconsistency;
|
|
(2)
|
to provide for uncertificated notes in addition to or in place of certificated notes;
|
|
(3)
|
to provide for the assumption of an Issuers or a Guarantors obligations to holders of notes and Note Guarantees in the case of a merger or consolidation or sale of all or substantially all of such
Issuers or such Guarantors assets, as applicable;
|
|
(4)
|
to make any change that would provide any additional rights or benefits to the holders of notes or that does not adversely affect the legal rights under the Indenture of any such holder;
|
|
(5)
|
to comply with requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act;
|
|
(6)
|
to conform the text of the Indenture or the Note Guarantees to any provision of the section entitled Description of Notes in the 2023 Offering Memorandum, with respect to the 2023 Notes, and the 2021
Offering Memorandum, with respect to the 2021 Notes, to the extent that such text of the Indenture or Note Guarantee was intended to reflect such provision of such section;
|
|
(7)
|
to provide for the issuance of additional notes in accordance with the limitations set forth in the Indenture;
|
62
|
(8)
|
to allow any Guarantor to execute a supplemental indenture and/or a notation of a Note Guarantee with respect to the notes or to reflect the addition or release of a Note Guarantee in accordance with the Indenture;
|
|
(9)
|
to secure the notes and/or the Note Guarantees; or
|
|
(10)
|
to provide for the reorganization of Sunoco LP as any other form of entity, in accordance with the provisions described under Certain CovenantsMerger, Consolidation or Sale of Assets.
|
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect as to all notes issued thereunder (except as to surviving rights of
transfer or exchange of the notes and as otherwise specified in the Indenture), when:
|
(a)
|
all notes that have been authenticated, except lost, stolen or destroyed notes that have been replaced or paid and notes for whose payment money has been deposited in trust and thereafter repaid to the Issuers, have
been delivered to the trustee for cancellation; or
|
|
(b)
|
all notes that have not been delivered to the trustee for cancellation have become due and payable or will become due and payable within one year by reason of the mailing of a notice of redemption or otherwise and the
Issuers or any Guarantor has irrevocably deposited or caused to be deposited with the trustee as trust funds in trust solely for the benefit of the holders, cash in U.S. dollars, non-callable Government Securities, or a combination of cash in U.S.
dollars and non-callable Government Securities, in amounts as will be sufficient, without consideration of any reinvestment of interest, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public
accountants, to pay and discharge the entire Indebtedness on the notes not delivered to the trustee for cancellation for principal and premium, if any, and accrued interest to the date of fixed maturity or redemption;
|
|
(2)
|
no Default or Event of Default has occurred and is continuing on the date of the deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) and the deposit
will not result in a breach or violation of, or constitute a default under, any other instrument to which Sunoco LP or any Guarantor is a party or by which Sunoco LP or any Guarantor is bound;
|
|
(3)
|
the Issuers or any Guarantor has paid or caused to be paid all sums payable by it under the Indenture; and
|
|
(4)
|
the Issuers have delivered irrevocable instructions to the trustee under the Indenture to apply the deposited money toward the payment of the notes at fixed maturity or on the redemption date, as the case may be.
|
In addition, the Issuers must deliver an officers certificate and an opinion of counsel to the trustee stating that
all conditions precedent to satisfaction and discharge have been satisfied.
Concerning the Trustee
If the trustee becomes a creditor of the Issuers or any Guarantor, the Indenture limits the right of the trustee to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The trustee is permitted to engage in other transactions; however, if it acquires any conflicting interest (as defined in the Trust
Indenture Act) after a Default has occurred and is continuing, it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee or resign.
The Indenture provides that in case an Event of Default occurs and is continuing, the trustee will exercise such of the rights and powers
vested in it by the Indenture, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.
63
Governing Law
The Indenture, the notes and the Note Guarantees are governed by, and construed in accordance with, the laws of the State of New York.
Additional Information
Anyone who receives this prospectus may obtain a copy of the Indenture and the Partnership Agreement without charge by writing to
Sunoco LP at 8020 Park Lane, Suite 200, Dallas, Texas 75231, Attention: Chief Financial Officer.
Book-Entry, Delivery and Form
The notes will be issued in registered global form (the Global Notes). The Global Notes will be deposited upon issuance
with the trustee as custodian for DTC and registered in the name of DTCs nominee, Cede & Co., in each case for credit to an account of a direct or indirect participant in DTC as described below. Beneficial interests in the Global
Notes may be held through the Euroclear System (Euroclear) and Clearstream Banking, S.A. (Clearstream) (as indirect participants in DTC).
The Global Notes may be transferred, in whole but not in part, only to another nominee of DTC or to a successor of DTC or its nominee.
Beneficial interests in the Global Notes may not be exchanged for notes in registered, certificated form (Certificated Notes) except in the limited circumstances described below. Read Exchange of Global Notes for Certificated
Notes.
In addition, transfers of beneficial interests in the Global Notes will be subject to the applicable rules and procedures of
DTC and its direct or indirect participants (including, if applicable, those of Euroclear and Clearstream), which may change from time to time.
Depository Procedures
The
following description of the operations and procedures of DTC, Euroclear and Clearstream are provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are
subject to changes by them. The Issuers take no responsibility for these operations and procedures and urge investors to contact the system or their participants directly to discuss these matters.
DTC has advised the Issuers that DTC is a limited-purpose trust company created to hold securities for its participating organizations
(collectively, the Participants) and to facilitate the clearance and settlement of transactions in those securities between the Participants through electronic book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the initial purchasers of each series of notes), banks, trust companies, clearing corporations and certain other organizations. Access to DTCs system is also available to other entities such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the Indirect Participants). Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interests in, and transfers of ownership interests in, each security held by or on behalf of DTC are recorded on the records of the
Participants and Indirect Participants.
DTC has also advised the Issuers that, pursuant to procedures established by it:
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(1)
|
upon deposit of the Global Notes, DTC will credit the accounts of the Participants by or through whom purchases are made with portions of the principal amount of the Global Notes; and
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(2)
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ownership of these interests in the Global Notes will be shown on, and the transfer of ownership of these interests will be effected only through, records maintained by DTC (with respect to the Participants) or by the
Participants and the Indirect Participants (with respect to other owners of beneficial interests in the Global Notes).
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Investors in the Global Notes who are Participants in DTCs system may hold their interests therein directly through DTC. Investors in
the Global Notes who are not Participants may hold their interests therein indirectly through organizations (including Euroclear and Clearstream) which are Participants in such system. Euroclear and Clearstream may hold interests in the Global Notes
on behalf of their participants through customers securities accounts in their respective names on the books of their respective depositories, which are Euroclear Bank S.A./N.V., as operator of Euroclear, and Citibank, N.A., as operator of
Clearstream. All interests in a Global Note, including those held through Euroclear or Clearstream, may be subject to the procedures and requirements of DTC. Those interests held through Euroclear or Clearstream may also be subject to the procedures
and requirements of such systems. The laws of some states require that certain Persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in a Global Note to such Persons
will be limited to that extent. Because DTC can act only on behalf of the Participants, which in turn act on behalf of the Indirect Participants, the ability of a Person having beneficial interests in a Global Note to pledge such interests to
Persons that do not participate in the DTC system, or otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests.
Except as described below, owners of interests in the Global Notes will not have notes registered in their names, will not receive physical
delivery of notes in certificated form and will not be considered the registered owners or holders thereof under the Indenture for any purpose.
Payments in respect of the principal of, and interest and premium, if any, on, a Global Note registered in the name of DTC or its nominee will
be payable to DTC in its capacity as the registered holder under the Indenture. Under the terms of the Indenture, the Issuers and the trustee will treat the Persons in whose names the notes, including the Global Notes, are registered as the owners
of the notes for the purpose of receiving payments and for all other purposes. Consequently, neither the Issuers, the trustee nor any agent of the Issuers or the trustee has or will have any responsibility or liability for:
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(1)
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any aspect of DTCs records or any Participants or Indirect Participants records relating to or payments made on account of beneficial ownership interests in the Global Notes or for maintaining,
supervising or reviewing any of DTCs records or any Participants or Indirect Participants records relating to the beneficial ownership interests in the Global Notes; or
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(2)
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any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants.
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DTC has advised the Issuers that its current practice, at the due date of any payment in respect of securities such as the notes (including
principal and interest), is to credit the accounts of the relevant Participants with the payment on the payment date unless DTC has reason to believe that it will not receive payment on such payment date. Each relevant Participant is credited with
an amount proportionate to its beneficial ownership of an interest in the principal amount of the relevant security as shown on the records of DTC. Payments by the Participants and the Indirect Participants to the beneficial owners of notes will be
governed by standing instructions and customary practices and will be the responsibility of the Participants or the Indirect Participants and will not be the responsibility of DTC, the trustee or the Issuers. Neither the Issuers nor the trustee will
be liable for any delay by DTC or any of the Participants or the Indirect Participants in identifying the beneficial owners of the notes, and the Issuers and the trustee may conclusively rely on and will be protected in relying on instructions from
DTC or its nominee for all purposes.
Transfers between the Participants in DTC will be effected in accordance with DTCs procedures,
and will be settled in same-day funds, and transfers between participants in Euroclear and Clearstream will be effected in
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accordance with their respective rules and operating procedures. Subject to compliance with the transfer restrictions applicable to the notes described herein, cross-market transfers between the
Participants in DTC, on the one hand, and Euroclear or Clearstream participants, on the other hand, will be effected through DTC in accordance with DTCs rules on behalf of Euroclear or Clearstream, as the case may be, by its depository;
however, such cross-market transactions will require delivery of instructions to Euroclear or Clearstream, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or Clearstream, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its depository to take action to effect final settlement on its behalf by delivering or
receiving interests in the relevant Global Note in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Clearstream participants may not deliver
instructions directly to the depositories for Euroclear or Clearstream.
DTC has advised the Issuers that it will take any action
permitted to be taken by a holder of notes only at the direction of one or more Participants to whose account DTC has credited the interests in the Global Notes and only in respect of such portion of the aggregate principal amount of the notes as to
which such Participant or Participants has or have given such direction. However, if there is an Event of Default under the notes, DTC reserves the right to exchange the Global Notes for notes in certificated form, and to distribute such notes to
its Participants.
Although DTC, Euroclear and Clearstream have agreed to the foregoing procedures to facilitate transfers of interests in
the Global Notes among participants in DTC, Euroclear and Clearstream, they are under no obligation to perform or to continue to perform such procedures, and may discontinue such procedures at any time. Neither the Issuers nor the trustee nor any of
their respective agents will have any responsibility for the performance by DTC, Euroclear or Clearstream or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their
operations.
Exchange of Global Notes for Certificated Notes
A Global Note is exchangeable for Certificated Notes if:
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(1)
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DTC (a) notifies the Issuers that it is unwilling or unable to continue as depositary for the Global Note or (b) has ceased to be a clearing agency registered under the Exchange Act and, in either case, the
Issuers fail to appoint a successor depositary within 90 days; or
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(2)
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there has occurred and is continuing an Event of Default and DTC notifies the trustee of its decision to exchange the Global Note for Certificated Notes.
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Beneficial interests in a Global Note may also be exchanged for Certificated Notes in the other limited circumstances permitted by the
indenture, including if an affiliate of ours acquires such interests. In all cases, Certificated Notes delivered in exchange for any Global Note or beneficial interests in Global Notes will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the depositary (in accordance with its customary procedures).
Exchange of Certificated
Notes for Global Notes
Certificated Notes may not be exchanged for beneficial interests in any Global Note.
Certain Definitions
Set
forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all defined terms used therein, as well as any other capitalized terms used herein for which no definition is provided.
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2021 Notes Issue Date
means April 7, 2016, the date of the original issue of
the 2021 Notes.
2023 Notes Issue Date
means April 1, 2015, the date of original issue of the 2023 Notes.
2021 Notes
Applicable Premium
means with respect to any 2021 note on any redemption date, an amount equal to the
greater of:
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(1)
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1.0% of the principal amount of the 2021 note; or
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(a)
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the present value at such redemption date of (i) the redemption price of the 2021 note at April 15, 2018 (such redemption price being set forth in the table under the caption Optional
Redemption2021 Notes) plus (ii) all required interest payments due on the 2021 note through April 15, 2018 (in each case excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the
Treasury Rate as of such redemption date plus 50 basis points; over
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(b)
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the principal amount of the 2021 note.
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2023 Notes
Applicable
Premium
means with respect to any 2023 note on any redemption date, an amount equal to the greater of:
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(1)
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1.0% of the principal amount of the 2023 note; or
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(a)
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the present value at such redemption date of (i) the redemption price of the 2023 note at April 1, 2018 (such redemption price being set forth in the table under the caption Optional
Redemption2023 Notes) plus (ii) all required interest payments due on the 2023 note through April 1, 2018 (in each case excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the
Treasury Rate as of such redemption date plus 50 basis points; over
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(b)
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the principal amount of the 2023 note.
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Acquired Debt
means, with respect
to any specified Person:
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(1)
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Indebtedness of any other Person existing at the time such other Person is merged with or into or becomes a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in
contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person, but excluding Indebtedness which is extinguished, retired or repaid in connection with such Person merging with or becoming a Subsidiary of
such specified Person; and
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(2)
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Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.
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Affiliate
of any specified Person means any other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person. For purposes of this definition, control, as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of
the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise;
provided
that beneficial ownership of 10% or more of the Voting Stock of a Person will be deemed to be control. For
purposes of this definition, the terms controlling, controlled by and under common control with have correlative meanings.
Asset Sale
means:
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(1)
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the sale, lease, conveyance or other disposition of any properties or assets;
provided
,
however
,
that the sale, lease, conveyance or other disposition of all or substantially all of the properties or assets of
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Sunoco LP and its Subsidiaries taken as a whole will be governed by the provisions of the Indenture described above under the caption Repurchase at the Option of
HoldersChange of Control and/or the provisions described above under the caption Certain CovenantsMerger, Consolidation or Sale of Assets and not by the provisions of the Asset Sale covenant; and
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(2)
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the issuance of Equity Interests in any of Sunoco LPs Restricted Subsidiaries or the sale of Equity Interests in any of its Restricted Subsidiaries.
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Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale:
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(1)
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any single transaction or series of related transactions that involves properties or assets having a Fair Market Value of less than $25.0 million;
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(2)
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a transfer of properties or assets between or among Sunoco LP and its Restricted Subsidiaries;
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(3)
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an issuance or sale of Equity Interests by a Restricted Subsidiary of Sunoco LP to Sunoco LP or to a Restricted Subsidiary of Sunoco LP;
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(4)
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the sale or lease of products, services or accounts receivable in the ordinary course of business and any sale or other disposition of damaged, worn-out or obsolete properties or assets in the ordinary course of
business;
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(5)
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the sale or other disposition of cash or Cash Equivalents, Hedging Obligations or other financial instruments in the ordinary course of business;
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(6)
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a Restricted Payment that does not violate the covenant described above under the caption Certain CovenantsRestricted Payments or a Permitted Investment;
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(7)
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any trade or exchange by Sunoco LP or any Restricted Subsidiary of Sunoco LP of properties or assets of any type for properties or assets of any type owned or held by another Person, including any disposition
of some but not all of the Equity Interests of a Restricted Subsidiary of Sunoco LP in exchange for assets or properties and after which the Person whose Equity Interests have been so disposed of continues to be a Restricted Subsidiary,
provided
that the Fair Market Value of the properties or assets traded or exchanged by Sunoco LP or such Restricted Subsidiary (together with any cash or Cash Equivalents and liabilities assumed) is reasonably equivalent to the Fair
Market Value of the properties or assets (together with any cash or Cash Equivalents and liabilities assumed) to be received by Sunoco LP or such Restricted Subsidiary; and
provided further
that any cash received must be applied in
accordance with the provisions described above under the caption Repurchase at the Option of HoldersAsset Sales; and
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(8)
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the creation or perfection of a Lien that is not prohibited by the covenant described above under the caption Certain CovenantsLiens, and any disposition in connection with a Permitted Lien.
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Asset Sale Offer
has the meaning assigned to that term under Repurchase at the Option of
HoldersAsset Sales.
Attributable Debt
in respect of a sale and leaseback transaction means, at the time of
determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at
the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP;
provided
,
however
, that, if such sale
and leaseback transaction results in a Capital Lease Obligation, the amount of Indebtedness represented thereby will be determined in accordance with the definition of Capital Lease Obligation.
Available Cash
has the meaning assigned to such term in the Partnership Agreement, as in effect on the date of the
Indenture.
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Beneficial Owner
has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that, in calculating the beneficial ownership of any particular person (as that term is used in Section 13(d)(3) of the Exchange Act), such person will be deemed to have
beneficial ownership of all securities that such person has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms
Beneficially Owns and Beneficially Owned have a corresponding meaning.
Board of Directors
means:
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(1)
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with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board;
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(2)
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with respect to a partnership, the board of directors or board of managers of the general partner of the partnership or, if such general partner is itself a limited partnership, then the board of directors or board of
managers of its general partner;
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(3)
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with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and
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(4)
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with respect to any other Person, the board or committee of such Person serving a similar function.
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Capital Lease Obligation
means, at the time any determination is to be made, the amount of the liability in respect of a
capital lease that would at that time be required to be capitalized on a balance sheet prepared in accordance with GAAP.
Capital
Stock
means:
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(1)
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in the case of a corporation, corporate stock;
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(2)
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in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
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(3)
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in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and
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(4)
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any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person,
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but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of
participation with Capital Stock.
Cash Equivalents
means:
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(1)
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United States dollars or, in an amount up to the amount necessary or appropriate to fund local operating expenses, other currencies;
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(2)
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securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality of the United States government (
provided
that the full faith and credit of the
United States is pledged in support of those securities) having maturities of not more than one year from the date of acquisition;
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(3)
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certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers acceptances with maturities not exceeding six months and overnight bank deposits, in
each case, with any domestic commercial bank having capital and surplus in excess of $250.0 million and a Thomson Bank Watch Rating of B or better;
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(4)
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repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the
qualifications specified in clause (3) above;
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(5)
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commercial paper having one of the two highest ratings obtainable from Moodys or S&P and, in each case, maturing within six months after the date of acquisition; and
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(6)
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money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition.
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Change of Control
means the occurrence of any of the following:
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(1)
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the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or
assets of Sunoco LP and its Subsidiaries taken as a whole to any person (as that term is used in Section 13(d)(3) of the Exchange Act), other than a Qualified Owner, which occurrence is followed by a Ratings Decline within
90 days; or
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(2)
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the adoption of a plan relating to the liquidation or dissolution of Sunoco LP or the removal of the General Partner by the limited partners of Sunoco LP; or
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(3)
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the consummation of any transaction (including any merger or consolidation), the result of which is that any person (as that term is used in Section 13(d)(3) of the Exchange Act), other than a Qualified
Owner, becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of the General Partner or of Sunoco LP, measured by voting power rather than number of shares, which occurrence is followed by a Ratings Decline
within 90 days.
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Notwithstanding the preceding, a conversion of Sunoco LP from a limited partnership to a
corporation, limited liability company or other form of entity or an exchange of all of the outstanding limited partnership interests for capital stock in a corporation, for member interests in a limited liability company or for Equity Interests in
such other form of entity shall not constitute a Change of Control, so long as immediately following such conversion or exchange either (i) the persons (as that term is used in Section 13(d)(3) of the Exchange Act) who
Beneficially Owned the Capital Stock of Sunoco LP immediately prior to such transactions continue to Beneficially Own in the aggregate more than 50% of the Voting Stock of such entity, or continue to Beneficially Own sufficient Equity Interests
in such entity to elect a majority of its directors, managers, trustees or other persons serving in a similar capacity for such entity, and, in either case no person (as that term is used in Section 13(d)(3) of the Exchange Act),
excluding any Qualified Owner, Beneficially Owns more than 50% of the Voting Stock of such entity or (ii) one or more Qualified Owners in the aggregate own more than 50% of the Voting Stock of such entity.
Change of Control Offer
has the meaning assigned to that term under Repurchase at the Option of
HoldersChange of Control.
Consolidated Cash Flow
means, with respect to any specified Person for any
period, the Consolidated Net Income of such Person for such period plus, without duplication:
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(1)
|
an amount equal to (i) any extraordinary loss plus (ii) any net loss realized by such Person or any of its Restricted Subsidiaries in connection with an Asset Sale or the disposition of any securities by such
Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries, in each case, to the extent such losses were deducted in computing such Consolidated Net Income; plus
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(2)
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provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus
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(3)
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the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or
accrued (including amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest
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component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers acceptance financings, and net of all payments, if any, pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income; plus
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(4)
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depreciation, amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses, charges or losses (excluding any such
non-cash expense, charge or loss to the extent that it represents an accrual of or reserve for cash expenses, charges or losses in any future period or amortization of a prepaid cash expense, charge or loss that was paid in a prior period) of such
Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses, charges or losses were deducted in computing such Consolidated Net Income; plus
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(5)
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unrealized non-cash losses resulting from foreign currency balance sheet adjustments required by GAAP to the extent such losses were deducted in computing such Consolidated Net Income; plus
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(6)
|
all extraordinary or non-recurring items of gain or loss, or revenue or expense; minus
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(7)
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non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business,
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in each case, on a consolidated basis and determined in accordance with GAAP.
Consolidated Net Income
means, with respect to any specified Person for any period, the aggregate of the Net Income of such
Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP;
provided
that:
|
(1)
|
the aggregate Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or
similar distributions paid in cash to the specified Person or a Restricted Subsidiary of the Person;
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(2)
|
the Net Income of any Restricted Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, partners or members;
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(3)
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the cumulative effect of a change in accounting principles will be excluded;
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(4)
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unrealized losses and gains under derivative instruments included in the determination of Consolidated Net Income, including those resulting from the application of Financial Accounting Standards Board Accounting
Standards Codification (ASC) 815 will be excluded; and
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(5)
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any nonrecurring charges relating to any premium or penalty paid, write off of deferred finance costs or other charges in connection with redeeming or retiring any Indebtedness prior to its Stated Maturity will be
excluded.
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Consolidated Net Tangible Assets
means, with respect to any Person at any date of
determination, the aggregate amount of total assets included in such Persons most recent quarterly or annual consolidated balance sheet prepared in accordance with GAAP less applicable reserves reflected in such balance sheet, after
(i) adding the aggregate incremental amount of total assets that would have resulted from an acquisition of assets from an Affiliate that is accounted for as a pooling had it been accounted for using purchase accounting and (ii) deducting
the following amounts: (a) all current liabilities reflected in such balance sheet, and (b) all goodwill, trademarks, patents, unamortized debt discounts and expenses and other like intangibles reflected in such balance sheet.
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Credit Agreement
means that certain Credit Agreement, dated as of
September 25, 2014, by and among Sunoco LP (f/k/a/ Susser Petroleum Partners LP), the guarantors party thereto, the lenders party thereto and Bank of America, N.A., as administrative agent for the lenders and collateral agent, including
any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time
(including increasing the amount of available borrowings thereunder).
Credit Facilities
means, one or more debt
facilities (including the Credit Agreement) or commercial paper facilities, in each case, with banks or other institutional lenders providing for revolving credit loans, term loans, accounts receivable financing (including through the sale of
accounts receivable to such lenders or to special purpose entities formed to borrow from such lenders against such accounts receivable) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced
(including by means of sales of debt securities to institutional investors) in whole or in part from time to time (including increasing the amount of available borrowings thereunder).
Default
means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.
Designated Non-cash Consideration
means the fair market value (as determined in good faith by Sunoco LP) of
non-cash consideration received by Sunoco LP or a Restricted Subsidiary in connection with an Asset Sale that is so designated as Designated Non-cash Consideration pursuant to an officers certificate, less the amount of Cash Equivalents
received in connection with a subsequent sale of such Designated Non-cash Consideration.
Disqualified Equity
means any
Equity Interest that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case, at the option of the holder of the Equity Interest), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Equity Interest, in whole or in part, on or prior to the date that is 91 days after the date on which the notes mature.
Notwithstanding the preceding sentence, any Equity Interest that would constitute Disqualified Equity solely because the holders of the Equity Interest have the right to require Sunoco LP to repurchase or redeem such Equity Interest upon the
occurrence of a change of control or an asset sale will not constitute Disqualified Equity if the terms of such Equity Interest provide that Sunoco LP may not repurchase or redeem any such Equity Interest pursuant to such provisions unless such
repurchase or redemption complies with the covenant described above under the caption Certain CovenantsRestricted Payments.
Domestic Subsidiary
means any Restricted Subsidiary of Sunoco LP that was formed under the laws of the United States
or any state of the United States or the District of Columbia.
Equity Interests
means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).
Equity Offering
means any public or private sale of Equity Interests (other than Disqualified Equity and other than to a
Subsidiary) made for cash on a primary basis by Sunoco LP after the date of the Indenture.
Existing Indebtedness
means
the aggregate principal amount of Indebtedness of Sunoco LP and its Subsidiaries (other than Indebtedness under the Credit Agreement) in existence on the date of the Indenture, until such amounts are repaid.
Fair Market Value
means the value that would be paid by a willing buyer to an unaffiliated willing seller in a transaction
not involving distress or necessity of either party, determined in good faith by the Board of Directors of the General Partner (unless otherwise provided in the Indenture).
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Fixed Charge Coverage Ratio
means with respect to any specified Person for any
four-quarter reference period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. If the specified Person or any of its Restricted Subsidiaries incurs, assumes, guarantees,
repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems Disqualified Equity subsequent to the commencement of the applicable four-quarter
reference period and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the Calculation Date), then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect
to such incurrence, assumption, guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of Disqualified Equity, and the use of the proceeds therefrom, as if the same had
occurred at the beginning of such period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
|
(1)
|
acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions during the four-quarter
reference period or subsequent to such reference period and on or prior to the Calculation Date will be given pro forma effect as if they had occurred on the first day of the four-quarter reference period, including any Consolidated Cash Flow and
any pro forma expense and cost reductions that have occurred or are reasonably expected to occur, in the reasonable judgment of the chief financial or accounting officer of Sunoco LP (regardless of whether those cost savings or operating
improvements could then be reflected in pro forma financial statements in accordance with Regulation S-X promulgated under the Securities Act or any other regulation or policy of the SEC related thereto);
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|
(2)
|
the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will
be excluded;
|
|
(3)
|
the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be
excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date;
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(4)
|
interest income reasonably anticipated by such Person to be received during the applicable four quarter period from cash or Cash Equivalents held by such Person or any Restricted Subsidiary of such Person, which cash or
Cash Equivalents exist on the Calculation Date or will exist as a result of the transaction giving rise to the need to calculate the Fixed Charge Coverage Ratio, will be included;
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|
(5)
|
if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness will be calculated as if the average rate in effect from the beginning of the applicable period to the Calculation Date
had been the applicable rate for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months); and
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(6)
|
if any Indebtedness is incurred under a revolving credit facility and is being given pro forma effect, the interest on such Indebtedness shall be calculated based on the average daily balance of such Indebtedness for
the four fiscal quarters subject to the pro forma calculation.
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Fixed Charges
means, with respect to any
specified Person for any period, (A) the sum, without duplication, of:
|
(1)
|
the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or
accrued, including amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest
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component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations in respect of interest rates; plus
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(2)
|
the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period; plus
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(3)
|
any interest on Indebtedness of another Person that is guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not
such guarantee or Lien is called upon; plus
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(4)
|
all dividends, whether paid or accrued and whether or not in cash, on any series of Disqualified Equity of such Person or any of its Restricted Subsidiaries, other than dividends on Equity Interests payable solely in
Equity Interests of Sunoco LP (other than Disqualified Equity) or to Sunoco LP or a Restricted Subsidiary of Sunoco LP; minus
|
(B) to the extent included in (A) above, write-offs of deferred financing costs of such Person and its Restricted Subsidiaries during such period
and any charge related to, or any premium or penalty paid in connection with, paying any such Indebtedness of such Person and its Restricted Subsidiaries prior to its Stated Maturity.
GAAP
means generally accepted accounting principles in the United States, as in effect on the date of the Indenture.
General Partner
means Sunoco GP LLC, a Delaware limited liability company, and its successors and permitted assigns as
general partner of Sunoco LP or as the business entity with the ultimate authority to manage the business and operations of Sunoco LP.
Government Securities
means direct obligations of, or obligations guaranteed by, the United States of America for the
payment of which guarantee or obligations the full faith and credit of the United States of America is pledged.
guarantee
means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of
business, direct or indirect, in any manner including by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness.
Guarantors
means each of:
|
(1)
|
the Subsidiaries of Sunoco LP executing the Indenture as initial Guarantors; and
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(2)
|
any other Subsidiary of Sunoco LP that becomes a Guarantor in accordance with the provisions of the Indenture,
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and their respective successors and assigns, in each case, until the Note Guarantee of such Person has been released in accordance with the provisions of the
Indenture.
Hedging Obligations
means, with respect to any specified Person, the obligations of such Person under:
|
(1)
|
interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements entered into with one or more financial institutions and
designed to reduce costs of borrowing or to protect the Person or any of its Restricted Subsidiaries entering into the agreement against fluctuations in interest rates with respect to Indebtedness incurred;
|
|
(2)
|
other agreements or arrangements designed to manage interest rates or interest rate risk;
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|
(3)
|
foreign exchange contracts and currency protection agreements entered into with one of more financial institutions and designed to protect the Person or any of its Restricted Subsidiaries entering into the agreement
against fluctuations in currency exchanges rates with respect to Indebtedness incurred;
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|
(4)
|
any commodity futures contract, commodity option or other similar agreement or arrangement designed to protect against fluctuations in the price of Hydrocarbons used, produced, processed or sold by that Person or any of
its Restricted Subsidiaries at the time; and
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(5)
|
other agreements or arrangements designed to protect such Person or any of its Restricted Subsidiaries against fluctuations in currency exchange rates or commodity prices.
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Hydrocarbons
means crude oil, natural gas, natural gas liquids, casinghead gas, drip gasoline, condensate, distillate,
liquid hydrocarbons, gaseous hydrocarbons and all constituents, elements or compounds thereof and products refined or processed therefrom.
Indebtedness
means, with respect to any specified Person, any indebtedness of such Person, whether or not contingent:
|
(1)
|
in respect of borrowed money;
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|
(2)
|
evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof);
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|
(3)
|
in respect of bankers acceptances;
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|
(4)
|
representing Capital Lease Obligations or Attributable Debt in respect of sale and leaseback transactions;
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(5)
|
representing the balance deferred and unpaid of the purchase price of any property or services due more than six months after such property is acquired or such services are completed; or
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(6)
|
representing any Hedging Obligations,
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if and to the extent any of the preceding items (other than letters of
credit, Attributable Debt and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term Indebtedness includes all Indebtedness of others secured
by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the guarantee by the specified Person of any Indebtedness of any other Person.
Notwithstanding the foregoing, the following shall not constitute Indebtedness:
|
(1)
|
accrued expenses and trade accounts payable arising in the ordinary course of business;
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|
(2)
|
any obligation of Sunoco LP or any of its Restricted Subsidiaries in respect of bid, performance, surety and similar bonds issued for the account of Sunoco LP and any of its Restricted Subsidiaries in the
ordinary course of business, including guarantees and obligations of Sunoco LP or any of its Restricted Subsidiaries with respect to letters of credit supporting such obligations (in each case other than an obligation for money borrowed);
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(3)
|
any Indebtedness that has been defeased in accordance with GAAP or defeased pursuant to the deposit of cash or Government Securities (in an amount sufficient to satisfy all such Indebtedness at fixed maturity or
redemption, as applicable, and all payments of interest and premium, if any) in a trust or account created or pledged for the sole benefit of the holders of such Indebtedness and subject to no other Liens, and the other applicable terms of the
instrument governing such Indebtedness;
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(4)
|
any obligation arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business;
provided
,
however
, that such obligation is extinguished within five business days of its incurrence; and
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(5)
|
any obligation arising from any agreement providing for indemnities, guarantees, purchase price adjustments, holdbacks, contingency payment obligations based on the performance of the acquired or disposed assets or
similar obligations (other than guarantees of Indebtedness) incurred by any Person in connection with the acquisition or disposition of assets.
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Investment Grade Rating
means a rating equal to or higher than Baa3 by Moodys or BBB- by S&P (or, if either such
entity ceases to rate the notes for reasons outside of the control of Sunoco LP, the equivalent investment grade credit rating from any other nationally recognized statistical rating organization registered under Section 15E of
the Exchange Act selected by Sunoco LP as a replacement agency).
Investments
means, with respect to any Person, all
direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including guarantees or other obligations), advances or capital contributions (excluding (1) commission, travel and similar advances to
officers and employees made in the ordinary course of business and (2) advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of the lender), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If Sunoco LP or any Restricted Subsidiary of
Sunoco LP sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of Sunoco LP such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary of
Sunoco LP, Sunoco LP will be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of Sunoco LPs Investments in such Restricted Subsidiary that were not sold or disposed of
in an amount determined as provided in the final paragraph of the covenant described above under the caption Certain CovenantsRestricted Payments.
Joint Venture
means any Person that is not a direct or indirect Subsidiary of Sunoco LP in which Sunoco LP or any
of its Restricted Subsidiaries makes any Investment.
Lien
means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction other than a
precautionary financing statement respecting a lease not intended as a security agreement. In no event shall a right of first refusal be deemed to constitute a Lien.
Moodys
means Moodys Investors Service, Inc., or any successor to the rating agency business thereof.
Net Income
means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with
GAAP and before any reduction in respect of preferred stock dividends, excluding, however:
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(1)
|
any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such Person or
the extinguishment of any Indebtedness of such Person; and
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|
(2)
|
any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss).
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Net Proceeds
means the aggregate cash proceeds received by Sunoco LP or any of its Restricted Subsidiaries in respect
of any Asset Sale (including any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of:
|
(1)
|
the direct costs relating to such Asset Sale, including legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale,
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|
(2)
|
taxes paid or payable as a result of the Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements,
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|
(3)
|
amounts required to be applied to the repayment of Indebtedness, other than revolving credit Indebtedness except to the extent resulting a permanent reduction in availability of such Indebtedness under a Credit
Facility, secured by a Lien on the properties or assets that were the subject of such Asset Sale and all distributions and payments required to be made to minority interest holders in Restricted Subsidiaries as a result of such Asset Sale, and
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|
(4)
|
any amounts to be set aside in any reserve established in accordance with GAAP or any amount placed in escrow, in either case for adjustment in respect of the sale price of such properties or assets or for liabilities
associated with such Asset Sale and retained by Sunoco LP or any of its Restricted Subsidiaries until such time as such reserve is reversed or such escrow arrangement is terminated, in which case Net Proceeds shall include only the amount of
the reserve so reversed or the amount returned to Sunoco LP or its Restricted Subsidiaries from such escrow arrangement, as the case may be.
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Non-Recourse Debt
means Indebtedness:
|
(1)
|
as to which neither Sunoco LP nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is
directly or indirectly liable as a guarantor or otherwise or (c) is the lender;
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(2)
|
no default with respect to which (including any rights that the holders of the Indebtedness may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any
holder of any other Indebtedness of Sunoco LP or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment of the Indebtedness to be accelerated or payable prior to its Stated Maturity; and
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|
(3)
|
as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of Sunoco LP or any of its Restricted Subsidiaries except as contemplated by clause (10) of the
definition of Permitted Liens.
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For purposes of determining compliance with the covenant described under Certain
CovenantsIncurrence of Indebtedness and Issuance of Disqualified Equity above, if any Non-Recourse Debt of any of Sunoco LPs Unrestricted Subsidiaries ceases to be Non-Recourse Debt of such Unrestricted Subsidiary, such event
will be deemed to constitute an incurrence of Indebtedness by a Restricted Subsidiary of Sunoco LP.
Note
Guarantee
means the guarantee by each Guarantor of the Issuers obligations under the Indenture and the notes, pursuant to the provisions of the Indenture.
Obligations
means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
Operating Surplus
has the meaning assigned to such term in
the Partnership Agreement as in effect on the date of the Indenture.
Partnership Agreement
means the First Amended and
Restated Agreement of Limited Partnership of Sunoco LP (f/k/a/ Susser Petroleum Partners LP), dated as of September 25, 2012, as amended as of the date of Indenture, and as such may be further amended, modified or supplemented from time to
time.
Permitted Business
means either (1) gathering, transporting, treating, processing, marketing, distributing,
storing or otherwise handling Hydrocarbons, or activities or services reasonably related, ancillary or complementary thereto, or a reasonable extension or expansion thereof including entering into Hedging
77
Obligations to support these businesses, (2) any other business that generates gross income that constitutes qualifying income under Section 7704(d) of the Code, or
(3) the retail sale of motor fuel and the operation of convenience stores or activities or services reasonably related, ancillary or complementary thereto, or a reasonable extension or expansion thereof.
Permitted Business Investments
means Investments by Sunoco LP or any of its Restricted Subsidiaries in any
Unrestricted Subsidiary of Sunoco LP or in any Joint Venture,
provided
that:
|
(1)
|
either (a) at the time of such Investment and immediately thereafter, Sunoco LP could incur $1.00 of additional Indebtedness under the Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant described under Certain CovenantsIncurrence of Indebtedness and Issuance of Disqualified Equity above or (b) such Investment does not exceed the aggregate amount of Incremental Funds (as defined in the covenant
described under Certain CovenantsRestricted Payments) not previously expended at the time of making such Investment;
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|
(2)
|
if such Unrestricted Subsidiary or Joint Venture has outstanding Indebtedness at the time of such Investment, either (a) all such Indebtedness is Non-Recourse Debt or (b) any such Indebtedness of such
Unrestricted Subsidiaries or Joint Venture that is recourse to Sunoco LP or any of its Restricted Subsidiaries (which shall include all Indebtedness of such Unrestricted Subsidiary or Joint Venture for which Sunoco LP or any of its
Restricted Subsidiaries may be directly or indirectly, contingently or otherwise, obligated to pay, whether pursuant to the terms of such Indebtedness, by law or pursuant to any guarantee, including any claw-back, make-well
or keepwell arrangement) could, at the time such Investment is made, be incurred at that time by Sunoco LP and its Restricted Subsidiaries under the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant
described under Certain CovenantsIncurrence of Indebtedness and Issuance of Disqualified Equity; and
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(3)
|
such Unrestricted Subsidiarys or Joint Ventures activities are not outside the scope of the Permitted Business.
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Permitted Investments
means:
|
(1)
|
any Investment in Sunoco LP or in a Restricted Subsidiary of Sunoco LP;
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|
(2)
|
any Investment in Cash Equivalents;
|
|
(3)
|
any Investment by Sunoco LP or any Restricted Subsidiary of Sunoco LP in a Person, if as a result of such Investment:
|
|
(a)
|
such Person becomes a Restricted Subsidiary of Sunoco LP; or
|
|
(b)
|
such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its properties or assets to, or is liquidated into, Sunoco LP or a Restricted Subsidiary of
Sunoco LP;
|
|
(4)
|
any Investment made as a result of the receipt of non-cash consideration from:
|
|
(a)
|
an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption Repurchase at the Option of HoldersAsset Sales; or
|
|
(b)
|
pursuant to clause (7) of the items deemed not to be Asset Sales under the definition of Asset Sale;
|
|
(5)
|
any Investment in any Person solely in exchange for the issuance of Equity Interests (other than Disqualified Equity) of Sunoco LP;
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|
(6)
|
any Investments received in compromise or resolution of (A) obligations of trade creditors or customers that
were incurred in the ordinary course of business of Sunoco LP or any of its Restricted Subsidiaries, including pursuant to any plan of reorganization or similar arrangement upon the
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78
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bankruptcy or insolvency of any trade creditor or customer, or as a result of a foreclosure by Sunoco LP or any of its Restricted Subsidiaries with respect to any secured Investment in
default; or (B) litigation, arbitration or other disputes with Persons who are not Affiliates;
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|
(7)
|
Investments represented by Hedging Obligations permitted to be incurred;
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|
(8)
|
loans or advances to employees made in the ordinary course of business of Sunoco LP or any Restricted Subsidiary of Sunoco LP in an aggregate principal amount not to exceed $2.0 million at any one time
outstanding;
|
|
(9)
|
repurchases of the notes;
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|
(10)
|
any Investments in prepaid expenses, negotiable instruments held for collection and lease, utility, workers compensation and performance and other similar deposits and prepaid expenses made in the ordinary course
of business;
|
|
(11)
|
Permitted Business Investments;
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|
(12)
|
Investments owned by any Person at the time such Person merges with Sunoco LP or any Restricted Subsidiary of Sunoco LP,
provided
such Investments (a) are not incurred in contemplation of such
merger or acquisition and (b) are, in the good faith determination of Sunoco LP, incidental to such merger or acquisition, and in each case renewals or extensions thereof in amounts not greater than the amount of such Investment;
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|
(13)
|
Investments existing on the date hereof; and
|
|
(14)
|
other Investments in any Person having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other
Investments made pursuant to this clause (14) that are at the time outstanding not to exceed the greater of (a) $60.0 million and (b) 5.0% of Sunoco LPs Consolidated Net Tangible Assets.
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Permitted Liens
means:
|
(1)
|
Liens securing any Indebtedness under any Credit Facilities and all Obligations and Hedging Obligations relating to such Indebtedness;
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|
(2)
|
Liens in favor of Sunoco LP or the Guarantors;
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|
(3)
|
Liens on property of a Person existing at the time such Person is merged with or into or consolidated with Sunoco LP or any Subsidiary of Sunoco LP;
provided
that such Liens were in existence prior to
such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with Sunoco LP or the Subsidiary;
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(4)
|
Liens on property existing at the time of acquisition of the property by Sunoco LP or any Restricted Subsidiary of Sunoco LP;
provided
that such Liens were in existence prior to, such acquisition, and
not incurred in contemplation of, such acquisition;
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(5)
|
Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business;
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(6)
|
Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (4) of the second paragraph of the covenant entitled Certain CovenantsIncurrence of Indebtedness and Issuance
of Disqualified Equity covering only the assets acquired with or financed by such Indebtedness;
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(7)
|
Liens existing on the date of the Indenture (other than Liens securing the Credit Facilities);
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(8)
|
Liens created for the benefit of (or to secure) the notes (or the Note Guarantees);
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|
(9)
|
Liens on any property or asset acquired, constructed or improved by Sunoco LP or any of its Restricted
Subsidiaries (a Purchase Money Lien), which (a) are in favor of the seller of such property or assets,
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79
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in favor of the Person developing, constructing, repairing or improving such asset or property, or in favor of the Person that provided the funding for the acquisition, development, construction,
repair or improvement cost, as the case may be, of such asset or property, (b) are created within 360 days after the acquisition, development, construction, repair or improvement, (c) secure the purchase price or development,
construction, repair or improvement cost, as the case may be, of such asset or property in an amount up to 100% of the Fair Market Value of such acquisition, construction or improvement of such asset or property, and (d) are limited to the
asset or property so acquired, constructed or improved (including the proceeds thereof, accessions thereto and upgrades thereof);
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(10)
|
Liens on and pledges of the Equity Interests of any Unrestricted Subsidiary or any Joint Venture owned by Sunoco LP or any Restricted Subsidiary of Sunoco LP to the extent securing Non-Recourse Debt or other
Indebtedness of such Unrestricted Subsidiary or Joint Venture;
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|
(11)
|
Liens in favor of collecting or payor banks having a right of setoff, revocation, refund or chargeback with respect to money or instruments of Sunoco LP or any of its Restricted Subsidiaries on deposit with or in
possession of such bank;
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(12)
|
Liens to secure performance of Hedging Obligations of Sunoco LP or any of its Restricted Subsidiaries incurred in the ordinary course of business and not for speculative purposes;
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|
(13)
|
Liens arising under construction contracts, interconnection agreements, operating agreements, joint venture agreements, partnership agreements, oil and gas leases, farmout agreements, division orders, contracts for
purchase, gathering, processing, sale, transportation or exchange of crude oil, natural gas liquids, condensate and natural gas, natural gas storage agreements, unitization and pooling declarations and agreements, area of mutual interest agreements,
real property leases and other agreements arising in the ordinary course of business of Sunoco LP and its Restricted Subsidiaries that are customary in the Permitted Business;
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(14)
|
Liens upon specific items of inventory, receivables or other goods or proceeds of Sunoco LP or any of its Restricted Subsidiaries securing such Persons obligations in respect of bankers acceptances or
receivables securitizations issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory, receivables or other goods or proceeds and permitted by the covenant described under Certain
CovenantsIncurrence of Indebtedness and Issuance of Disqualified Equity;
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(15)
|
Liens securing any Indebtedness equally and ratably with all Obligations due under the notes or any Note Guarantee pursuant to a contractual covenant that limits Liens in a manner substantially similar to the covenant
described above under Certain CovenantsLiens;
|
|
(16)
|
Liens incurred in the ordinary course of business of Sunoco LP or any Restricted Subsidiary of Sunoco LP;
provided
,
however
, that, after giving effect to any such incurrence, the aggregate
principal amount of all Indebtedness then outstanding and secured by any Liens pursuant to this clause (16) does not exceed the greater of (a) $60.0 million or (b) 5.0% of Sunoco LPs Consolidated Net Tangible Assets at
such time; and
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(17)
|
any Lien renewing, extending, refinancing or refunding a Lien permitted by clauses (3), (4), (6), (7) or (9) above;
provided
that (a) the principal amount of Indebtedness secured by such Lien
does not exceed the principal amount of such Indebtedness outstanding immediately prior to the renewal, extension, refinance or refund of such Lien, plus all accrued interest on the Indebtedness secured thereby and the amount of all fees, expenses
and premiums incurred in connection therewith, and (b) no assets encumbered by any such Lien other than the assets permitted to be encumbered immediately prior to such renewal, extension, refinance or refund are encumbered thereby.
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After termination of the covenants referred to in the first paragraph of Certain CovenantsTermination of
Covenants, for purposes of complying with the Liens covenant, the Liens described in clauses (1) and (16) of this definition of Permitted Liens will be Permitted Liens only to the extent those Liens secure
80
Indebtedness not exceeding, at the time of determination, 15% of the Consolidated Net Tangible Assets of Sunoco LP. Once effective, this 15% limitation on Permitted Liens will continue to
apply during any later period in which the notes do not have an Investment Grade Rating by both Rating Agencies.
Permitted
Refinancing Indebtedness
means any Indebtedness of Sunoco LP or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, defease or discharge, other
Indebtedness of Sunoco LP or any of its Restricted Subsidiaries (other than intercompany Indebtedness);
provided
that:
|
(1)
|
the principal amount of such Permitted Refinancing Indebtedness does not exceed the principal amount of the Indebtedness renewed, refunded, refinanced, replaced, defeased or discharged (plus all accrued interest on the
Indebtedness and the amount of all fees and expenses, including premiums, incurred in connection therewith);
|
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(2)
|
such Permitted Refinancing Indebtedness has a final maturity date no earlier than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged;
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(3)
|
if the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged is subordinated in right of payment to the notes or the Note Guarantees, such Permitted Refinancing Indebtedness is subordinated
in right of payment to, the notes or the Note Guarantees, on terms at least as favorable to the holders of notes as those contained in the documentation governing the Indebtedness being renewed, refunded, refinanced, replaced, defeased or
discharged; and
|
|
(4)
|
such Indebtedness is not incurred (other than by way of a guarantee) by a Restricted Subsidiary (other than Finance Corp. or a Guarantor) if Sunoco LP is the issuer or other primary obligor on the Indebtedness
being renewed, refunded, refinanced, replaced, defeased or discharged.
|
Person
means any individual,
corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.
Qualified Owner
means any of (i) LE GP, LLC, Energy Transfer Equity, L.P. and Energy Transfer Partners, L.P.,
(ii) any Person who Beneficially Owns more than 50% of the Voting Stock of any entity specified in clause (i) above or who Beneficially Owns sufficient Equity Interests in such entity to elect a majority of its directors, managers,
trustees or other persons serving in a similar capacity for such entity and (iii) any Subsidiary or Affiliate of any entity specified in either clause (i) or clause (ii) above.
Rating Agencies
means Moodys and S&P.
Ratings Categories
means:
|
(1)
|
with respect to S&P, any of the following categories: AAA, AA, A, BBB, BB, B, CCC, CC, C and D (or equivalent successor categories); and
|
|
(2)
|
with respect to Moodys, any of the following categories: Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D (or equivalent successor categories).
|
Ratings Decline
means a decrease in the rating of the notes by both Moodys and S&P by one or more gradations
(including gradations within Rating Categories as well as between Rating Categories). In determining whether the rating of the notes has decreased by one or more gradations, gradations within Ratings Categories, namely + or - for S&P, and 1, 2
and 3 for Moodys, will be taken into account; for example, in the case of S&P, a ratings decline either from BB+ to BB or BB to BB- will constitute a decrease of one gradation.
Reporting Default
means a Default described in clause (4) under Events of Default and Remedies.
81
Restricted Investment
means an Investment other than a Permitted Investment.
Restricted Subsidiary
of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary.
Unless specified otherwise, references to a Restricted Subsidiary refer to a Restricted Subsidiary of Sunoco LP. Notwithstanding anything in the Indenture to the contrary, Finance Corp. shall be a Restricted Subsidiary of Sunoco LP.
S&P
means Standard & Poors Ratings Services, a division of The McGraw-Hill Companies, Inc., or any
successor to the rating agency business thereof.
SEC
means the Securities and Exchange Commission.
Senior Indebtedness
means with respect to any Person, Indebtedness of such Person (other than Indebtedness owed to an
Affiliate), unless the instrument creating or evidencing such Indebtedness provides that such Indebtedness is subordinate in right of payment to the notes or the Note Guarantee of such Person, as the case may be.
Significant Subsidiary
means any Subsidiary that would be a significant subsidiary as defined in
Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of the Indenture.
Stated Maturity
means, with respect to any installment of interest or principal on any series of Indebtedness, the date on
which the payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the
date originally scheduled for the payment thereof.
Subsidiary
means, with respect to any specified Person:
|
(1)
|
any corporation, association or other business entity (other than a partnership or limited liability company) of which more than 50% of the total voting power of the Voting Stock is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and
|
|
(2)
|
any partnership (whether general or limited) or limited liability company (a) the sole general partner or member of which is such Person or a Subsidiary of such Person, or (b) if there is more than a single
general partner or member, either (x) the only managing general partners or managing members of which are such Person or one or more Subsidiaries of such Person (or any combination thereof) or (y) such Person owns or controls, directly or
indirectly, a majority of the outstanding general partner interests, member interests or other Voting Stock of such partnership or limited liability company, respectively.
|
Treasury Rate
means, with respect to any redemption date, the yield to maturity at the time of computation of United States
Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two business days prior to the redemption date (or, if such
Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the redemption date to April 1, 2018, in the case of the 2023 notes, and to April 15, 2018, in the case of the
2021 notes;
provided
,
however
, that if such period is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, Sunoco LP shall obtain the Treasury Rate by linear
interpolation (calculated to the nearest one twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the period from the redemption date to April 1, 2018, in the case of
the 2023 notes, or to April 15, 2018, in the case of the 2021 notes, is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used. Sunoco LP will
(a) calculate
82
the Treasury Rate on the second business day preceding the applicable redemption date and (b) prior to such redemption date file with the trustee an officers certificate setting forth
the 2023 Notes Applicable Premium or the 2021 Notes Applicable Premium, as the case may be, and the Treasury Rate and showing the calculation of each in reasonable detail.
Unrestricted Subsidiary
means any Subsidiary of Sunoco LP (other than Finance Corp. or any successor to it) that is
designated by the Board of Directors of the General Partner as an Unrestricted Subsidiary pursuant to a resolution of the Board of Directors, but only to the extent that such Subsidiary:
|
(1)
|
except to the extent permitted by subclause (2)(b) of the definition of Permitted Business Investments, has no Indebtedness other than Non-Recourse Debt;
|
|
(2)
|
except as permitted by the covenant described above under the caption Certain CovenantsTransactions with Affiliates, is not party to any agreement, contract, arrangement or understanding with
Sunoco LP or any Restricted Subsidiary of Sunoco LP unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to Sunoco LP or such Restricted Subsidiary than those that might be obtained at
the time from Persons who are not Affiliates of Sunoco LP;
|
|
(3)
|
is a Person with respect to which neither Sunoco LP nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or
preserve such Persons financial condition or to cause such Person to achieve any specified levels of operating results; and
|
|
(4)
|
has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of Sunoco LP or any of its Restricted Subsidiaries.
|
All Subsidiaries of an Unrestricted Subsidiary shall be also Unrestricted Subsidiaries.
Voting Stock
of any specified Person as of any date means the Capital Stock of such Person that is at the time entitled
(without regard to the occurrence of any contingency) to vote in the election of the Board of Directors of such Person.
Weighted
Average Life to Maturity
means, when applied to any Indebtedness at any date, the number of years obtained by dividing:
|
(1)
|
the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in
respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by
|
|
(2)
|
the then outstanding principal amount of such Indebtedness.
|
83
INDEX TO CONSOLIDATED FINAN
CIAL STATEMENTS OF
ETP RETAIL HOLDINGS, LLC
PHILADELPHIA ENERGY SOLUTIONS LLC
Index to Consolidated Financial Statements
|
|
|
|
|
|
|
Page
|
|
|
|
Report of Independent Registered Public Accounting Firm (ETP Retail Holdings,
LLC)
|
|
|
F-2
|
|
|
|
Consolidated and Combined Balance Sheets for ETP Retail Holdings, LLC as of December
31, 2015 and 2014
|
|
|
F-3
|
|
|
|
Consolidated and Combined Statements of Operations for ETP Retail Holdings, LLC
for the Years ended December 31, 2015, 2014 and 2013
|
|
|
F-4
|
|
|
|
Consolidated and Combined Statements of Comprehensive Income for ETP Retail Holdings,
LLC for the Years ended December 31, 2015, 2014 and 2013
|
|
|
F-5
|
|
|
|
Consolidated and Combined Statements of Equity for ETP Retail Holdings, LLC for
the Years ended December 31, 2015, 2014 and 2013
|
|
|
F-6
|
|
|
|
Consolidated and Combined Statements of Cash Flows for ETP Retail Holdings for
the Years ended December 31, 2015, 2014 and 2013
|
|
|
F-7
|
|
|
|
Notes to Consolidated and Combined Financial Statements (ETP Retail Holdings,
LLC)
|
|
|
F-8
|
|
|
|
Report of Independent Registered Public Accounting Firm (Philadelphia Energy
Solutions LLC)
|
|
|
F-20
|
|
|
|
Consolidated Balance Sheets for Philadelphia Energy Solutions LLC as of December
31, 2015 and 2014
|
|
|
F-21
|
|
|
|
Consolidated Statements of Operations and Comprehensive Income (Loss) for Philadelphia
Energy Solutions LLC for the Years ended December 31, 2015, 2014 and 2013
|
|
|
F-22
|
|
|
|
Consolidated Statements of Changes in Members Equity for Philadelphia Energy
Solutions LLC for the Years ended December 31, 2015, 2014 and 2013
|
|
|
F-23
|
|
|
|
Consolidated Statements of Cash Flows for Philadelphia Energy Solutions LLC for
the Years ended December 31, 2015, 2014 and 2013
|
|
|
F-24
|
|
|
|
Notes to Consolidated Financial Statements (Philadelphia Energy Solutions LLC)
|
|
|
F-25
|
|
F-1
Report of Independent Registered Public Accounting Firm
Board of Managers
ETP Retail Holdings, LLC
We have audited the accompanying consolidated and combined balance sheets of ETP Retail Holdings, LLC (a Delaware limited liability company) and subsidiaries
(the Company) as of December 31, 2015 and 2014, and the related consolidated and combined statements of operations, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2015. These
financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Philadelphia Energy Solutions
LLC, a 33 percent owned investee company, the Companys investment in which is accounted for under the equity method of accounting. The Companys investment in Philadelphia Energy Solutions LLC as of December 31, 2015 and 2014 was $25
million and $67 million, respectively, and its equity in the earnings (losses) of Philadelphia Energy Solutions LLC was $35 million, $45 million, and $(33) million, respectively, for each of the three years in the period ended December 31, 2015.
Those statements were audited by other auditors, whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Philadelphia Energy Solutions LLC, is based solely on the report of the other auditors.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the consolidated and combined financial statements referred to above present fairly,
in all material respects, the financial position of ETP Retail Holdings, LLC and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31,
2015 in conformity with accounting principles generally accepted in the United States of America.
/s/ GRANT THORNTON LLP
Dallas, Texas
July 22, 2016
F-2
ETP RETAIL HOLDINGS, LLC
CONSOLIDATED AND COMBINED BALANCE SHEETS
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
|
|
|
$
|
|
|
Advances to affiliated companies
|
|
|
157
|
|
|
|
463
|
|
Accounts receivable, net
|
|
|
|
|
|
|
130
|
|
Accounts receivable, affiliated companies
|
|
|
|
|
|
|
54
|
|
Inventories
|
|
|
|
|
|
|
276
|
|
Other current assets
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
157
|
|
|
|
964
|
|
Property, plant and equipment
|
|
|
|
|
|
|
441
|
|
Accumulated depreciation and amortization
|
|
|
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
395
|
|
Investments in unconsolidated affiliates
|
|
|
375
|
|
|
|
144
|
|
Intangible assets, net
|
|
|
|
|
|
|
186
|
|
Other non-current assets
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
532
|
|
|
$
|
1,691
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
197
|
|
Accounts payable, affiliated companies
|
|
|
|
|
|
|
141
|
|
Accrued and other current liabilities
|
|
|
3
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3
|
|
|
|
531
|
|
Other deferred credits and liabilities
|
|
|
|
|
|
|
2
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Members equity
|
|
|
534
|
|
|
|
1,162
|
|
Accumulated other comprehensive income
|
|
|
1
|
|
|
|
1
|
|
Noncontrolling interest
|
|
|
(6
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
529
|
|
|
|
1,158
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
532
|
|
|
$
|
1,691
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated and combined financial statements.
F-3
ETP RETAIL HOLDINGS, LLC
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating revenue
|
|
$
|
1,960
|
|
|
$
|
13,832
|
|
|
$
|
14,843
|
|
Sales to affiliates
|
|
|
424
|
|
|
|
2,907
|
|
|
|
3,079
|
|
Other
|
|
|
10
|
|
|
|
122
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,394
|
|
|
|
16,861
|
|
|
|
17,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
|
1,636
|
|
|
|
12,222
|
|
|
|
12,073
|
|
Purchases from affiliates
|
|
|
685
|
|
|
|
4,229
|
|
|
|
5,447
|
|
Operating expenses
|
|
|
20
|
|
|
|
164
|
|
|
|
135
|
|
Selling, general and administrative
|
|
|
17
|
|
|
|
47
|
|
|
|
35
|
|
Depreciation and amortization
|
|
|
13
|
|
|
|
74
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
2,371
|
|
|
|
16,736
|
|
|
|
17,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
23
|
|
|
|
125
|
|
|
|
209
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
(8
|
)
|
|
|
(2
|
)
|
Income (loss) from unconsolidated affiliates
|
|
|
304
|
|
|
|
85
|
|
|
|
(33
|
)
|
Other, net
|
|
|
1
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
328
|
|
|
|
203
|
|
|
|
173
|
|
Income tax expense
|
|
|
3
|
|
|
|
53
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
325
|
|
|
|
150
|
|
|
|
119
|
|
Less: Net income attributable to non-controlling interest
|
|
|
|
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Members
|
|
$
|
325
|
|
|
$
|
148
|
|
|
$
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated and combined financial statements.
F-4
ETP RETAIL HOLDINGS, LLC
CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Net income
|
|
$
|
325
|
|
|
$
|
150
|
|
|
$
|
119
|
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in other comprehensive income from unconsolidated affiliates
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
325
|
|
|
$
|
151
|
|
|
$
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated and combined financial statements.
F-5
ETP RETAIL HOLDINGS, LLC
CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members
Equity
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
|
Noncontrolling
Interest
|
|
|
Total
|
|
Balance, December 31, 2012
|
|
$
|
531
|
|
|
|
$
|
|
|
$
|
(9
|
)
|
|
$
|
522
|
|
Contributions from Sunoco
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
38
|
|
ETP Acquisition of MACS
|
|
|
412
|
|
|
|
|
|
|
|
|
|
|
|
412
|
|
Net income
|
|
|
118
|
|
|
|
|
|
|
|
1
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2013
|
|
|
1,099
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
1,091
|
|
Contributions from Sunoco
|
|
|
325
|
|
|
|
|
|
|
|
|
|
|
|
325
|
|
Contributions from ETP
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
119
|
|
MACS Transaction
|
|
|
31
|
|
|
|
|
|
|
|
6
|
|
|
|
37
|
|
Distribution to ETP
|
|
|
(560
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
(565
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Net income
|
|
|
148
|
|
|
|
|
|
|
|
2
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2014
|
|
|
1,162
|
|
|
|
1
|
|
|
|
(5
|
)
|
|
|
1,158
|
|
Sunoco LLC Transaction
|
|
|
(178
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
(179
|
)
|
Distributions to ETP
|
|
|
(775
|
)
|
|
|
|
|
|
|
|
|
|
|
(775
|
)
|
Net income
|
|
|
325
|
|
|
|
|
|
|
|
|
|
|
|
325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2015
|
|
$
|
534
|
|
|
$
|
1
|
|
|
$
|
(6
|
)
|
|
$
|
529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated and combined financial statements.
F-6
ETP RETAIL HOLDINGS, LLC
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
325
|
|
|
$
|
150
|
|
|
$
|
119
|
|
Reconciliation of net income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
13
|
|
|
|
74
|
|
|
|
54
|
|
Deferred income taxes
|
|
|
|
|
|
|
15
|
|
|
|
16
|
|
Inventory valuation adjustments
|
|
|
(3
|
)
|
|
|
176
|
|
|
|
(3
|
)
|
(Income) loss from unconsolidated affiliates
|
|
|
(304
|
)
|
|
|
(85
|
)
|
|
|
33
|
|
Distributions from unconsolidated affiliates
|
|
|
49
|
|
|
|
2
|
|
|
|
12
|
|
Net change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
21
|
|
|
|
19
|
|
|
|
155
|
|
Accounts receivable, affiliated companies
|
|
|
(14
|
)
|
|
|
(54
|
)
|
|
|
|
|
Inventories
|
|
|
73
|
|
|
|
14
|
|
|
|
36
|
|
Accounts payable
|
|
|
(99
|
)
|
|
|
(44
|
)
|
|
|
10
|
|
Accounts payable, affiliated companies
|
|
|
51
|
|
|
|
81
|
|
|
|
(48
|
)
|
Accrued and other current liabilities
|
|
|
(28
|
)
|
|
|
1
|
|
|
|
(19
|
)
|
Other operating
|
|
|
(14
|
)
|
|
|
(1
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
70
|
|
|
|
348
|
|
|
|
355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired
|
|
|
|
|
|
|
(115
|
)
|
|
|
12
|
|
Capital expenditures
|
|
|
(16
|
)
|
|
|
(74
|
)
|
|
|
(39
|
)
|
Contribution from ETP
|
|
|
|
|
|
|
114
|
|
|
|
|
|
Proceeds from Sunoco LLC Transaction
|
|
|
775
|
|
|
|
|
|
|
|
|
|
Proceeds from MACS Transaction
|
|
|
|
|
|
|
496
|
|
|
|
|
|
Purchase of intangibles
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
Distributions from unconsolidated affiliates in excess of cumulative earnings
|
|
|
41
|
|
|
|
|
|
|
|
53
|
|
Proceeds from dispositions
|
|
|
2
|
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
774
|
|
|
|
429
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances (to) from affiliatesSunoco, Inc.
|
|
|
110
|
|
|
|
(224
|
)
|
|
|
(371
|
)
|
Distributions to ETP
|
|
|
(954
|
)
|
|
|
(560
|
)
|
|
|
|
|
Distributions to non-controlling interest
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
Other
|
|
|
|
|
|
|
(3
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(844
|
)
|
|
|
(793
|
)
|
|
|
(373
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
|
|
|
|
(16
|
)
|
|
|
16
|
|
Cash and cash equivalents, beginning of period
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash contribution
|
|
$
|
|
|
|
$
|
5
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash contribution (See Note 9)
|
|
$
|
|
|
|
$
|
325
|
|
|
$
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated and combined financial statements.
F-7
ETP RETAIL HOLDINGS, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions)
1. Operations and Organization:
ETP
Retail Holdings, LLC, a Delaware limited liability company (the Company, we or our), is an indirect wholly-owned subsidiary of Energy Transfer Partners, L.P. (ETP) formed in May 2014. In June 2014, the
equity interests in multiple entities were contributed to the Company, including (a) 100% of the membership interests in Sunoco, LLC (Sunoco LLC), (b) a 99% membership interest in ETC M-A Acquisition LLC (ETC M-A
Acquisition), which owned 100% of the membership interests in Mid-Atlantic Convenience Stores, LLC (MACS) and (c) a non-controlling membership interest in Philadelphia Energy Solutions LLC (PES) comprising 33% of
PESs outstanding common units (collectively, the Contributed Businesses).
Sunoco LLC was formed by Sunoco, Inc.
(Sunoco) in June 2014, at which time Sunoco contributed certain retail assets (the Contributed Assets) of its subsidiaries to Sunoco LLC. Pursuant to the contribution agreement, Sunoco contributed substantially all of its
wholesale motor fuel distribution business which included:
|
|
|
dealer, distributor and fuel supply agreements,
|
|
|
|
fuel supply agreements to distribute motor fuel to Sunoco convenience stores and other retail fuel outlets,
|
|
|
|
real property owned in fee,
|
|
|
|
leases and subleases under which it was a tenant, and
|
|
|
|
leases and subleases under which it was a landlord.
|
All of the Contributed Assets were
recorded at our affiliates book value as this transaction was considered to be a reorganization of entities under common control. As discussed above, Sunoco contributed its interest in Sunoco LLC to the Company in June 2014. Sunoco had
originally been acquired by ETP in October 2012.
In May 2014, MACS acquired 40 company operated sites for approximately $115 million from
Tiger Management Group, LLC (Tigermart). These entities are located in Tennessee and Georgia. As a result of the transaction, Tigermart became a consolidated entity of MACS.
In October 2014, our affiliate, Sunoco LP acquired MACS from the Company in a transaction valued at approximately $768 million (the MACS
Transaction). The transaction included company-operated retail convenience stores and dealer-operated and consignment sites from MACS, which had originally been acquired by ETP in October 2013. The consideration paid by Sunoco LP consisted of
3,983,540 Sunoco LP common units and $556 million in cash.
In April 2015, Sunoco LP acquired a 31.58% equity interest and 50.1% voting
interest in Sunoco LLC from the Company for $816 million (the Sunoco LLC Transaction). Sunoco LP paid $775 million in cash and issued $41 million of Sunoco LP common units to the Company, based on the five-day volume weighted average
price of Sunoco LPs common units as of March 20, 2015. As a result of the Sunoco LLC Transaction, the Company no longer has a controlling interest in Sunoco LLC, therefore all of the Sunoco LLC operations were deconsolidated as of April 1,
2015. See Note 3 for a discussion of the contribution of the remaining 68.42% of Sunoco LLC completed in March 2016.
Through its
membership interest in Sunoco LLC, the Company was primarily engaged in the wholesale distribution of motor fuels to Sunoco, Inc. (R&M) and third parties in the United States. Sunoco, Inc. (R&M) operated convenience stores and retail
fuel outlets under the proprietary Sunoco brand, primarily in the east coast and southeast regions of the United States. Through its membership interest in Sunoco LLC, the Company also
F-8
ETP RETAIL HOLDINGS, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Dollars in millions)
distributed motor fuel to Sunoco-branded retail fuel outlets operated by third parties under long-term contracts. Through its membership interest in Sunoco LLC, the Company also supplied
other commercial customers on a spot or short-term contract basis.
At December 31, 2015, the Company owned the following:
|
|
|
a non-controlling 68.42% membership interest in Sunoco LLC;
|
|
|
|
99% membership interest in ETC M-A Acquisition, which currently owns 3,983,540 Sunoco LP common units;
|
|
|
|
a non-controlling membership interest in PES comprising 33% of PESs outstanding common units; and
|
|
|
|
795,482 Sunoco LP common units.
|
2. Summary of Significant Accounting Policies:
Basis of Presentation and Principles of Consolidation
The consolidated and combined financial statements have been prepared on the accrual basis of accounting in conformity with accounting
principles generally accepted in the United States of America (GAAP). The consolidated and combined financial statements of the Company include accounts of all wholly-owned subsidiaries. Intercompany transactions have been eliminated in
consolidation.
After the Company was formed in May 2014, the Contributed Businesses, as defined in Note 1, were contributed to the
Company. For purposes of these consolidated and combined financial statements, the Contributed Businesses are presented as the predecessor on a combined basis for the period of time that the Contributed Businesses were under the common control of
ETP, until the formation of the Company in 2014. Given that no change in cost basis occurred with respect to the contribution of any of the Contributed Businesses, the predecessor and successor periods are not separately presented herein.
For the periods prior to the formation of the Company on June 1, 2014, the combined financial statements reflect the operations and financial
position of the Contributed Assets. Certain expenses incurred by Sunoco are only indirectly attributable to the Contributed Assets. As a result, certain assumptions and estimates are made in order to allocate a reasonable share of such
expenses to the Contributed Assets, so that the accompanying consolidated and combined financial statements reflect substantially all costs of doing business.
Sunoco has allocated various corporate overhead expenses to the Contributed Assets based on percentage of property, plant and equipment, cost
of goods sold, margin and headcount. These allocations are not necessarily indicative of the cost that the Contributed Assets would have incurred by operating as an independent stand-alone entity. As such, the consolidated and combined financial
statements may not fully reflect what the Contributed Assets financial position, results of operations and cash flows would have been had the Contributed Assets operated as a stand-alone company during the periods presented.
Use of Estimates
The preparation of
financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported
F-9
ETP RETAIL HOLDINGS, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Dollars in millions)
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
New Accounting Pronouncements
In May
2014, the FASB issued Accounting Standards Update No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
(ASU 2014-09), which clarifies the principles for recognizing revenue based on the core principle that an entity
should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB
deferred the effective date of ASU 2014-09, which is now effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted as of annual reporting periods
beginning after December 15, 2016, including interim reporting periods within those annual periods. ASU 2014-09 can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of
adoption. The Company is currently evaluating the impact, if any, that adopting this new accounting standard will have on our revenue recognition policies.
In February 2015, the FASB issued Accounting Standards Update No. 2015-02,
Consolidation (Topic 810): Amendments to the Consolidation
Analysis
(ASU 2015-02), which changed the requirements for consolidation analysis. Under ASU 2015-02, reporting entities are required to evaluate whether they should consolidate certain legal entities. ASU 2015-02 is effective for
fiscal years beginning after December 15, 2015, and early adoption was permitted. We expect to adopt this standard for the year ended December 31, 2016, and we do not anticipate a material impact to our financial position or results of operations as
a result of the adoption of this standard.
Cash
The Company considers cash and cash equivalents to include investments with original maturities of three months or less.
Accounts Receivable
The Company extends
credit to customers after a review of various credit indicators. Depending on the type of customer and its risk profile, security in the form of prepayments, letters of credit or mortgages may be required. Management records reserves for
bad debt by computing a proportion of average write-off activity over the past five years in comparison to the outstanding balance in accounts receivable. This proportion is then applied to the accounts receivable balance at the end of the
reporting period to calculate a current estimate of what is uncollectible. The allowance computation may then be adjusted to reflect input provided by the credit department and business line managers who may have specific knowledge of
uncollectible items. The credit department and business line managers make the decision to write off an account, based on understanding of the potential collectability.
Inventories
Fuel inventories are stated
at the lower of cost or market. Fuel inventory cost is determined using the last-in, first-out method (LIFO). Under this methodology, the cost of fuel sold consists of actual acquisition cost, which includes transportation and storage
costs. Such costs are adjusted to reflect increases or decreases in inventory quantities which are valued based on changes in the LIFO inventory layers.
F-10
ETP RETAIL HOLDINGS, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Dollars in millions)
At December 31, 2014, a lower of cost or market adjustment was applied to fuel inventories
due to a decline in commodity prices. The write down was calculated based upon current replacement costs. See Note 5 for additional information.
Property and Equipment
Property and
equipment, including leasehold improvements, are carried at cost or at the fair value of the assets as of the acquisition date, if acquired as part of a business combination. Depreciation is computed by the straight-line method over the shorter
of estimated useful asset lives or lease terms of the respective assets.
Investments in Unconsolidated Affiliates
We own interests in Sunoco LLC, Sunoco LP and PES that are accounted for by the equity method. In general, we use the equity method of
accounting for an investment in an affiliated company for which we exercise significant influence over, but do not control, the investees operating and financial policies.
Impairment of Long-lived Assets
The
Company reviews long-lived assets, including definite-lived intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. An asset is
considered impaired when the undiscounted estimated net cash flows expected to be generated by an asset are less than its carrying amount. The impairment recognized is the amount by which the carrying amount exceeds the estimated value of the
impaired asset.
Revenue Recognition
During the periods presented, the Company derived revenue from the sale of fuel. Revenue was recognized at the time of sale or when fuel
was delivered to the customer.
Refined product exchange transactions, which are entered into primarily to acquire refined products of a
desired quantity or at a desired location, are netted in cost of products sold in the consolidated and combined statements of operations.
Motor Fuel
Taxes
Consumer excise taxes on sales of refined products are excluded from both revenues and costs and expenses in the consolidated
and combined statements of operations, with no effect on net income.
Derivative Instruments and Hedging Activities
From time to time, the Company has used futures, forwards and other derivative instruments to hedge a variety of price risks. Such
derivative instruments are used to achieve ratable pricing to convert certain expected refined product purchases to fixed or floating prices, to lock in what the Company considers to be acceptable margins for various refined products.
While all of these derivative instruments represent economic hedges, these derivatives are not designated as hedges for accounting
purposes. Such derivatives include certain contracts that were entered into and closed during the same accounting period and contracts for which there is not sufficient correlation to the related items being economically hedged.
F-11
ETP RETAIL HOLDINGS, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Dollars in millions)
All of these derivatives are recognized in the balance sheets at their fair
value. Changes in fair value of derivative instruments that have not been designated as hedges for accounting purposes are recognized in net income as they occur.
Income Taxes
Income taxes are accounted
for under the asset and liability method as if the Company were a separate taxpayer during the period that its operations were included as part of a federal consolidated tax return filing group with its parent company. Under this method,
deferred tax assets and liabilities of the Company are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rate is recognized in earnings in the period that includes the enactment date.
Valuation allowances are established when necessary
to reduce deferred tax assets to the amounts more likely than not to be realized. The determination of the provision for income taxes requires significant judgment, use of estimates, and the interpretation and application of complex tax laws.
Significant judgment is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions. The benefits of uncertain tax positions are recorded in our financial statements only
after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from taxing authorities. Then, the tax benefit recognized is the largest amount of benefit, determined on a cumulative
probability basis, which is more likely than not to be realized upon ultimate settlement. When facts and circumstances change, we reassess these probabilities and record any changes through the provision for income taxes.
Under the separate entity method, the Company is assumed to file a separate return with the taxing authority, thereby reporting its taxable
income or loss and paying the applicable tax to or receiving the appropriate refund from its parent. However, since there is no tax-sharing agreement in place between the Company and its parent, any taxes payable or receivable on current
taxable income or loss at the end of each reporting date is treated as a capital contribution or dividend.
On June 1, 2014, the
Companys investment in Sunoco LLC was re-structured to become treated as a partnership for federal and state income tax purposes. Similarly, on July 1, 2014, earnings from the Companys investment in PES ceased to be taxed at the
corporate level. Since income taxes are not provided for partnerships, no income taxes are reflected in the financial statements for operations conducted subsequent to these dates. Also, since there is no tax-sharing agreement providing for the
payment or refund of income taxes on the date the investments were contributed to the partnership, any remaining current or deferred taxes payable or receivable as of these dates are treated as a capital contribution or dividend. Similarly, all
liabilities related to uncertain income tax liabilities are treated as capital contributions as of the respective dates noted above.
Fair Value
Measurements
The Company uses fair value measurements to measure, among other items, purchased assets and derivative contracts. The
Company also uses such measurements to assess impairment of properties, equipment and intangible assets. The guidance does not apply to inventory pricing.
We determine the fair value of our assets and liabilities subject to fair value measurement by using the highest possible level of
inputs. Level 1 inputs are observable quotes in an active market for identical assets and liabilities. We consider the valuation of commodity derivatives transacted through a clearing broker with a
F-12
ETP RETAIL HOLDINGS, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Dollars in millions)
published price from the appropriate exchange as a Level 1 valuation. Level 2 inputs are inputs observable for similar assets and liabilities. Level 3 inputs are unobservable.
Fair Value of Financial Instruments
The
carrying amounts recorded for cash, accounts receivable, certain other current assets, accounts payable, and accrued expenses and other current liabilities in the consolidated and combined financial statements approximate fair value because of the
short-term maturity of the instruments.
3. Contribution:
Sunoco Retail LLC (Sunoco Retail) was formed in December 2015 as an indirect wholly-owned subsidiary of ETP. On March 31, 2016,
100% of the equity interests in Sunoco Retail were contributed to the Company. Immediately prior to this contribution, Sunoco Retails assets included (i) the retail assets and the ethanol plant located in Fulton, NY formerly owned by Sunoco,
Inc. (R&M), (ii) the retail assets formerly owned by Atlantic Refining and Marketing Corp; and (iii) 100% of the membership interests in Sunmarks LLC.
On March 31, 2016, effective January 1, 2016, the Company contributed to Sunoco LP the remaining 68.42% membership interest in Sunoco LLC and
100% of the membership interest in Sunoco Retail for approximately $2.2 billion in cash (including the expected value of working capital) and the issuance to the Company of 5,710,922 Sunoco LP common units.
4. Investments in Unconsolidated Affiliates:
Sunoco
LLC
The Company has a 68.42% interest in Sunoco LLC as of December 31, 2015.
PES
The Companys investment in PES
consists of a non-controlling membership interest in PES comprising 33% of PESs outstanding common units. PES is a joint venture with The Carlyle Group, L.P. (The Carlyle Group), which owns two crude oil refining facilities in
Philadelphia, Pennsylvania and an adjacent crude oil rail unloading terminal.
Sunoco LP
At December 31, 2015, the Companys investment in Sunoco LP consists of 4,779,022 Sunoco LP common units that were issued to the
Company as part of the consideration for the MACS and Sunoco LLC Transactions described in Note 1. The Companys investment represented approximately 5% of the total outstanding Sunoco LP common units at December 31, 2015. The Companys
investment in Sunoco LP is accounted for in our consolidated financial statements using the equity method because the Company is presumed to have significant influence over Sunoco LP due to the affiliate relationship resulting from both entities
being under the common control of ETE.
F-13
ETP RETAIL HOLDINGS, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Dollars in millions)
Summarized Financial Information
The following tables present aggregated selected balance sheet and income statement data for PES and Sunoco LP, which consolidates the result
of operations of Sunoco LLC (on a 100% basis for all periods presented):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Current assets
|
|
$
|
2,386
|
|
|
$
|
3,150
|
|
Property, plant and equipment, net
|
|
|
3,766
|
|
|
|
3,269
|
|
Other assets
|
|
|
4,455
|
|
|
|
4,401
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
10,607
|
|
|
$
|
10,820
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
1,762
|
|
|
$
|
2,100
|
|
Non-current liabilities
|
|
|
3,519
|
|
|
|
2,503
|
|
Equity
|
|
|
5,326
|
|
|
|
6,217
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
10,607
|
|
|
$
|
10,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Revenue
|
|
$
|
27,086
|
|
|
$
|
24,154
|
|
|
$
|
18,121
|
|
Operating income (loss)
|
|
|
498
|
|
|
|
252
|
|
|
|
(35
|
)
|
Net income (loss)
|
|
|
308
|
|
|
|
113
|
|
|
|
(66
|
)
|
5. Inventories:
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
Refined distillate
|
|
$
|
|
|
|
$
|
99
|
|
Refined gasoline
|
|
|
|
|
|
|
158
|
|
Other refined products
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
|
|
|
$
|
276
|
|
|
|
|
|
|
|
|
|
|
As a result of changes in commodity prices, the Company recorded an increase to fuel inventory in the amount
of $3 million for year ended December 31, 2015 and a decrease to fuel inventory in the amount of $176 million for year ended December 31, 2014. The total carrying value of the Companys fuel inventories was less than average cost by
approximately $24 million at December 31, 2014.
F-14
ETP RETAIL HOLDINGS, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Dollars in millions)
6. Property, Plant and Equipment:
Property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
Land
|
|
$
|
|
|
|
$
|
198
|
|
Buildings and improvements (useful lives of 2 - 45 years)
|
|
|
|
|
|
|
148
|
|
Equipment (useful lives of 2 - 20 years)
|
|
|
|
|
|
|
59
|
|
Construction work-in-process
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
441
|
|
LessAccumulated depreciation
|
|
|
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
|
|
|
$
|
395
|
|
|
|
|
|
|
|
|
|
|
Total depreciation expense on property, plant and equipment included in depreciation and amortization
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Reported in depreciation and amortization
|
|
$
|
6
|
|
|
$
|
43
|
|
|
$
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. Intangible Assets, Net:
The Company has finite-lived intangible assets that are amortized over the respective lives of the agreement or over the period of time the
assets are expected to contribute directly or indirectly to the Companys future cash flows. Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships, contracts and agreements (5 to 11 years)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
257
|
|
|
$
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizable intangible assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
257
|
|
|
$
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
257
|
|
|
$
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization expense on finite-lived intangibles included in depreciation and amortization consisted of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Reported in depreciation and amortization
|
|
$
|
7
|
|
|
$
|
31
|
|
|
$
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
ETP RETAIL HOLDINGS, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Dollars in millions)
8. Accrued and Other Current Liabilities:
Accrued and other current liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
Customer advances and deposits
|
|
$
|
|
|
|
$
|
20
|
|
Accrued capital expenditures
|
|
|
|
|
|
|
16
|
|
Accrued wages and benefits
|
|
|
|
|
|
|
8
|
|
Taxes payable other than income taxes
|
|
|
|
|
|
|
104
|
|
Price risk management
|
|
|
|
|
|
|
7
|
|
Other
|
|
|
3
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
Total accrued and other current liabilities
|
|
$
|
3
|
|
|
$
|
193
|
|
|
|
|
|
|
|
|
|
|
9. Income Taxes
The components of the federal and state income tax expense (benefit) were summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Current expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
32
|
|
|
$
|
31
|
|
State
|
|
|
3
|
|
|
|
6
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3
|
|
|
|
38
|
|
|
|
38
|
|
|
|
|
|
Deferred expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
13
|
|
|
$
|
13
|
|
State
|
|
|
|
|
|
|
2
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
15
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
3
|
|
|
$
|
53
|
|
|
$
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of income tax expense (benefit) at the U.S. statutory rate to the income tax expense
(benefit) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Income tax expense at US statutory rate of 35%
|
|
$
|
116
|
|
|
$
|
71
|
|
|
$
|
60
|
|
|
|
|
|
Increase (reduction) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes (net of federal income tax effects)
|
|
|
3
|
|
|
|
5
|
|
|
|
7
|
|
Domestic manufacturing deduction
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Biodiesel blending credit
|
|
|
|
|
|
|
9
|
|
|
|
(9
|
)
|
Losses accruing no taxes
|
|
|
(116
|
)
|
|
|
(30
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
3
|
|
|
$
|
53
|
|
|
$
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes result from the temporary differences between financial reporting carrying amounts and the tax
basis of existing assets and liabilities. The Company had no deferred taxes as of December 31, 2015 and 2014.
F-16
ETP RETAIL HOLDINGS, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Dollars in millions)
The following table sets forth the changes in unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Balance at beginning of year
|
|
$
|
|
|
|
$
|
371
|
|
|
$
|
|
|
Additions attributable to tax positions taken in the current year
|
|
|
|
|
|
|
|
|
|
|
371
|
|
Reductions attributable to tax positions taken in prior years
|
|
|
|
|
|
|
(371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
|
|
|
$
|
|
|
|
$
|
371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company previously had tax refunds that were fully reserved. However, since there is no tax sharing
agreement in place between the Company and its parent, if the claim is successful, the Company will have no claim to any refunds, and accordingly both the refund receivable and the reserve liability were treated as capital contributions as of June
1, 2014 upon the restructuring of Sunoco LLC as a partnership for federal and state income tax purposes.
Our policy is to accrue interest
expense and penalties on income tax underpayments (overpayments) as a component of income tax expense. During 2014, we did not recognize any interest or penalties due to the offsetting nature of the issue as described above.
The Companys parent has been examined by the IRS for tax years through 2012. However, statutes remain open for tax years 2007 and
forward due to carryback of net operating losses and/or claims regarding government incentive payments discussed above. All other issues are resolved. Though we believe the tax years are closed by statute, tax years 2004 through 2006 are impacted by
the carryback of net operating losses and under certain circumstances may be impacted by adjustments for government incentive payments. As discussed above, the Company has no obligations to or claims against its parent with respect to any audit
adjustments resulting from audit since there is no tax-sharing agreement in place.
The Companys parent also has various state and
local income tax returns in the process of examination or administrative appeal in various jurisdictions. We believe the appropriate accruals or unrecognized tax benefits have been recorded for any potential assessment with respect to these
examinations for the period represented in these financial statements. However, as described above, the Company has no obligations to or claims against its parent with respect to any audit adjustments resulting from audit since there is no
tax-sharing agreement in place.
Pursuant to the treatment of taxes accrued on current earnings under the separate entity method, $38
million, $33 million and $5 million were contributed to capital at the end of 2013 and at June 1 and July 1, 2014, respectively, to extinguish the current tax liabilities. This was recorded as a non-cash contribution to equity.
As a result of the restructurings on June 1, 2014 and July 1, 2014, there was an extinguishment of outstanding deferred taxes and uncertain
tax liabilities in the amount of $287 million, which was recorded as a non-cash contribution to equity.
10. Related Party Transactions:
Sunoco LLC is a party to supply agreements with Sunoco LP and MACS. Receivables to the Company under these agreements are included in
accounts receivable, affiliated companies in our consolidated and combined balance sheets. Sales under these agreements are included in sales to affiliates in our consolidated and combined statements of operations.
F-17
ETP RETAIL HOLDINGS, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Dollars in millions)
Sunoco LLC is party to a supply agreement with PES. Payables to PES under these
agreements are included in accounts payable, affiliated companies in our consolidated and combined balance sheets. Purchases under these agreements are included in purchases from affiliates in our consolidated and combined statements of
operations.
Sunoco LLC is a party to various agreements with Sunoco Logistics Partners L.P. for pipeline, terminalling and storage
services. We also have agreements for the purchase and sale of fuel. Receivables and payables under these agreements are included in accounts receivable from and accounts payable to affiliated companies. Purchases and sales under these
agreements are included in purchases from and sales to affiliates.
Sunoco LLC is party to a supply agreement with Sunoco. Under this
agreement, Sunoco LLC is the exclusive distributor of motor fuel to Sunocos existing convenience stores. Pursuant to the agreement, pricing is cost plus a fixed margin of four cents per gallon. Sales under this agreement are included in
sales to affiliates. There are generally no receivables under this agreement.
Sunoco LLC has a treasury services agreement with
Sunoco. Pursuant to this agreement, Sunoco LLC participates in Sunocos centralized cash management program. Under this program, all of Sunoco LLCs cash receipts and cash disbursements are processed, together with those of Sunoco and its
other subsidiaries, through Sunocos cash accounts with a corresponding credit or charge to the affiliated account.
11. Leases:
Prior to the contribution transaction in March 2016, we had certain non-cancelable leases for property and equipment, which required fixed
monthly rental payments and expired at various dates through 2056. The table below reflects rental expense under these operating leases included in operating expenses in the accompanying consolidated and combined statements of operations and
rental expense recovered through related sublease rental income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Rental expense
|
|
$
|
4
|
|
|
$
|
34
|
|
|
$
|
26
|
|
Less: Sublease rental income
|
|
|
(4
|
)
|
|
|
(38
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental (income) expense, net
|
|
$
|
|
|
|
$
|
(4
|
)
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12. Commitments and Contingencies:
ETP Retail Holdings Guarantee of Sunoco LP Notes
In April 2015, Sunoco LP acquired a 31.58% equity interest in Sunoco LLC from the Company for $775 million of cash and $41 million of Sunoco LP
common units. The cash portion of the consideration was financed through Sunoco LPs issuance of $800 million principal amount of 6.375% senior notes due 2023. The Company entered into a guarantee of collection with Sunoco LP and Sunoco Finance
Corp., a wholly owned subsidiary of Sunoco LP, pursuant to which the Company has agreed to provide a guarantee of collection, but not of payment, to Sunoco LP with respect to the principal amount of the 6.375% senior notes issued by Sunoco LP.
In March 2016, Sunoco LP entered into a term loan in an aggregate principal amount of up to $2.035 billion due October 1, 2019 (the
Term Loan Facility), which was borrowed in full. The Company provided a limited contingent guaranty of collection with respect to the payment of the principal amount of the Term Loan Facility.
F-18
ETP RETAIL HOLDINGS, LLC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Dollars in millions)
In April 2016, Sunoco LP issued $800 million of 6.250% senior notes due 2021 (the
Senior Notes). The Senior Notes will be used to repay a portion of Sunoco LPs indebtedness under its Term Loan Facility. The Company entered into a limited contingent guarantee on the obligation to pay the principal on the Senior
Notes once all remedies have been fully exhausted against Sunoco LP with respect to such payment obligation, and holders of the Senior Notes are still owed amounts in respect of the principal of the Senior Notes.
F-19
|
|
|
|
|
|
|
|
KPMG LLP
1601 Market Street
Philadelphia, PA 19103-2499
|
Report of Independent Registered Public Accounting Firm
The Board of Managers
Philadelphia Energy Solutions LLC:
We have audited the accompanying consolidated balance sheets of Philadelphia Energy Solutions LLC and subsidiaries as of December 31, 2015 and 2014, and the
related consolidated statements of operations and comprehensive income (loss), members equity, and cash flows for each of the years in the three-year period ended December 31, 2015. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of Philadelphia Energy Solutions LLC and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2015, in
conformity with U.S. generally accepted accounting principles.
/s/
KPMG LLP
Philadelphia, Pennsylvania
March 25, 2016
KPMG LLP is a Delaware limited liability partnership,
the U.S. member firm of KPMG International Cooperative
(KPMG International), a Swiss entity.
F-20
PHILADELPHIA ENERGY SOLUTIONS LLC
CONSOLIDATED BALANCE SHEETS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Assets
|
|
Cash and cash equivalents
|
|
$
|
272,512
|
|
|
$
|
338,249
|
|
Accounts receivable
|
|
|
170,680
|
|
|
|
205,852
|
|
Accounts receivable from affiliate
|
|
|
1,755
|
|
|
|
948
|
|
Inventories
|
|
|
560,720
|
|
|
|
905,380
|
|
Prepaid expenses and other current assets
|
|
|
112,714
|
|
|
|
92,220
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,118,381
|
|
|
|
1,542,649
|
|
Property, plant, and equipment, net of accumulated depreciation of $101,232 and $50,294,
respectively
|
|
|
611,367
|
|
|
|
469,728
|
|
Environmental indemnification receivable
|
|
|
17,864
|
|
|
|
18,619
|
|
Other long-term assets
|
|
|
16,896
|
|
|
|
15,926
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,764,508
|
|
|
$
|
2,046,922
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Members Equity
|
|
Accounts payable
|
|
$
|
177,647
|
|
|
$
|
152,366
|
|
Accounts payable to affiliates
|
|
|
22,928
|
|
|
|
15,789
|
|
Accrued liabilities
|
|
|
600,722
|
|
|
|
853,251
|
|
Deferred revenue
|
|
|
133,499
|
|
|
|
166,032
|
|
Current portion of long-term debt, capital lease, and other obligations
|
|
|
45,872
|
|
|
|
10,856
|
|
Non-income taxes payable
|
|
|
19,411
|
|
|
|
22,197
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,000,079
|
|
|
|
1,220,491
|
|
Long-term debt, capital lease, and other obligations
|
|
|
664,544
|
|
|
|
575,981
|
|
Environmental liabilities
|
|
|
17,864
|
|
|
|
18,619
|
|
Other long-term liabilities
|
|
|
19,333
|
|
|
|
22,779
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,701,820
|
|
|
|
1,837,870
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (note 11)
|
|
|
|
|
|
|
|
|
Common units
|
|
|
238,166
|
|
|
|
236,602
|
|
Advances to members
|
|
|
|
|
|
|
(75,900
|
)
|
Officer loans to purchase common units
|
|
|
|
|
|
|
(853
|
)
|
Retained earnings (deficit)
|
|
|
(170,556
|
)
|
|
|
51,699
|
|
Accumulated other comprehensive loss
|
|
|
(4,922
|
)
|
|
|
(2,496
|
)
|
|
|
|
|
|
|
|
|
|
Total members equity
|
|
|
62,688
|
|
|
|
209,052
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and members equity
|
|
$
|
1,764,508
|
|
|
$
|
2,046,922
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-21
PHILADELPHIA ENERGY SOLUTIONS LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Net sales
|
|
$
|
8,626,170
|
|
|
$
|
13,319,045
|
|
|
$
|
13,627,620
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
7,782,084
|
|
|
|
12,461,703
|
|
|
|
13,185,363
|
|
Operating expenses
|
|
|
522,600
|
|
|
|
502,205
|
|
|
|
422,506
|
|
Impairment of inventory
|
|
|
7,891
|
|
|
|
49,290
|
|
|
|
|
|
General and administrative expenses
|
|
|
93,534
|
|
|
|
81,068
|
|
|
|
72,245
|
|
Depreciation and amortization
|
|
|
55,444
|
|
|
|
37,646
|
|
|
|
23,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
8,461,553
|
|
|
|
13,131,912
|
|
|
|
13,703,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
164,617
|
|
|
|
187,133
|
|
|
|
(75,695
|
)
|
Interest expense, net
|
|
|
(50,389
|
)
|
|
|
(46,822
|
)
|
|
|
(30,975
|
)
|
Other income
|
|
|
228
|
|
|
|
1,565
|
|
|
|
3,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense
|
|
|
114,456
|
|
|
|
141,876
|
|
|
|
(103,039
|
)
|
Income tax benefit (expense)
|
|
|
(925
|
)
|
|
|
1,752
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
113,531
|
|
|
$
|
143,628
|
|
|
$
|
(102,939
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on derivatives
|
|
|
(2,426
|
)
|
|
|
(3,215
|
)
|
|
|
719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
(2,426
|
)
|
|
|
(3,215
|
)
|
|
|
719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
111,105
|
|
|
$
|
140,413
|
|
|
$
|
(102,220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-22
PHILADELPHIA ENERGY SOLUTIONS LLC
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS EQUITY
(in thousands, except unit data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred A
|
|
|
Common
|
|
|
Advances
to
members
|
|
|
Officer
loans to
purchase
common
units
|
|
|
Retained
earnings
(deficit)
|
|
|
Accumulated
other
comprehensive
income (loss)
|
|
|
Total
members
equity
|
|
|
|
Units
|
|
|
Amount
|
|
|
Units
|
|
|
Amount
|
|
|
|
|
|
|
Balance at December 31, 2012
|
|
|
25,000,000
|
|
|
$
|
25,000
|
|
|
|
235,625
|
|
|
$
|
233,531
|
|
|
$
|
|
|
|
$
|
(4,000
|
)
|
|
$
|
136,010
|
|
|
$
|
|
|
|
$
|
390,541
|
|
Redemption of Preferred A units
|
|
|
(25,000,000
|
)
|
|
|
(25,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,000
|
)
|
Distributions to members
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(125,000
|
)
|
|
|
|
|
|
|
(125,000
|
)
|
Advances to members
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(75,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(75,900
|
)
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,074
|
|
Repayment of officer loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,147
|
|
|
|
|
|
|
|
|
|
|
|
3,147
|
|
Unrealized gain on derivative instruments, net of $(2,798) reclassified to net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
719
|
|
|
|
719
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(102,939
|
)
|
|
|
|
|
|
|
(102,939
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
235,625
|
|
|
|
234,605
|
|
|
|
(75,900
|
)
|
|
|
(853
|
)
|
|
|
(91,929
|
)
|
|
|
719
|
|
|
|
66,642
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,997
|
|
Unrealized loss on derivative instruments, net of $(3,745) reclassified to net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,215
|
)
|
|
|
(3,215
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143,628
|
|
|
|
|
|
|
|
143,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
235,625
|
|
|
|
236,602
|
|
|
|
(75,900
|
)
|
|
|
(853
|
)
|
|
|
51,699
|
|
|
|
(2,496
|
)
|
|
|
209,052
|
|
Distributions to members
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(259,886
|
)
|
|
|
|
|
|
|
(259,886
|
)
|
Advances to members
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,396
|
)
|
Distributions declared on previous advances to members
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86,296
|
|
|
|
|
|
|
|
(75,900
|
)
|
|
|
|
|
|
|
10,396
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,564
|
|
Repayment of officer loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
853
|
|
|
|
|
|
|
|
|
|
|
|
853
|
|
Unrealized loss on derivative instruments, net of $(3,707) reclassified to net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,426
|
)
|
|
|
(2,426
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,531
|
|
|
|
|
|
|
|
113,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
|
|
|
$
|
|
|
|
|
235,625
|
|
|
$
|
238,166
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(170,556
|
)
|
|
$
|
(4,922
|
)
|
|
$
|
62,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-23
PHILADELPHIA ENERGY SOLUTIONS LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Cash flows from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
113,531
|
|
|
$
|
143,628
|
|
|
$
|
(102,939
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of assets
|
|
|
|
|
|
|
|
|
|
|
(1,769
|
)
|
Depreciation and amortization
|
|
|
55,444
|
|
|
|
37,646
|
|
|
|
23,201
|
|
Impairment of inventory
|
|
|
7,891
|
|
|
|
49,290
|
|
|
|
|
|
Share-based compensation
|
|
|
1,564
|
|
|
|
1,997
|
|
|
|
1,074
|
|
Amortization of debt discount
|
|
|
1,650
|
|
|
|
1,651
|
|
|
|
1,237
|
|
Amortization of out of market contracts
|
|
|
(3,016
|
)
|
|
|
(2,832
|
)
|
|
|
(2,568
|
)
|
Accretion of asset retirement obligations
|
|
|
1,216
|
|
|
|
1,383
|
|
|
|
1,318
|
|
Amortization of deferred financing costs
|
|
|
3,344
|
|
|
|
5,394
|
|
|
|
3,093
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
35,172
|
|
|
|
101,640
|
|
|
|
(75,884
|
)
|
Accounts receivable from affiliate
|
|
|
(807
|
)
|
|
|
5,221
|
|
|
|
(1,676
|
)
|
Inventories
|
|
|
48,262
|
|
|
|
(118,175
|
)
|
|
|
(25,954
|
)
|
Prepaid expenses and other current assets
|
|
|
(20,494
|
)
|
|
|
(78,205
|
)
|
|
|
(2,007
|
)
|
Other long-term assets
|
|
|
(4,118
|
)
|
|
|
(610
|
)
|
|
|
|
|
Accounts payable
|
|
|
25,281
|
|
|
|
(75,189
|
)
|
|
|
12,166
|
|
Accounts payable to affiliates
|
|
|
7,139
|
|
|
|
5,113
|
|
|
|
(28,223
|
)
|
Accrued liabilities
|
|
|
44,695
|
|
|
|
82,293
|
|
|
|
51,894
|
|
Deferred revenue
|
|
|
(32,533
|
)
|
|
|
166,032
|
|
|
|
|
|
Non-income taxes payable
|
|
|
(2,786
|
)
|
|
|
13,216
|
|
|
|
3,280
|
|
Other long-term liabilities
|
|
|
(1,738
|
)
|
|
|
(2,554
|
)
|
|
|
(2,374
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
279,697
|
|
|
|
336,939
|
|
|
|
(146,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(187,397
|
)
|
|
|
(140,295
|
)
|
|
|
(267,871
|
)
|
Proceeds from Commonwealth of Pennsylvania grants
|
|
|
|
|
|
|
22,403
|
|
|
|
2,222
|
|
Proceeds from sale of property, plant, and equipment
|
|
|
|
|
|
|
|
|
|
|
31,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(187,397
|
)
|
|
|
(117,892
|
)
|
|
|
(233,781
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from debt
|
|
|
125,000
|
|
|
|
|
|
|
|
545,290
|
|
Repayment of debt
|
|
|
(20,407
|
)
|
|
|
(7,310
|
)
|
|
|
(4,831
|
)
|
Repayment of notes payable to affiliate
|
|
|
|
|
|
|
|
|
|
|
(28,179
|
)
|
Deferred financing costs
|
|
|
(3,955
|
)
|
|
|
(868
|
)
|
|
|
(15,879
|
)
|
Redemption of Preferred A units
|
|
|
|
|
|
|
|
|
|
|
(25,000
|
)
|
Payment of Preferred A dividend
|
|
|
|
|
|
|
|
|
|
|
(2,594
|
)
|
Distributions to members
|
|
|
(249,132
|
)
|
|
|
|
|
|
|
(120,546
|
)
|
Advances to members
|
|
|
(10,396
|
)
|
|
|
|
|
|
|
(75,900
|
)
|
Proceeds from repayment of officer loan
|
|
|
853
|
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(158,037
|
)
|
|
|
(8,178
|
)
|
|
|
274,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(65,737
|
)
|
|
|
210,869
|
|
|
|
(105,551
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
338,249
|
|
|
|
127,380
|
|
|
|
232,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
272,512
|
|
|
$
|
338,249
|
|
|
$
|
127,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of capitalized interest of $1,187, $1,603, and $1,874
|
|
$
|
44,733
|
|
|
$
|
36,662
|
|
|
$
|
23,441
|
|
Cash paid (received) for taxes
|
|
$
|
691
|
|
|
$
|
(2,311
|
)
|
|
$
|
3,732
|
|
Capital expenditures included in accrued liabilities
|
|
$
|
8,142
|
|
|
$
|
19,261
|
|
|
$
|
5,652
|
|
See accompanying notes to consolidated financial statements.
F-24
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except unit and volume data)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Organization of Company
Philadelphia
Energy Solutions LLC (the Company or PES LLC), a Delaware limited liability company, was formed on June 11, 2012. PES LLC owns all of the outstanding equity interest in PES Holdings LLC (PES Holdings), which owns 99.99% of the outstanding equity
interests of Philadelphia Energy Solutions Refining & Marketing LLC (Refining or PESRM), a Delaware limited liability company. PESRM Holdings, LLC (PESRM Holdings), a Delaware limited liability company owns the remaining 0.01% of equity
interests in Refining. PES Holdings and PESRM Holdings have no operations other than their ownership of the equity of Refining.
On
September 8, 2012, Carlyle PES, LLC (Carlyle PES) contributed cash to PES LLC in exchange for 67% of the Common Units of PES LLC and 25 million Preferred A Units of PES LLC. Concurrently, Sunoco, Inc. and certain of its subsidiaries (Sunoco)
contributed substantially all of the assets constituting their refinery operations in Philadelphia, Pennsylvania to Refining, and in exchange Sunoco received 33% of the Common Units in PES LLC. Carlyle PES is affiliated with The Carlyle Group L.P.
and Sunoco is a wholly owned subsidiary of Energy Transfer Partners, L.P. (ETP).
In June 2014, PES LLC formed and owns all of the limited
partner interest in North Yard Logistics, L.P. (Logistics), a Delaware limited partnership, and North Yard GP, LLC (North Yard GP). North Yard GP is a Delaware limited liability company and the general partner of Logistics.
The Company is a merchant refiner and marketer that operates the 190,000 barrels per day (bpd) Girard Point and the 145,000 bpd Point Breeze
refining facilities in Philadelphia, Pennsylvania (the Philadelphia refining complex) and engages in the refining of crude oil and other feedstocks into petroleum products in the Northeast region of the United States. Logistics owns and operates the
East Coasts largest crude oil rail unloading terminal (the North Yard terminal), located adjacent to the Philadelphia refining complex. The North Yard terminal has the capacity to unload four crude unit trains per day, or 280,000
bpd. Logistics provides rail unloading services to PESRM under a long-term contract and currently does not generate unaffiliated third party revenue. PES LLC operates through two business segments: Refining and Logistics. Refer to note 17,
Segment Data
for additional information.
Potential Initial Public Offerings
In June 2014, certain subsidiaries of the Company formed PES Logistics Partners, L.P. (PES Logistics), a Delaware limited partnership, which is
expected to acquire an indirect portion of the crude oil rail unloading terminal which currently provides certain logistics services to Refining. In October 2014, a registration statement on Form S-1, as amended, for PES Logistics was filed with the
Securities and Exchange Commission (SEC) to explore an initial public offering of certain of its logistics assets.
In February 2015, the
Company formed Philadelphia Energy Solutions Inc. (PES Inc.) which is expected to own the portion of PES LLC to be sold in a public offering. In February 2015, a registration statement on Form S-1, as amended, for PES Inc. was filed with the
SEC to explore an initial public offering.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Presentation
The accompanying consolidated financial statements include the accounts of PES LLC and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
F-25
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make
estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual amounts could differ from these estimates.
In recording transactions and balances resulting from business operations, the Company uses estimates based on the best information available.
Estimates are used for such items as plant depreciable lives, fair value of derivatives, environmental liabilities and liabilities for loss contingencies, among others. As better information becomes available or actual amounts are determinable, the
recorded estimates are revised.
Cash Equivalents
The Company considers all highly liquid investments with a remaining maturity of three months or less at the time of purchase to be cash
equivalents. These cash equivalents consist principally of time deposits and money market investments.
Accounts Receivable
Accounts receivable are carried at invoiced amounts. An allowance for doubtful accounts is established, if required, to report such amounts at
their estimated net realizable value. In estimating probable losses, management reviews accounts that are past due and determines if there are any known disputes. There was no allowance for doubtful accounts at December 31, 2015 or 2014.
Accounts receivable in the consolidated balance sheets comprises customer balances of $112,973 and other receivables of $57,707 at December
31, 2015 and customer balances of $166,455 and other receivables of $39,397 at December 31, 2014.
Included in other receivables,
mentioned above, at December 31, 2015 and 2014 are receivables relating to volume-based freight incentive rebates of $25,251 and $17,213, respectively.
Inventories
Inventories are
carried at the lower of cost or market. The cost of crude oil and refined and intermediate product inventories is determined using the last-in, first-out (LIFO) method. Under the LIFO valuation method, the most recently incurred costs are charged to
cost of sales and inventories are valued at the earliest acquisition costs. The use of the LIFO inventory method may result in increases or decreases to cost of sales in years when inventory volumes decline and result in charging cost of sales with
LIFO inventory costs generated in prior periods. Also, in periods of rapidly declining prices, LIFO inventories may need to be written down to market value due to the higher costs assigned to LIFO layers in prior periods. An inventory write-down to
market value results in a non-cash accounting adjustment, decreasing the value of our inventories and increasing our cost of sales. Such charges are subject to reversal in subsequent periods, not to exceed LIFO cost, if prices recover.
The cost of materials and supplies inventories is determined using the average-cost method.
Revenue Recognition
Revenues from
sales of refined products are recognized upon transfer of title to the customer based on the contractual terms of delivery.
F-26
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
The Company entered into an intermediation agreement with J.P. Morgan Ventures Energy
Corporation (JPMVEC) on September 8, 2012, and sold refined products to JPMVEC under this agreement. On a daily basis, PES LLC sold the production of refined products and blendstocks from the Philadelphia refining complex as they were produced,
delivered to the storage tanks, and legal title passed to JPMVEC. These transactions occurred at the daily market price for the respective products.
On October 7, 2014, JPMVEC assigned the intermediation agreement to Merrill Lynch Commodities (MLC). Under this agreement, the Company
receives upfront cash payments for daily production sold to MLC through intermediation but prior to final sale to the customer. The upfront payments are deferred and classified as deferred revenue on the consolidated balance sheets, until title has
passed to the ultimate customer.
For further discussion of the above, see note 4,
Intermediation Agreements.
Revenues from the Companys intermediation agreements are reported on a gross basis in the consolidated statements of operations and
comprehensive income (loss) as the Company is considered a principal in these agreements.
The Company may also purchase refined products
from MLC under the intermediation agreement and sell the related products at its rack operation. The initial sale of refined products under the intermediation agreement and the subsequent buy-back of refined products for sale at the rack operation
are considered to be made in contemplation of each other and, accordingly, are recorded net in the consolidated statements of operations and comprehensive income (loss) and do not result in the recognition of a sale. Revenue from sales of refined
products at the rack operation are recorded upon transfer of title to the ultimate customer.
The Company may also purchase refined
products and sell the related refined products through the intermediation agreement. The Company acts as a principal in these transactions, taking title to the products and records revenue for the gross amount of the sales transactions, and records
costs of purchases as a component of cost of sales in the consolidated statements of operations and comprehensive income (loss).
The
Company may also enter into refined product buy/sell arrangements, which involve linked purchases and sales related to refined product sales contracts. The Company acts as an agent in these transactions, not taking title to the products and includes
these transactions on a net basis in net sales in the consolidated statements of operations and comprehensive income (loss).
Excise taxes
on sales of refined products that are collected from customers and remitted to various governmental agencies are reported on a net basis in the consolidated statements of operations and comprehensive income (loss).
Depreciation, Amortization, and Retirements
Plant and equipment are depreciated on a straight-line basis over their estimated useful lives of 30 years for buildings and from 4 to 35 years
for machinery and equipment.
Gains and losses on the disposal of fixed assets are reflected in the consolidated statements of operations
and comprehensive income (loss) in the period in which the item is disposed.
As part of the contribution of assets from Sunoco on
September 8, 2012, the Company received the right to utilize underground storage caverns at Sunocos Marcus Hook terminal at no cost for three years. The intangible asset was amortized on a straight-line basis over the three-year free rent
period.
F-27
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
Maintenance Shutdowns
The costs incurred in connection with major maintenance turnarounds are capitalized as property, plant, and equipment when incurred and
depreciated over the period benefited by the maintenance activities.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may
not be recoverable. An asset is considered to be impaired when the undiscounted cash flows expected to be generated by the asset are less than its carrying amount. The impairment recognized is the amount by which the carrying amount exceeds the fair
value of the impaired asset. Fair values are determined by a variety of valuation methods, including appraisals, sales prices of similar assets and present value techniques. Impairment assessments inherently involve judgment as to assumptions about
expected future cash flows and the impact of market conditions on those assumptions. Although management would utilize assumptions that it believes are reasonable, future events and changing market conditions may impact managements
assumptions, which could produce different results. The Company recorded no impairment of long-lived assets for the years ended December 31, 2015, 2014, and 2013.
Commitments and Contingencies
The
Company enters into commitments for purchase of both crude and refined products as part of normal operations. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when
it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. Recoveries of environmental remediation costs from third parties are
recorded as assets when receipt is deemed probable.
Environmental Remediation
Environmental remediation costs are accrued where an assessment has indicated that cleanup costs are probable and reasonably estimable. Such
accruals are undiscounted and are based on currently available information, estimated timing of remedial actions and related inflation assumptions, existing technology, and presently enacted laws and regulations. If a range of probable environmental
cleanup costs exists for an identified site, the minimum of the range is accrued. The actual settlement of environmental remediation costs could materially differ from our estimates due to a number of uncertainties such as the extent of
contamination, changes in environmental laws and regulations, potential improvements in remediation technologies and the participation of other responsible parties.
The Company has entered into an agreement with Sunoco that provides indemnities to the Company for remediating contamination that occurred at
the Philadelphia refining complex prior to September 8, 2012. Accordingly, the Company recorded a corresponding receivable from Sunoco for all liabilities recorded which are subject to the indemnity as of December 31, 2015 and 2014.
The Company has not incurred material liabilities or obligations subsequent to September 8, 2012.
Derivative Instruments
From time
to time, the Company uses swaps, futures, forwards, and other derivative instruments to hedge a variety of price risks. All derivative financial instruments are recorded in the consolidated balance sheets at their estimated fair value. For balance
sheet presentation purposes, the Company offsets asset and liability fair value
F-28
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
amounts with the same counterparty or under a master netting agreement, which provides the Company with the legal right of offset. The Company does not offset derivative positions against the
fair value of collateral provided or received. Changes in the fair value of the derivative instruments are recognized in operations. On a regular basis, the Company enters into short-term commodity contracts with counterparties for crude oil and
various finished products with the intent to physically take delivery or deliver the products. The Company evaluates these contracts for qualification of the normal purchases normal sales scope exemption.
For all hedging relationships, the Company formally documents the hedging relationship and its risk management objective and strategy for
undertaking the hedge, the hedging instrument, the hedged transaction, the nature of the risk being hedged, how the hedging instruments effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a
description of the method used to measure ineffectiveness. The Company also formally assesses, both at the inception of the hedging relationship and on an ongoing basis, whether the derivatives that are used in hedging relationships are highly
effective in offsetting changes in cash flows of the hedged transactions. For derivative instruments that are designated and qualify as part of a cash flow hedging relationship, the effective portion of the gain or loss on the derivative is reported
as a component of other comprehensive income (OCI) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on derivatives representing hedge ineffectiveness are recognized
in earnings in the current period. The Company discontinues hedge accounting prospectively when it determines that the derivative is no longer effective in offsetting cash flows attributable to the hedged risk, the derivative expires or is sold,
terminated, or exercised, a forecasted transaction is not probable of occurring, or management decides to remove the designation of the cash flow hedge.
The embedded derivative transactions related to the intermediation agreement have been designated as fair value hedges of inventory. The gain
or loss on the derivative instrument designated and qualifying as a fair value hedge, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, is recognized in earnings in the same period.
Deferred Financing Costs
Deferred
financing costs are capitalized and amortized over the term of the related debt as a component of interest expense on a basis that approximates the effective interest method. Included in other long-term assets in the consolidated balance sheets at
December 31, 2015 and 2014 are unamortized deferred financing costs totaling $11,753 and $11,141, respectively.
Asset Retirement Obligations
Accruals are established for the fair value of legal obligations to perform asset retirement activities in which the timing and/or
method of settlement are conditional on a future event that may or may not be within the control of the entity, if the fair value can be reasonably estimated. Certain of the Companys asset retirement obligations are based on its legal
obligation to perform cleaning and disposal activities at the Philadelphia refining complex when it permanently ceases operations of the long-lived assets. The Company, therefore, considers the settlement date of these obligations to be
indeterminable and, accordingly, cannot calculate an associated asset retirement liability for these obligations at this time.
When the
Company has a legal obligation to incur costs to retire the asset and a reasonable estimate of the fair value of the liability can be made, the fair value liability of these asset retirement obligations will be recognized when the settlement date is
determinable. The liability is subsequently adjusted for accretion expense and changes in the amount or timing of the estimated cash flows. The corresponding asset retirement costs are depreciated over the assets remaining useful life.
F-29
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
Taxes
The Company is a limited liability company, taxed as a partnership under Subchapter K of the Internal Revenue Code of 1986, for federal and
state income tax purposes. Therefore, federal and state income taxes are assessed at the member level. For further information, see Note 5,
Taxes
.
Share-Based Compensation
The
Company accounts for the compensation cost of equity-based awards at fair value and reports the related expense in the consolidated statements of operations and comprehensive income (loss). Compensation cost for awards of incentive units is derived
from the fair market value of common units on the grant date using a Black-Sholes valuation pricing model. The Company recognizes incentive unit compensation expense on a straight-line basis over the requisite service period in operating expenses
and general and administrative expenses in the consolidated statements of operations (loss).
Fair Value Measurements
The Company determines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. As required, the Company utilizes valuation techniques that maximize the use of observable inputs (Levels 1 and 2) and minimize the use of unobservable inputs (Level 3) within the fair
value hierarchy included in current accounting guidance. The market approach is generally used to determine fair value when available. This method uses pricing and other information generated by market transactions for identical or
comparable assets and liabilities.
Revision of Previously Issued Financial Statements
The Company has revised its audited consolidated financial statements and certain footnote disclosures as of and for the year ended December
31, 2014 primarily to correct amounts previously reported related to the intermediation agreement with MLC. The following table presents the effect of the revision on the consolidated balance sheet as of December 31, 2014 and the consolidated
statement of operations and comprehensive (loss) and consolidated statement of cash flows for the year ended December 31, 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
Adjustment
|
|
|
Revised
|
|
Consolidated balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
927,087
|
|
|
$
|
(21,707
|
)
|
|
$
|
905,380
|
|
Accrued liabilities
|
|
|
626,004
|
|
|
|
227,247
|
|
|
|
853,251
|
|
Deferred revenue
|
|
|
414,986
|
|
|
|
(248,954
|
)
|
|
|
166,032
|
|
Consolidated statement of operations and comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
13,250,883
|
|
|
$
|
68,162
|
|
|
$
|
13,319,045
|
|
Cost of sales
|
|
|
12,393,541
|
|
|
|
68,162
|
|
|
|
12,461,703
|
|
Consolidated statement of cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
(367,129
|
)
|
|
$
|
248,954
|
|
|
$
|
(118,175
|
)
|
Deferred revenue
|
|
|
414,986
|
|
|
|
(248,954
|
)
|
|
|
166,032
|
|
Total members equity, net income, and net cash flows provided by operating activities were not impacted
by these revisions.
F-30
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
Recent Accounting Developments
Leases
In February 2016, the
Financial Accounting Standard Board (FASB) issued new accounting guidance related to the presentation and disclosure of leasing arrangements. The new guidance requires that lessees recognize the assets and liabilities arising from all leases with
terms of more than 12 months on the balance sheet. The new guidance requires a modified retrospective adoption and is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the
impact of this new guidance on its consolidated financial statements and related disclosures.
Presentation of Debt Issuance Costs
In April 2015, the FASB issued new accounting guidance related to the presentation of debt issuance costs in the balance sheet. The new
guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts or premiums. The Company
currently presents such amounts as other long-term assets. The new guidance does not change the current recognition and measurement guidance for debt issuance costs. This guidance requires retrospective adoption and is effective for interim and
annual financial statements issued for fiscal years beginning after December 15, 2015. Early adoption of this guidance is permitted for financial statements that have not been previously issued. The Company adopted this guidance on January 1, 2016
with no impact to its results of operations, cash flows or net assets.
Amendments to the Consolidation Analysis
In February 2015, the FASB issued new guidance related to the evaluation of whether limited partnerships and similar legal entities are
variable interest entities (VIEs) or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting entities that are involved with VIEs,
particularly those that have fee arrangements and related party relationships. The requirements of the new guidance are effective for interim and annual periods beginning after December 15, 2015, and early adoption is permitted. The Company is
currently evaluating the impact of this new standard on its consolidated financial statements and related disclosures.
Revenue Recognition
In May 2014, the FASB issued new guidance which establishes a comprehensive new revenue recognition model designed to depict the
transfer of goods or services to a customer in an amount that reflects the consideration the entity expects to be entitled to receive in exchange for those goods or services and requires significantly enhanced revenue disclosures. This guidance will
replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The standard is effective for interim and annual periods beginning after December 15, 2016. Early adoption is not permitted. In April 2015, the FASB issued
further guidance and delayed the effective date of the new standard by one year. Under the additional guidance, early adoption will be allowed, but not earlier than the original effective date. The Company is currently evaluating the impact of this
new guidance on its consolidated financial statements and related disclosures.
F-31
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
3. RELATED-PARTY TRANSACTIONS
Agreements with Sunoco
Sunoco Supply Agreement
In connection with the acquisition of the Philadelphia refining complex, Refining entered into an agreement with Sunoco LLC (as
successor in interest to Sunoco, Inc. (R&M) (Sunoco R&M)), a subsidiary of ETP, pursuant to which Refining sells ethanol to Sunoco LLC for blending at Sunoco Logistics Partners L.P.s (SXLs) Belmont truck rack (Belmont Rack). The
agreement ended in June 2015.
The volume of ethanol sold under the agreement equals the amount required for blending based on the volume
of gasoline Sunoco LLC purchases from MLC under the intermediation agreement.
On June 1, 2015, Refining and Sunoco LLC entered into a new
agreement for the sale of ethanol from Refining to Sunoco LLC. In connection with this new agreement, the parties entered into a renewable identification number transaction agreement whereby Sunoco LLC agreed to sell Refining 8,000,000 renewable
identification numbers (RINs) per month at market price for the length of the agreement. The initial term of this agreement ends in June 2016 and will automatically renew for successive twelve-month terms unless terminated by either party upon 90
days prior notice.
Sunoco LLC is responsible for all fees, costs and expenses that are incurred outside of the Philadelphia refining
complex with respect to any product sold under this agreement including, without limitation, (i) rack and/or distribution costs, (ii) fees charged by SXL, (iii) fees for the use of the Belmont truck rack and (iv) docking fees. Obligations under the
agreement will be suspended to the extent affected by a force majeure event.
On June 1, 2015, Refining also entered into an agreement
with Sunoco LLC for the sale of refined products from Refining to Sunoco LLC. This agreement provides for the sale of approximately 2,000,000 gallons of refined products per month and expires in May 2016.
Refinings net sales under these agreements were $58,703, $73,429, and $77,057 for the years ended December 31, 2015, 2014, and 2013,
respectively. Refinings purchases of RINs under this agreement was $24,838 for the year ended December 31, 2015. The net sales and purchases of RINs are recorded as a component of net sales and cost of sales in the consolidated statements of
operations and comprehensive income (loss), respectively.
Transition Services Agreement
In connection with the acquisition of the Philadelphia refining complex, on September 8, 2012, Refining entered into a transition services
agreement with Sunoco for the performance by each party of certain transition services related to the transition of the Philadelphia refining complex to a stand-alone operation separate from the other businesses of Sunoco. Services provided under
the agreement included various accounting, management, information technology, human resources, commercial and other miscellaneous administrative functions. The party performing a transition service was reimbursed by the other party according to the
agreed-upon fee schedule for that particular service. While a majority of the services provided pursuant to this agreement ceased in 2013, Refining continues to utilize Sunocos common carrier bond in connection with Foreign Trade Zone
operating activities.
Transition services expenses were $73, $518, and $2,732 for the years ended December 31, 2015, 2014, and 2013,
respectively. Transition services expenses are recorded as a component of general and administrative expenses in the consolidated statements of operations and comprehensive income (loss).
F-32
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
Sublease
In connection with the acquisition of the Philadelphia refining complex, on September 8 , 2012, the Company entered into a sublease arrangement
with Sunoco for its corporate headquarters in Philadelphia that were previously occupied by Sunoco. Rent expense incurred in connection with this agreement was $1,465, $1,393, and $1,347 for the years ended December 31, 2015, 2014, and 2013,
respectively. The rent expense is recorded as a component of general and administrative expenses in the consolidated statements of operations and comprehensive income (loss).
Ethanol Purchases
From time to
time, Refining purchases ethanol from Sunoco on a spot basis. Ethanol purchases from Sunoco were $2,116, $1,016, and $60,355 for the years ended December 31, 2015, 2014, and 2013, respectively. The purchases of ethanol is recorded as a component of
cost of sales in the consolidated statements of operations and comprehensive income (loss).
RINs
From time to time, Refining purchases RINs from Sunoco on a spot basis. RINs purchases from Sunoco were $980, $8,512, and $5,346 for the years
ended December 31, 2015, 2014, and 2013, respectively. The purchases of RINS are recorded as a component of cost of sales in the consolidated statements of operations and comprehensive income (loss).
Agreements with SXL
Fort Mifflin Terminal Marine
Dock and Terminaling Agreement
In connection with the acquisition of the Philadelphia refining complex, on September 8, 2012,
Refining entered into a dock and terminaling agreement with SXL pursuant to which SXL provides Refining with the capacity to unload and store more than 300,000 barrels per day of waterborne crude oil and certain other refinery feedstocks, at the
Fort Mifflin Terminal and the related Darby Creek tank farm in exchange for a per barrel throughput fee, a per barrel fee for any necessary heating services and various miscellaneous docking fees. The throughput fee escalates annually at a rate
equal to the increase in the Consumer Price Index (CPI), and the other fees escalate annually to reflect any increase in the out-of-pocket costs of providing the applicable services.
Pursuant to Amendment No. 1 entered on July 20, 2015 to the agreement, Refining will reimburse SXL for all of the actual costs and expenses
for (i) certain modifications at the Darby Creek tank farm, including the installation and start-up of back-up electrical generators, (ii) the monthly lease payments paid to the generator lessor, (iii) the periodic maintenance of such generators,
and (iv) the fuel to run such generators.
This agreement expires in September 2022 and provides Refining with access to four marine
docks, 29 storage tanks with working capacity of 2.8 million barrels and seven pipelines at the Fort Mifflin Terminal and the Darby Creek tank farm. The agreement contains a minimum volume commitment requiring Refining to deliver an average of at
least 300,000 barrels per day on an annual basis or make a per barrel deficiency payment based on the shortfall amount. Deficiency payments can be credited against excess volumes throughput in the following year. Obligations under the agreement will
be suspended to the extent affected by a force majeure event.
Refining has an option under this agreement to purchase the Fort Mifflin
Terminal for fair market value should Refining sell the Philadelphia refining complex, undergo an initial public offering or restructure its capital
F-33
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
structure through a public debt financing of not less than $200 million. Refining also has a right of first refusal to match the terms of any sale by SXL of a material portion of the terminal to
a third party. SXL has a right of first refusal to repurchase the Fort Mifflin Terminal if Refining purchases the terminal pursuant to its option and thereafter sells or contributes to a joint venture the Fort Mifflin Terminal in a transaction that
does not include a sale or conveyance of the Philadelphia refining complex.
Fees incurred in connection with this agreement were $20,201,
$19,772, and $16,768 for the years ended December 31, 2015, 2014, and 2013, respectively. These fees are recorded as a component of cost of sales in the consolidated statements of operations and comprehensive income (loss).
Eagle Point Terminaling and Storage Agreements
Refining has entered into several terminaling and storage agreements with SXL pursuant to which SXL provides offloading, terminaling and
storage services at its Eagle Point Terminal for Refining.
Terminaling & Storage Agreement (ULSD)
In connection with the acquisition of the Philadelphia refining complex, on September 8, 2012, Refining entered into a terminaling and storage
agreement with SXL pursuant to which SXL provides ultra-low sulfur diesel storage and terminaling services for Refining at the Eagle Point Terminal. In exchange, Refining pays SXL a base storage fee, an excess storage fee per quarter and various
transfer, circulation, marine vapor recovery, contaminate treatment and miscellaneous docking fees. Storage fees under the agreement escalate annually at a rate equal to the increase in CPI and most other fees escalate annually to reflect any
changes in the out-of-pocket costs of providing the relevant services. This agreement expires in September 2022 and provides Refining with access to two marine docks and three storage tanks with working capacity of 600,000 barrels. Obligations under
the agreement will be suspended to the extent affected by a force majeure event.
Rail Offloading, Terminaling and Storage Agreement
(Crude Oil)
On September 19, 2014, Refining entered into a rail offloading, terminaling and storage agreement with SXL pursuant to
which SXL provides crude oil offloading, terminaling and storage services for Refining at SXLs tank farm and docks located at the Eagle Point Terminal. In exchange, Refining pays SXL a per barrel fee for rail car offloading, terminaling and
barge loading and various transfer, circulation, marine vapor recovery and miscellaneous docking fees. The fees under the agreement escalate annually at a rate equal to the increase in the CPI. This agreement provides Refining with access to one
storage tank and two docks with working capacity of 150,000 barrels as well as fungible storage of up to 100,000 barrels; however, the agreement, as it relates to fungible storage, expired on June 30, 2015. In February 2015, Refining amended this
agreement to add an additional four dedicated storage tanks for the period June 1, 2015 to December 31, 2015. The agreement, as it relates to all dedicated storage, terminated on November 1, 2015.
Terminaling & Storage Agreements (Light Cycle Oil, Reformate, and Naphtha)
In connection with the acquisition of the Philadelphia refining complex, Sunoco R&M assigned to Refining its rights and obligations with
respect to certain tanks at the Eagle Point Terminal. Refining expanded upon this arrangement by entering into a terminaling and storage agreement, effective as of February 10, 2014, with SXL pursuant to which SXL provides light cycle oil and
naphtha storage and terminaling services at the Eagle Point Terminal. In exchange, Refining pays SXL a base storage fee and various transfer, circulation, marine recovery,
F-34
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
heating, contaminate treatment and miscellaneous docking fees. This agreement currently provides Refining with access to eight storage tanks and four marine docks with working capacity of
approximately 923,000 barrels. The agreement for six of the tanks was scheduled to expire on February 28, 2015, with the balance of the agreement to expire on April 30, 2015. In January 2015, the Company amended the agreement to continue on a month
to month basis after the respective expiration dates. Obligations under the agreement will be suspended to the extent affected by a force majeure event.
Heavy Products
On
February 1, 2015, Refining entered into a terminaling and storage agreement with SXL pursuant to which SXL provides heavy product terminaling and storage services for Refining at the Eagle Point Terminal. In exchange, Refining pays SXL a base
storage fee, an excess storage fee per quarter and various transfer, circulation, marine recovery, heating and miscellaneous docking fees. The fees under the agreement escalate annually at a rate equal to the increase in the CPI. This agreement
provides Refining with access to four storage tanks and three docks with working capacity of approximately 820,000 barrels. The agreement expires on January 31, 2017. Obligations under the agreement will be suspended to the extent affected by a
force majeure event.
Fees incurred in connection with the Eagle Point Terminaling & Storage agreements were $31,819, $14,645, and
$10,502 for the years ended December 31, 2015, 2014, and 2013. These fees are recorded as a component of cost of sales in the consolidated statements of operations and comprehensive income (loss).
Marcus Hook Terminal Agreements
Refining has entered into several terminal services agreements with SXL pursuant to which SXL provides pipeline access, terminaling and storage
services for Refining at SXLs Marcus Hook Terminal located in Marcus Hook, Pennsylvania.
Terminal Services Agreement
In connection with the acquisition of the Philadelphia refining complex, on September 8, 2012, Refining entered into a terminal services
agreement with Sunoco R&M, which was subsequently assigned to SXL, pursuant to which SXL provides storage and terminaling services with respect to Refinings butane products in underground storage caverns located at the Marcus Hook
Terminal. In exchange, Refining pays SXL a per gallon throughput fee based upon the throughput amount of 775,000 barrels of refined products, an excess volume fee, a truck rack loading and unloading fee and a dock loading and unloading fee. The
agreement provided a free rent period for 775,000 barrels of storage for the first three years of the agreement. Beginning on September 8, 2015, Refining is charged a storage rate of $8,138 per year. All fees under the agreement escalate annually at
a rate equal to the increase in the CPI. The initial term of the contract expires on September 7, 2022, and any obligations under the agreement will be suspended to the extent affected by a force majeure event.
Summer Butane Agreement
On May 2, 2014, Refining entered into a terminal services agreement (summer butane agreement) with SXL pursuant to which SXL provided for the
receipt, storage, throughput, custody and delivery of excess butane, up to a maximum incremental amount of 625,000 barrels at the Marcus Hook Terminal. The summer butane agreement applies to butane delivered in excess of the throughput amount of
775,000 barrels in the initial terminal services agreement described above. This agreement expired on October 31, 2014.
F-35
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
Buy-Sell Agreement
On May 8, 2014, in connection with the summer butane agreement, Refining entered into a sale and repurchase agreement with SXL pursuant to
which Refining agreed to sell, and SXL agreed to purchase, a minimum of 150,000 barrels of butane (up to a maximum of 200,000 barrels of butane) during the period between May 1, 2014 and August 1, 2014. The agreement also required Refining to
repurchase equal volumes of butane from SXL during the period from September 16, 2014 through October 31, 2014. The parties agreed to a fixed price for the butane under this agreement.
Expenses incurred in connection with the Marcus Hook Terminal agreements were $5,530, $17,847, and $8,353 for the years ended December 31,
2015, 2014, and 2013, respectively. These expenses are recorded as a component of cost of sales in the consolidated statements of operations and comprehensive income (loss).
Inter-refinery Pipeline Lease
In
connection with the acquisition of the Philadelphia refining complex, on September 8, 2012, Sunoco R&M assigned to Refining its rights to and obligations under a lease for three pipelines owned by SXL that connect the Philadelphia refining
complex to the Marcus Hook Terminal (Inter-refinery pipeline). On November 30, 2012, Refining entered into a lease with SXL for the Inter-refinery pipeline, which replaced the Sunoco R&M lease. Under the lease, Refining pays SXL rent and a
per barrel throughput fee to provide power to pumps at the Marcus Hook Terminal. Rental payments are subject to an annual escalator. The lease expires in January 2022. Fees incurred in connection with this agreement were $7,334, $6,816, and $6,711
for the years ended December 31, 2015, 2014, and 2013, respectively. These fees are recorded as a component of cost of sales in the consolidated statements of operations and comprehensive income (loss).
SXL is responsible for operating and maintaining the pipelines and related facilities, except Refining must reimburse SXL for any non-routine
maintenance expenditures incurred during the term of the agreement. There were no material reimbursements under this agreement for the years ended December 31, 2015, 2014 and 2013.
Wholesale Rack Terminal Services Agreements
Refining has entered into several terminal services agreements with SXL pursuant to which SXL provides terminaling and storage services for
Refining at certain of its wholesale rack terminals.
Products Terminal Services Agreement (Belmont Rack and Paulsboro Terminal)
On September 8, 2012, Refining entered into an agreement with SXL pursuant to which SXL provides terminaling and storage services for
Refining at the Belmont Rack and Paulsboro terminal. In exchange, Refining pays SXL a per gallon throughput fee for each refined product, a per gallon demurrage fee, and various additive fees, all of which are subject to an annual CPI-based
inflation escalator. The contract expires in September 2022, and any obligations under the agreement will be suspended to the extent affected by a force majeure event.
In addition, Refining has a right of first offer to purchase the Belmont Rack should SXL sell the Belmont Rack or any material portion
thereof. Refining also has the option to purchase the Belmont Rack should Refining sell the Philadelphia refining complex, undergo an initial public offering or restructure its capital structure through a public debt financing of not less than $200
million. SXL has a right of first refusal to repurchase the Belmont Rack should Refining purchase the Belmont Rack pursuant to its option and thereafter sell or contribute
F-36
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
to a joint venture the Belmont Rack in a transaction that does not include a sale or conveyance of the Philadelphia refining complex. SXL also has the option to repurchase the Belmont Rack should
Refining purchase the rack pursuant to its option and thereafter the operations of the Belmont Rack are no longer conducted in connection with refining operations at the Philadelphia refining complex. SXL also has the option to purchase certain of
Refinings assets should there be a permanent shutdown at the Philadelphia refining complex.
Truck Rack Terminal Services
Agreement
On March 12, 2013, Refining entered into an agreement with SXL for the terminaling of refined products at various truck rack
terminals located throughout the northeastern United States. The initial term of this agreement expired in March 2014; however, the agreement automatically renews until terminated by either party upon 60 days prior written notice. Fees
under the agreement include a per gallon throughput fee based on the type of refined product and additives used, a per gallon demurrage fee and various additive fees, subject to discounts for meeting volume incentives at certain of the terminals.
All fees under the agreement escalate annually at a rate equal to the increase in CPI. Obligations under the agreement will be suspended to the extent affected by a force majeure event.
Van Buren Terminal Services Agreement
On July 1, 2014, Refining entered into an agreement with SXL pursuant to which SXL provides terminaling services at SXLs Van Buren truck
rack terminal. In exchange, Refining pays SXL a per gallon throughput fee for each refined product, a per gallon demurrage fee, and various additive fees, all of which are subject to an annual CPI-based inflation escalator. The initial term of this
agreement expired in June 2015; however, the agreement was automatically renewed until terminated by Refining upon 30 days prior written notice. Obligations under the agreement will be suspended to the extent affected by a force majeure event.
Fees incurred in connection with the wholesale rack terminal services agreements were $12,400, $8,498, and $6,480 for the years ended
December 31, 2015, 2014, and 2013, respectively. These fees are recorded as a component of cost of sales in the consolidated statements of operations and comprehensive income (loss).
Crude Oil Purchase Agreements
In
connection with the acquisition of the Philadelphia refining complex, on September 8, 2012, Refining entered into crude oil purchase agreements with SXL pursuant to which Refining purchased crude oil from SXL. These agreements expired in August
2014; however, Refining entered into a new crude oil purchase agreement that expired in June 2015. Under the agreement, SXL was permitted to nominate up to 470,000 barrels per month for purchase by Refining.
Crude oil purchases under these agreements were $164,749, $842,047, and $1,332,530 for the years ended December 31, 2015, 2014, and 2013,
respectively. These purchases are recorded as a component of cost of sales in the consolidated statements of operations and comprehensive income (loss).
Refined Product Purchases and Sales
From time to time, Refining sells and purchases refined products to and from SXL. Revenue recognized related to refined product sales to
SXL was $5,062, and $5,547 for the years ended December 31, 2015 and 2014,
F-37
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
respectively. These sales are recorded as a component of net sales in the consolidated statements of operations and comprehensive income (loss). There were no sales of refined products to SXL for
the year ended December 31, 2013.
Refined product purchases from SXL were $1,543 for the year ended December 31, 2015. There were no
refined product purchases from SXL for the years ended December 31, 2014 and 2013. These purchases are recorded as a component of cost of sales in the consolidated statements of operations and comprehensive income (loss).
Pipeline Distribution Arrangements
Refining distributes refined products to customers and other storage locations by pipeline, barge, rail and truck in the ordinary course of
business, which includes pipelines owned and operated by SXL. Fees paid to SXL under these pipeline distribution arrangements generally include transmix disposal costs and transportation costs that are based on the Federal Energy Regulatory
Commissions or the Pennsylvania Public Utility Commissions published common carrier tariffs. Fees incurred in connection with these arrangements were $26,782 and $6,986 for the years ended December 31, 2015 and 2014, respectively. No
fees were incurred under these arrangements for the year ended December 31, 2013. These fees are recorded as a component of net sales in the consolidated statements of operations and comprehensive income (loss).
Other related-party Agreements
Advisory Services
Agreement
The Company is party to an advisory services agreement with Carlyle Investment Management LLC and Sunoco whereby they
are paid a management fee equal to 2% and 1%, respectively, of the Companys earnings before interest expense, income taxes, depreciation, and amortization. Management fees totaled $6,830 and $7,021 for the years ended December 31, 2015 and
2014, respectively. There was no management fee for the year ended December 31, 2013. Management fees are recorded as a component of general and administrative expenses in the Companys consolidated statements of operations and comprehensive
income (loss).
4. INTERMEDIATION AGREEMENTS
Refining entered into an intermediation agreement with J.P. Morgan Ventures Energy Corporation (JPMVEC) on September 8, 2012. On October 7,
2014, JPMVEC assigned the intermediation agreement to Merrill Lynch Commodities (MLC) and the agreement was simultaneously amended and restated. Under these agreements, on a daily basis, Refining acquires (or acquired) substantially all of its crude
oil and noncrude feedstocks for use in production at the Philadelphia refining complex from the respective counterparty and likewise sells (or sold) substantially all of refined products and blendstocks to the other party.
Under the agreement with JPMVEC, legal title for crude oil and noncrude feedstocks passed from JPMVEC to Refining when crude oil or noncrude
feedstocks were drawn out of the storage tanks and processed, while title passed from Refining to JPMVEC as refined products or blendstocks were produced and delivered to storage tanks. These transactions occurred at the daily market price for the
respective feedstocks and products. The Company was responsible for logistics costs associated with these purchases. Purchases and sales with JPMVEC were settled weekly on a net basis unless the net amount due to either of the parties exceeded
$5,000 at which time it was settled.
F-38
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
On October 7, 2014, the Company sold refined products inventories to MLC as part of the new
supply and offtake agreement signed with MLC. The Company repurchased this inventory through the intermediation process and this inventory was subsequently sold to a third party. Revenue was recognized upon the sale to the third party consistent
with the sale of refined products noted below.
On October 7, 2014, the Company also acquired $371,120 of refined products inventories in
noncash transactions under the agreement with MLC, which the Company is obligated to redeliver to MLC at expiration or termination of the intermediation agreement. The obligation to redeliver is classified as a component of accrued liabilities on
the consolidated balance sheets and is carried at the current market price.
Under the agreement with MLC, when MLC receives title to the
crude oil or noncrude feedstocks from a third party supplier, it flashes title for this inventory to Refining and Refining has an obligation to redeliver the crude oil and noncrude feedstocks to MLC at a future date at a fixed price. The Company has
deemed the fixed price requirement to redeliver the inventory an embedded derivative and has designated these derivatives as fair value hedges of the inventory.
The Company purchases substantially all crude oil and noncrude feedstocks from MLC, based on market pricing for that day. The purchases occur
as crude oil or noncrude feedstocks are consumed in the refining process.
Also under this agreement, refined products and blendstocks are
sold to MLC as they are produced. The selling price is based on market pricing on such date. However, Refining holds title for these refined products and blendstocks until they are delivered to MLCs customer. As a result, the Company records
deferred revenue for these sales. The deferred revenue is recognized as revenue when the products are delivered to MLCs customer. Refining also receives pricing adjustments, primarily related to transportation and other market differentials,
when the refined products are delivered to MLCs customers. Purchases of crude oil and noncrude feedstocks from MLC and sales of refined products or blendstocks to MLC are net settled daily.
A limited liability company owned by an unrelated third party, serves as an intermediary between Refining and MLC to exchange flash title for
the receipt and delivery of certain crude oil and noncrude feedstocks and certain refined products and blendstocks.
MLC accounted for 76%
and 17% of the Companys revenues for the years ended December 31, 2015 and 2014, respectively. JPMVEC accounted for approximately 62% and 83% of the Companys revenues for the years ended December 31, 2014 and 2013, respectively. MLC
accounted for 37% and 53% of the Companys accounts receivable at December 31, 2015 and 2014, respectively.
5. TAXES
The Company is subject to the Philadelphia Business Income & Receipts Tax (BIRT). Income tax expense related to BIRT was $409, $459, and
nil for the years ended December 31, 2015, 2014, and 2013, respectively.
Effective January 1, 2014, the geographic areas where the
Philadelphia refining complex are located were designated as Keystone Opportunity Zones (KOZ), providing specific Pennsylvania and City of Philadelphia tax benefits to the Company. Under this program, the Companys effective tax rates are
estimated to be 0.3205% of Philadelphia taxable income for BIRT, based on the statutory rate of 6.41%; and 0.007075% of Philadelphia gross receipts taxes, based on a statutory rate of 0.14150%; through December 31, 2020. From January 1, 2021 through
December 31, 2023, the Companys effective tax rates are estimated to be 0.641% of Philadelphia
F-39
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
taxable income for BIRT, based on the statutory rate of 6.41%; and 0.01415% of Philadelphia gross receipt taxes, based on a statutory rate of 0.14150%. After December 31, 2023, the Company will
be subject to the fully enacted tax rates at that time.
6. INVENTORIES
Refined and intermediate products include the cost of crude oil and other feedstocks, manufacturing costs, and inbound freight costs. The
following table presents the components of inventories at December 31, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Crude oil-intermediated
|
|
$
|
233,856
|
|
|
$
|
461,465
|
|
Crude oil-non-intermediated
|
|
|
1,410
|
|
|
|
5,889
|
|
Refined and intermediate products-intermediated
|
|
|
285,399
|
|
|
|
378,532
|
|
Refined and intermediate products-non-intermediated
|
|
|
25,535
|
|
|
|
46,404
|
|
Materials and supplies
|
|
|
14,520
|
|
|
|
13,090
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
560,720
|
|
|
$
|
905,380
|
|
|
|
|
|
|
|
|
|
|
Under the intermediation agreement, MLC and the intermediary have liens on the intermediated crude and refined
products held in inventory.
The Company recorded an impairment of $7,891 and $49,290 for the years ended December 31, 2015 and 2014,
respectively, to state certain crude oil and refined and intermediate products at their net realizable values. No impairment was recorded for the year ended December 31, 2013. At December 31, 2015 all inventories valued at LIFO approximate market.
The Company recognized a gain of $18 from the liquidation of crude oil inventory LIFO layers for the year ended December 31, 2013. There
were no gains on the liquidation of inventory during the years ended December 31, 2015 or 2014.
7. PROPERTY, PLANT, AND EQUIPMENT
The following table presents the components of property, plant, and equipment at December 31, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Land and land improvements
|
|
$
|
12,147
|
|
|
$
|
11,766
|
|
Buildings
|
|
|
2,096
|
|
|
|
984
|
|
Machinery and equipment
|
|
|
636,818
|
|
|
|
446,670
|
|
Construction-in-process
|
|
|
61,538
|
|
|
|
60,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
712,599
|
|
|
|
520,022
|
|
Less accumulated depreciation and amortization
|
|
|
(101,232
|
)
|
|
|
(50,294
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant, and equipment, net
|
|
$
|
611,367
|
|
|
$
|
469,728
|
|
|
|
|
|
|
|
|
|
|
F-40
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
The Company capitalizes interest costs associated with major construction projects based on
the effective interest rate on total borrowings.
In December 2013, the Commonwealth of Pennsylvania approved a $15,000 grant to Refining
to assist with the maintenance costs of completing the Girard Point refinerys catalytic cracker turnaround. In November 2013, the Commonwealth of Pennsylvanias Department of Transportation awarded Refining a $10,000 grant to assist with
the costs of constructing a new rail track at the Philadelphia refining complex for the delivery of crude oil. Under the terms of the grant agreement, the Company is required to maintain the track and guarantee a minimum number of railcar unloadings
per year for five years, as defined in the agreement. The Company received $22,403 and $2,222 during the years ended December 31, 2014 and 2013, respectively. The remaining amount is expected to be received at the end of the five year term and is
included in Accounts receivable on the consolidated balance sheets. The total amount of the grants has been recorded as a reduction to property, plant, and equipment.
8. DEBT AND CREDIT FACILITIES
Refining Term Loan and
Credit Facilities
On April 4, 2013, Refining entered into a $550,000 five-year term loan (Refining term loan) with JP Morgan Chase
Bank NA, as administrative agent, and a syndicate of lenders. The Refining term loan was issued at a discount of 1.5%, requires quarterly interest payments, and matures on April 4, 2018. Borrowings outstanding under the Refining term loan bear
interest at the greater of 1.25% or LIBOR plus an applicable margin. As of December 31, 2015, the rate was 6.25%, and the amount outstanding was $534,875. The net proceeds of the Refining term loan were used to fund operations, capital expenditures
and distributions to members.
The Refining term loan lenders have priority security interests in certain assets of Refining. These assets
exclude the North Yard terminal and certain of Refinings other assets, including its logistics assets. These assets also secure the Refining revolving credit facility, with the distribution of the proceeds thereof and the relationships between
the relevant secured parties being governed by intercreditor agreements. Refining has optional prepayment rights for all or a portion of the Refining term loan. Mandatory prepayments are required upon certain events occurring including large asset
transactions, change in control, or in the event of a default as defined in the agreement. The Refining term loan also contains covenants that limit Refinings ability to incur indebtedness; grant liens; make certain loans, acquisitions, and
investments; enter into a merger or sale of assets; engage in certain transactions with affiliates; enter into sales and leaseback transactions, enter into swap agreements; repay certain indebtedness; and pay certain distributions. The Refining term
loan does not contain any financial covenants. Refining was in compliance with the covenants as of December 31, 2015.
On September 8,
2012, Refining also entered into a $100,000 secured revolving credit agreement with JP Morgan Chase Bank NA (the Refining revolving credit facility), which was to mature in September 2017. On February 8, 2013, the Refining revolving credit facility
was amended to temporarily increase the secured revolving credit availability from $100,000 to $150,000 for the period from February 8, 2013 to April 30, 2013. In connection with the assignment of the intermediation agreement from JPMVEC to MLC,
effective October 7, 2014, JPMorgan Chase Bank NA assigned its rights and obligations under the Refining revolving credit facility to Bank of America, NA, after which Bank of America, NA, and Refining amended and restated the Refining revolving
credit facility including an extended maturity date. The amended and restated Refining revolving credit facility matures on the earliest of (i) October 6, 2019, (ii) 91 days prior to the maturity date of the Refining term loan or (iii) the date on
which the intermediation agreement is terminated or expires, or (iv) the date on which MLC is replaced in the intermediation agreement by a party not satisfactory to Bank of America, NA.
Borrowings under the amended and restated Refining revolving credit facility may be made up to the lesser of the total available commitment or
the amount of a periodically adjusted borrowing base, which is based on the
F-41
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
value of collateral that includes Refinings eligible hydrocarbon inventories; eligible receivables from inventory sales, and eligible cash and cash equivalent balances. Borrowings
outstanding under the amended and restated Refining revolving credit facility bear interest at a base rate plus an applicable margin that varies as defined in the amended and restated agreement. The amended and restated Refining revolving credit
facility is subject to a commitment fee of 0.5% of the unused portion. The amended and restated Refining revolving credit facility contains covenants that limit Refinings ability to incur indebtedness; make certain loans, acquisitions, and
investments; enter into a merger or sale of assets; enter into transactions with affiliates; repay certain indebtedness; enter into sale and leaseback transactions; enter into swap agreements; and pay certain distributions. Refining was in
compliance with the covenants as of December 31, 2015. At December 31, 2015 there were no borrowings under the amended and restated Refining revolving credit facility; however, it was being used to support letters of credit totaling $9,511. As of
December 31, 2015, there was $23,185 of availability under the amended and restated Refining revolving credit facility.
Logistics Term Loan and Credit
Facilities
On November 24, 2015, Logistics entered into a credit agreement that provided for a $125,000 term loan facility (Logistics
term loan) and a $50,000 senior secured revolving credit facility (the Logistics revolving credit facility), with PNC Bank NA, as administrative agent, and a syndicate of lenders. The credit agreement matures on November 24, 2019; however the
agreement is subject to accelerated maturity if certain events occur, as defined in the agreement.
The Logistics term loan was issued at
par value, requires quarterly principal and interest payments bearing interest at LIBOR or a base rate, plus an applicable margin. As of December 31, 2015, the rate was 3.2%, and the amount outstanding was $117,188.
The Logistics revolving credit facility is available for ongoing working capital, capital expenditures, acquisitions, and general corporate
purposes. Borrowings outstanding under the Logistics revolving credit facility bear interest at LIBOR or a base rate, plus an applicable margin that varies as defined in the credit agreement. The Logistics revolving credit facility is subject to a
commitment fee of 0.5% of the unused portion of the revolving credit facility. As of December 31, 2015 there were no borrowings under the Logistics revolving credit facility or outstanding letters of credit. As of December 31, 2015, there was
$50,000 of availability under the Logistics revolving credit facility.
The lenders have priority security interests in the assets of
North Yard Logistics including the North Yard terminal. North Yard Logistics has optional prepayment rights for all or a portion of the Logistics term loan (without premium or penalty). In addition, mandatory prepayments are required if the cash
balance held by PESRM is less than $275,000 at the end of any year (beginning with the calendar year ending December 31, 2016). The credit agreement requires that North Yard Logistics maintain certain financial covenants including a leverage ratio
of 2.75 to 1.00 and a fixed charge coverage ratio of 1.15 to 1.00, as defined in the credit agreement. The credit agreement also contains customary covenants that, among other things, limit North Yard Logistics ability to incur indebtedness;
grant liens; make certain loans, acquisitions, and investments; enter into a merger or sale of assets; engage in certain transactions with affiliates; enter into swap agreements; repay certain indebtedness; and make certain distributions. North Yard
Logistics was in compliance with all covenants as of December 31, 2015.
Installment Sale and Purchase Agreement
In May 2014, Refining entered into an installment sale and purchase agreement with a third party for the purchase of a rail terminal which was
completed and placed in service in December 2014. Refining is required to
F-42
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
make installment payments over seven years and pay a monthly development fee of 12%. The agreement is a financing arrangement and accordingly, the Company recorded $50,675 in property, plant and
equipment and the corresponding financing obligation in the consolidated balance sheet as of December 31, 2014. During the year ended December 31, 2015, additional components of the rail terminal were completed and an additional $17,336 of property,
plant and equipment and financing obligation was recorded. As of December 31, 2015 and 2014, the amounts outstanding were $61,509 and $50,035 respectively.
The following table summarizes scheduled maturities of debt and capital lease and other obligations at December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
Term Loans
|
|
|
Capital lease
and other
obligations
|
|
Year ending December 31:
|
|
|
|
|
|
|
|
|
2016
|
|
$
|
36,750
|
|
|
$
|
9,122
|
|
2017
|
|
|
36,750
|
|
|
|
9,658
|
|
2018
|
|
|
555,125
|
|
|
|
10,889
|
|
2019
|
|
|
23,438
|
|
|
|
12,277
|
|
2020
|
|
|
|
|
|
|
13,842
|
|
Thereafter
|
|
|
|
|
|
|
6,277
|
|
Less: unamortized discount
|
|
|
(3,712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
648,351
|
|
|
$
|
62,065
|
|
|
|
|
|
|
|
|
|
|
9. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following as of December 31, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Asset retirement obligations
|
|
$
|
15,007
|
|
|
$
|
15,504
|
|
Out of market contracts, net of $9,435 and $6,419 of accumulated amortization
|
|
|
3,565
|
|
|
|
6,581
|
|
Other
|
|
|
761
|
|
|
|
694
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,333
|
|
|
$
|
22,779
|
|
|
|
|
|
|
|
|
|
|
The following table presents the activity for asset retirement obligations for the years ended December 31,
2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
Balancebeginning of year
|
|
$
|
15,504
|
|
|
$
|
17,587
|
|
Obligations settled
|
|
|
(1,713
|
)
|
|
|
(2,238
|
)
|
Changes in estimates
|
|
|
|
|
|
|
(1,228
|
)
|
Accretion
|
|
|
1,216
|
|
|
|
1,383
|
|
|
|
|
|
|
|
|
|
|
Balanceend of year
|
|
$
|
15,007
|
|
|
$
|
15,504
|
|
|
|
|
|
|
|
|
|
|
There are no assets legally restricted for purposes of settling asset retirement obligations.
F-43
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
The liabilities contributed by Sunoco on September 8, 2012 included two fixed commitment
long-term barge agreements that expire in December 2016 and October 2017. The out of market contracts are amortized over the terms of the barge contracts. The amortization is recorded as a reduction of cost of sales in the statements of operations
and comprehensive income (loss). Amortization expense is expected to be $2,585 in 2016 and $980 in 2017.
10. DEFINED CONTRIBUTION PLANS
The Company has two defined contribution plans that provide retirement benefits for all of its employees. Full- time employees are eligible to
participate in the plans. The Companys 401(k) plan provides a matching contribution of 100% of the first 5% of eligible wages contributed by the employee. The Companys defined contribution cash option plan provides for a 7% contribution
of eligible wages to the plan. Contributions are charged to expense as incurred and totaled $12,215, $11,292 and $10,215 for the years ended December 31, 2015, 2014, and 2013, respectively.
11. COMMITMENTS AND CONTINGENCIES
Leases and Other
Commitments
Refining has operating leases for marine transportation vessels, tank cars, office space, pipeline, catalyst, equipment,
and terminals. Rental expense for such leases was $50,987, $41,890 and $51,349 for the years ended December 31, 2015, 2014, and 2013, respectively,
The minimum future rental commitments under noncancelable operating leases as of December 31, 2015 are as follows:
|
|
|
|
|
Year ending December 31:
|
|
|
|
|
2016
|
|
|
46,318
|
|
2017
|
|
|
40,982
|
|
2018
|
|
|
36,729
|
|
2019
|
|
|
35,212
|
|
2020
|
|
|
25,970
|
|
Thereafter
|
|
|
29,766
|
|
|
|
|
|
|
Total
|
|
$
|
214,977
|
|
|
|
|
|
|
For the years ended December 31, 2015, 2014, and 2013, the Company incurred $52,224, $48,786 and $57,684,
respectively, of executory costs in relation to various leases.
At December 31, 2015, Refining had entered into commitments under the
intermediation agreement with MLC to purchase 22.0 million barrels of crude oil of which 6.6 million were either on-hand or in-transit and 15.4 million barrels had not been delivered to MLC. Based on pricing at December 31, 2015, the value of the
barrels on-hand or in transit was $216,622, which is recorded in the balance sheet in accrued liabilities, and the value of the purchase commitments was $535,484. If Refining does not renew the intermediation agreement with MLC when it expires or
enter into another intermediation agreement, Refining will need to acquire crude and noncrude feedstocks in the open market to maintain normal refining operations.
At December 31, 2015, Refining was obligated to redeliver 3.3 million barrels of refined products under the intermediation agreement with MLC.
A liability with a value of $159,986 has been recorded as a component of accrued liabilities on the consolidated balance sheets as of December 31, 2015.
F-44
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
At December 31, 2015, Refining had entered into commitments under the intermediation
agreement with MLC to purchase 515 thousand barrels of refined products and intermediates, with a value of $23,156.
At December 31, 2015,
Refining had commitments to purchase 5.3 million barrels of butane and isobutene through March 2021 under an agreement with a third party. Based on pricing at December 31, 2015, the value of the commitment is $170,776.
In January 2013, the Company entered into an agreement pursuant to which the precious metals catalyst located at the Philadelphia refining
complex was sold and leased back for a three-year period. Precious metal catalyst lease expense was $1,253, $1,129, and $1,187 for the years ended December 31, 2015, 2014, and 2013, respectively. The initial lease ended in January 2016 and was
subsequently renewed for a three year term. At the end of the renewed lease term, the Company has the option to purchase the metals at their market value, renew the lease, or return metals of similar quality to the purchaser of the metals.
Environmental Costs
Refining is subject
to extensive and frequently changing federal, state, and local laws and regulations, including, but not limited to, those relating to the discharge of materials into the environment or that otherwise relate to the protection of the environment,
waste management, and the characteristics and composition of fuels. As with the industry in general, compliance with existing and anticipated laws and regulations increases the overall cost of operating the Companys businesses, including
remediation, operating costs, and capital costs to construct, maintain, and upgrade equipment and facilities.
Refining has entered into
an arrangement with Sunoco that provides indemnities to the Company for remediating contamination that occurred at the Philadelphia refining complex prior to its acquisition. The Company has reflected liabilities of $17,864 and $18,619 and
receivables of $17,864 and $18,619 for the recovery of Sunocos estimated indemnified environmental liabilities which have not been remediated as of December 31, 2015 and 2014, respectively. The Company did not record any material environmental
remediation expense for the years ended December 31, 2015, 2014 or 2013. The Company has not incurred any material liabilities since September 8, 2012 that would not be indemnified by Sunoco under this arrangement.
Accruals for environmental remediation activities reflect managements estimates of the most likely costs that will be incurred over an
extended period to remediate identified conditions for which the costs are both probable and reasonably estimable. Engineering studies, historical experience, and other factors are used to identify and evaluate remediation alternatives and their
related costs in determining the estimated accruals for environmental remediation activities. Losses attributable to unasserted claims are also reflected in the accruals to the extent they are probable of occurrence and reasonably estimable. Such
accruals are undiscounted. In general, each remediation site/issue is evaluated individually based upon information available for the site/issue and no pooling or statistical analysis is used to evaluate an aggregate risk for a group of similar
items in determining the amount of probable loss accrual to be recorded. The estimates of environmental remediation costs also frequently involve evaluation of a range of estimates. In many cases, it is difficult to determine if one point in the
range of loss estimates is more likely than any other. In these situations, accounting guidance requires that the minimum of the range be accrued. Accordingly, the low end of the range often represents the amount of loss, which has been recorded.
Total future costs for the environmental remediation activities identified above will depend upon the identification of any additional
sites, the determination of the extent of the contamination at each site, the timing and nature of required remedial actions, the nature of operations at each site, the technology available and needed
F-45
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
to meet the various existing legal requirements, the availability of insurance coverage, the recovery under any available indemnity, the nature and extent of future environmental laws and
regulations, inflation rates, and terms of consent agreements or remediation permits with regulatory agencies, among other things.
Pursuant to the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007, the EPA has issued Renewable Fuel Standards
(RFS), implementing mandates to blend renewable fuels into the petroleum fuels produced and sold in the United States. Under RFS, the volume of renewable fuels that obligated refineries must blend into their finished petroleum fuels increases
annually over time until 2022. In addition, certain states have passed legislation that requires minimum biodiesel blending in finished distillates. Existing laws and regulations could change, and the minimum volumes of renewable fuels that must be
blended with refined petroleum fuels may change. In addition, in order to meet certain of these and future EPA requirements, we must purchase credits, known as RINS. Some of these contracts are derivative instruments; however, we elect the normal
purchase and sale exception and do not record these contracts at their fair values. RINS expense was $124,095, $130,408, and $116,282 for the years ended December 31, 2015, 2014, and 2013 respectively.
On March 4, 2014, the EPA finalized its Tier 3 Motor Vehicle Emission and Fuel Standards (Standards). The Standards establish more stringent
vehicle emissions standards and will reduce the sulfur content of gasoline beginning in 2017. The gasoline currently manufactured by the Philadelphia refining complex does not fully meet the requirements. The Standard requires additional capital
investment to install new technologies and could materially increase compliance costs, which could have an adverse effect on our financial position, results of operations, and liquidity.
Employment Agreements
The Company
currently has outstanding employment or severance agreements with certain executive management. Under the agreements, the executives would receive a lump-sum payment upon termination by the Company without cause, or by the employee for good reason,
as defined in the agreements. Upon death or disability, these executives or their estates, would receive a lump-sum payment for their prorated bonus based on the number of days employed during the year of death or disability.
Legal Proceedings
The Company is
involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Companys consolidated financial
position, results of operations, or liquidity.
12. MEMBERS EQUITY
Preferred A Units
The Company issued 25
million Preferred A units as part of the purchase transaction on September 8, 2012 for $25,000. The units were nonvoting and provided for cumulative preferred dividends of 10% annually on the amount of unreturned capital. On September 9, 2013, the
Company redeemed all of the Preferred A units for $25,000 and paid the cumulative unpaid preferred dividends of $2,594.
Common Units
There are 235,625 Common Units of PES LLC (Common Units) issued and outstanding as of December 31, 2015, 2014 and 2013. The allocation of
profits and losses and distributions to Common Unit holders is governed by the Amended and Restated Limited Liability Company Agreement of PES LLC.
F-46
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
On December 6, 2012, the Company loaned members of executive management $4,000 to purchase
4,000 of its Common Units. The loans required repayment within five years and had an interest rate of 5%. On January 7, 2013, $2,000 of the loans were repaid in cash. On September 8, 2013, the remaining loans were reduced by $1,147 from the proceeds
of the distribution to the Companys Common Unit holders. At December 31, 2014, officer loans totaling $853 were recorded as contra equity. These remaining loans were repaid in February 2015.
Prior to the redemption of the Preferred A units in September 2013, the Common Units were subordinate to the Preferred A units including with
respect to the unreturned capital and unpaid yield on the Preferred A units. The only exception was for the payment of cash tax distributions for its Common Unit holders.
Incentive Units
The Company awarded
certain members of management Incentive Units of PES LLC (Incentive Units), which are intended to constitute profits interests for United States federal income tax purposes. The Incentive Units vest ratably over a five year period and participate in
distributions and allocation of profits and losses, regardless of vesting status.
In December 2012, the Company authorized 26,181
Incentive Units for issuance. In April 2014, the Company authorized an additional 1,800 Incentive Units for issuance, bringing the total amount of Incentive Units authorized for issuance to 27,981 units. At December 31, 2015, there are 25,238
Incentive Units issued and outstanding and 2,743 Incentive Units available for issuance. Refer to Note 13,
Share-Based Compensation
for additional information.
Advances to Members
The Company is
required to make a cash advance to each of its Common Unit and Incentive Unit holders if the Company has cumulative taxable income. The cash advance is calculated based on the estimated taxable income for the Company using the highest applicable
U.S. federal, state, and local income tax rate applicable to New York residents. The advance must be no later than March 30 of the subsequent year. In January 2015 and January 2013, PES LLC advanced $10,396 and $75,900, respectively, to Common Unit
and Incentive Unit holders for their 2014 and 2012 taxes which were recorded as reductions to members equity. No such advances were made during the year ended December 31, 2014.
Distributions
On September 8, 2013, PES
LLC declared and paid distributions totaling $122,406 to its Common Unit and Incentive Unit holders. A portion of the distribution was used to reduce the amount due for officer loans and interest totaling $1,860. In May 2015, the Company declared
distributions of $146,296 to its Common Unit and Incentive Unit holders of which $86,296 was previously paid to unitholders as tax advances and $60,000 was paid in June 2015. In September 2015, the Company declared and paid distributions of
$49,132 to its Common Unit and Incentive Unit holders. In November 2015, the Company declared and paid distributions of $140,000 to its Common Unit and Incentive Unit holders.
13. SHARE-BASED COMPENSATION
Incentive
units are issuable by PES LLC by its Board of Managers. The incentive units vest ratably over a five- year service period. Outstanding units automatically vest upon a change of control or initial public offering. PES LLC recognizes compensation
expense on a straight-line basis over the requisite service period unless an
F-47
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
acceleration event has occurred. Incentive unit compensation expense was $1,564, $1,997, and $1,074 for the years ended December 31, 2015, 2014, and 2013, respectively. Total compensation cost
related to nonvested awards not yet recognized at December 31, 2015 was $2,534, and is expected to be recognized over a weighted average period of 1.9 years.
The following table summarizes incentive unit activity of PES LLC for the years ended December 31, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
Incentive
units
|
|
|
Weighted average
grant date fair value
|
|
Nonvested at December 31, 2013
|
|
|
17,804
|
|
|
$
|
255
|
|
Granted
|
|
|
5,727
|
|
|
$
|
674
|
|
Vested
|
|
|
(5,236
|
)
|
|
$
|
277
|
|
Forfeited
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2014
|
|
|
18,295
|
|
|
$
|
380
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
$
|
|
|
Vested
|
|
|
(5,597
|
)
|
|
$
|
341
|
|
Forfeited
|
|
|
(2,383
|
)
|
|
$
|
927
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2015
|
|
|
10,315
|
|
|
$
|
275
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant date fair value of the PES LLC incentive units granted in 2014 was $674. There were
no incentive units granted in 2015 and 2013.
The fair value of the incentive units granted is determined using the Black-Scholes pricing
valuation model. Expected volatility is based on the volatility of a peer group of public companies. The expected term is based on managements estimate. The risk free rate is based on the yield of U.S. Treasury STRIPS with a term equal to the
expected term of the award. The following table summarizes the assumptions used in determining the fair value of the incentive units for the year ended December 31, 2014:
|
|
|
|
|
|
|
Year Ended
December 31, 2014
|
|
Expected volatility
|
|
|
65
|
%
|
Expected term (years)
|
|
|
4.4 - 4.7
|
|
Risk free interest rate
|
|
|
1.48% - 1.55
|
%
|
Expected annual dividend
|
|
|
|
|
F-48
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
14. FAIR VALUE MEASUREMENTS
The following table represents the Companys assets and liabilities measured at fair value on a recurring basis, by input level, as of
December 31, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
102,108
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
102,108
|
|
Commodity contracts
|
|
|
43,660
|
|
|
|
102,394
|
|
|
|
|
|
|
|
146,054
|
|
Foreign currency swaps
|
|
|
|
|
|
|
295
|
|
|
|
|
|
|
|
295
|
|
Fair value hedges
|
|
|
|
|
|
|
1,908
|
|
|
|
|
|
|
|
1,908
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
$
|
21,383
|
|
|
$
|
164,450
|
|
|
$
|
162
|
|
|
$
|
185,995
|
|
Foreign currency swaps
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
9
|
|
Interest rate swap
|
|
|
|
|
|
|
4,922
|
|
|
|
|
|
|
|
4,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
53,047
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
53,047
|
|
Commodity contracts
|
|
|
27,269
|
|
|
|
279,142
|
|
|
|
|
|
|
|
306,411
|
|
Fair value hedges
|
|
|
|
|
|
|
48,662
|
|
|
|
|
|
|
|
48,662
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
$
|
29,536
|
|
|
$
|
269,943
|
|
|
$
|
|
|
|
$
|
299,479
|
|
Interest rate swap
|
|
|
|
|
|
|
2,496
|
|
|
|
|
|
|
|
2,496
|
|
The valuation methods used to measure financial instruments at fair value are as follows:
|
|
|
Money market funds categorized in Level 1 of the fair value hierarchy are measured at fair value based on quoted market prices and included within cash and cash equivalents.
|
|
|
|
The commodity contracts categorized in Level 1 of the fair value hierarchy comprise futures contracts and are measured at fair value based on quoted prices in an active market. The commodity contracts categorized in
Level 2 of the fair value hierarchy comprise swap contracts and are measured at fair value using a market approach based upon broker quoted market prices of similar commodity contracts. The commodity contract categorized in Level 3 of the fair value
hierarchy consists of a butane purchase contract with a cost adjustment that was valued using an internal model.
|
|
|
|
The foreign currency swaps categorized in Level 2 of the fair value hierarchy are measured using market-based observable inputs.
|
|
|
|
The fair value hedges categorized in Level 2 of the fair value hierarchy are measured using a market approach based on quoted market prices.
|
|
|
|
The interest rate swap is measured and recorded at fair value using Level 2 inputs. Fair value is based on the net present value of expected future cash flows related to both variable and fixed rate legs of the
respective swap agreement. The measurements are computed using market-based observable inputs and the forward LIBOR yield curve.
|
There were no transfers between levels during the years ended December 31, 2015 and 2014.
F-49
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
The table below summarizes the carrying value and fair value of the Companys recorded
financial instruments not carried at fair market value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
Carrying
value
|
|
|
Fair
value
|
|
|
Carrying
value
|
|
|
Fair
value
|
|
Refining term loan
|
|
$
|
531,163
|
|
|
$
|
502,783
|
|
|
$
|
535,012
|
|
|
$
|
506,153
|
|
Logistics term loan
|
|
|
117,188
|
|
|
|
117,188
|
|
|
|
|
|
|
|
|
|
Financing obligation
|
|
|
61,509
|
|
|
|
61,509
|
|
|
|
50,035
|
|
|
|
50,035
|
|
The fair value of the Refining term loan is based on quoted market prices for similar instruments provided by
a third party and is classified as Level 2 within the fair value hierarchy. The fair value of the Logistics term loan is based on an internal model and is therefore classified as Level 3 within the fair value hierarchy. Due to the limited
availability of market data, the fair value of the financing obligation approximates carrying value and is classified as level 3 within the fair value hierarchy. The carrying values of current assets and liabilities not included in the table above
approximated their fair values.
15. DERIVATIVE INSTRUMENTS
The Company enters into commodity derivative instruments to manage price volatility in certain crude oil and feedstock inventories as well as
refined product sales. The objective of entering into these derivative contracts is to mitigate certain exposures to commodity price risk. From time-to-time, the Company also enters into foreign currency swap contracts to manage exposure to foreign
currency fluctuations on certain receivables denominated in foreign currency.
There were approximately 52.1 million barrels of crude oil,
43.4 million barrels of refined products, 0.8 million dekatherms of natural gas, and 50,640 megawatts of electricity outstanding under commodity derivative instruments as of December 31, 2015. There were also approximately 14,742 Canadian dollars
outstanding under foreign currency swap contracts as of December 31, 2015. There were approximately 57.8 million barrels of crude oil, 35.6 million barrels of refined products, 6.9 million dekatherms of natural gas, and 246,960 megawatts of
electricity outstanding under commodity derivative instruments as of December 31, 2014. As of December 31, 2015, the Company had commodity derivatives extending to January 2017.
The commodity swaps and other commodity derivative agreements discussed above include multiple derivative positions with counterparties for
which the Company has entered into agreements governing the nature of the derivative transactions. Each of the counterparty agreements provides for the right to offset each individual derivative position to arrive at the net receivable due from the
counterparty or payable owed by the Company. As a result of the right to offset, the recognized assets and liabilities associated with the outstanding derivative positions have been presented net in the consolidated balance sheets.
Fair value hedges are used to mitigate price volatility of certain refining inventories. The gain or loss on a derivative instrument
designated and qualifying as a fair value hedge, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, is recognized in earnings in the same period.
Under the current intermediation agreement, discussed in note 4,
Intermediation Agreements
, the Company is required to redeliver
inventory to MLC at a future date at a fixed price. The Company has identified the fixed price and volume requirement to redeliver as an embedded derivative and has designated these derivatives as fair value hedges of the underlying inventory. The
Company was obligated to redeliver 6.6 million barrels of crude
F-50
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
oil as of December 31, 2015 under the current intermediation agreement. A liability has been recorded, with a value of $216,622, which is recorded as a component of accrued liabilities in the
consolidated balance sheets. The inventory is recorded as crude oil-intermediated in inventories in the consolidated balance sheets.
Refining uses interest rate swaps to manage its exposure to interest rate risk. As of December 31, 2015, Refining had an interest rate swap
contract that hedges its exposure to the cash flow risk caused by the effects of LIBOR changes on its Refining term loan. The interest rate swap effectively converts this LIBOR based debt with a notional amount of $534,875 to fixed rate debt having
an interest rate of 1.923% plus an applicable margin of 5%, which equaled an effective interest rate of 6.923% as of December 31, 2015. This swap contract matures in April 2018 and has been designated as a cash flow hedge. To date, there has been no
ineffectiveness on this cash flow hedge. The interest rate swap is settled quarterly and marked to market with all unrealized gains and losses recognized in accumulated OCI in the consolidated balance sheets and the realized portion of the cash flow
hedge is recorded in interest expense in the consolidated statements of operations and comprehensive income (loss).
The following tables
outline the gross amounts of the recognized assets and liabilities and the gross amounts offset in the consolidated balance sheets for the various types of open derivative positions as well as the collateral received (paid) on the derivative assets
(liabilities) that is recorded in a separate line item in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
amounts
of recognized
assets
|
|
|
Gross
amounts
offset in the
consolidated
balance sheets
|
|
|
Net amounts of
assets presented
in the
consolidated
balance sheets
|
|
|
Cash collateral
received not
offset
|
|
|
Net amounts
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity Contracts
|
|
$
|
60,854
|
|
|
$
|
(33,353
|
)
|
|
$
|
27,501
|
|
|
$
|
15,724
|
|
|
$
|
11,777
|
|
Foreign currency swap contracts
|
|
|
295
|
|
|
|
(9
|
)
|
|
|
286
|
|
|
|
|
|
|
|
286
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges
|
|
|
1,908
|
|
|
|
|
|
|
|
1,908
|
|
|
|
|
|
|
|
1,908
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity Contracts
|
|
$
|
271,516
|
|
|
$
|
(256,784
|
)
|
|
$
|
14,732
|
|
|
$
|
|
|
|
$
|
14,732
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges
|
|
|
48,662
|
|
|
|
|
|
|
|
48,662
|
|
|
|
|
|
|
|
48,662
|
|
F-51
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
amounts
of recognized
liabilities
|
|
|
Gross
amounts
offset in the
consolidated
balance sheets
|
|
|
Net amounts of
liabilities
presented in the
consolidated
balance sheets
|
|
|
Cash
collateral
paid not offset
|
|
|
Net amounts
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
$
|
(152,641
|
)
|
|
$
|
85,199
|
|
|
$
|
(67,442
|
)
|
|
$
|
(11,730
|
)
|
|
$
|
(55,712
|
)
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contract
|
|
|
(4,922
|
)
|
|
|
|
|
|
|
(4,922
|
)
|
|
|
|
|
|
|
(4,922
|
)
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
$
|
(42,695
|
)
|
|
$
|
34,895
|
|
|
$
|
(7,800
|
)
|
|
$
|
|
|
|
$
|
(7,800
|
)
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contract
|
|
|
(2,496
|
)
|
|
|
|
|
|
|
(2,496
|
)
|
|
|
|
|
|
|
(2,496
|
)
|
The following table provides information about the fair values of these derivative instruments in a net asset
or (liability) position as of December 31, 2015 and 2014 and the line items in the consolidated balance sheets in which the fair values are reflected. See note 14,
Fair Value Measurements
, for additional information related to the fair values
of derivative instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Consolidated balance sheets location
|
|
2015
|
|
|
2014
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Prepaid expenses and other current assets
|
|
$
|
27,501
|
|
|
$
|
14,732
|
|
Foreign currency swap contracts
|
|
Prepaid expenses and other current assets
|
|
|
286
|
|
|
|
|
|
Commodity contracts
|
|
Accrued liabilities
|
|
|
(67,442
|
)
|
|
|
(7,800
|
)
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges
|
|
Accrued liabilities
|
|
|
1,908
|
|
|
|
48,662
|
|
Interest rate swap contract
|
|
Accrued liabilities
|
|
|
(4,922
|
)
|
|
|
(2,496
|
)
|
Unrealized gains and losses associated with changes in the fair value of derivative instruments not accounted
for as cash flow hedges are reflected in current period earnings.
F-52
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
The following tables present the classification and amounts of gains or (losses) in the
consolidated statements of operations and comprehensive income (loss) for each of the reporting periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification
in
consolidated statements of
operations and
comprehensive income (loss)
|
|
Years ended December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Cost of sales
|
|
$
|
(113,044
|
)
|
|
$
|
(8,972
|
)
|
|
$
|
(17,681
|
)
|
Foreign currency swap contracts
|
|
Cost of sales
|
|
|
332
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Operating expenses
|
|
|
(2,906
|
)
|
|
|
(17,331
|
)
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges(1)
|
|
Cost of sales
|
|
|
(46,754
|
)
|
|
|
48,662
|
|
|
|
|
|
(1)
|
Changes in the fair value hedges are substantially offset by changes in the hedged items.
|
The
Company is exposed to credit risk in the event of nonperformance by counterparties on its derivative instruments. Management believes this risk is not significant as the Company has established credit limits with such counterparties which require
the settlement of net positions when these credit limits are reached.
Under the intermediation agreement with JPMVEC, Refining entered
into commitments to purchase crude oil, which include indexed basis adjustments. Refining cash settled these basis adjustments monthly and considered these adjustments to be a normal cost of acquiring the crude oil. All basis adjustments are
recorded in cost of products sold in the accompanying consolidated statements of operations and comprehensive income (loss).
16. ACCUMULATED OTHER
COMPREHENSIVE INCOME (LOSS)
The following table presents amounts related to the changes in accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Balancebeginning of year
|
|
$
|
(2,496
|
)
|
|
$
|
719
|
|
|
$
|
|
|
Unrealized losses on derivative instruments, before reclassification
|
|
|
(6,133
|
)
|
|
|
(6,960
|
)
|
|
|
(2,079
|
)
|
Reclassification to net income(1)
|
|
|
3,707
|
|
|
|
3,745
|
|
|
|
2,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in year
|
|
|
(2,426
|
)
|
|
|
(3,215
|
)
|
|
|
719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balanceend of year
|
|
$
|
(4,922
|
)
|
|
$
|
(2,496
|
)
|
|
$
|
719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Reclassifications to net income are recorded in interest expense in the consolidated statements of operations and comprehensive income (loss).
|
Unrealized losses of $3,679 are expected to be reclassified from accumulated other comprehensive income (loss) into earnings as the underlying
transactions occur over the next twelve-month period.
F-53
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
17. SEGMENT DATA
The Company was managed as one business with a single management team until December 31, 2014 and did not prepare discrete financial
information for any of its products or services, and accordingly, did not have any separately reportable segments. On January 1, 2015, the Company created its logistics business segment when the North Yard terminal was contributed to Logistics. In
connection with this contribution, Logistics and Refining entered into a long-term, take-or-pay commercial agreement with minimum volume commitments and related services and secondment and easement agreements. Accordingly, as of January 1, 2015, the
Company conducts its operations through two business segments, refining and logistics, which are operated by Refining and Logistics, respectively. The Companys refining segment includes the operations of its Philadelphia refining complex. The
refining segment produces unbranded transportation fuels, heating oil, petrochemical feedstocks and other petroleum products. The refining segment purchases predominantly light, sweet crude oil, other feedstocks and blending components from various
third-party suppliers and sells products primarily in the northeastern United States. The logistics segment owns and operates the North Yard terminal, the East Coasts largest crude oil rail unloading terminal, located adjacent to the
Philadelphia refining complex. It provides rail unloading services to the refining segment under the long-term contract described above. Prior to January 1, 2015, Logistics assets were operated within the refining operations and did not
generate revenue, therefore, they were not considered to be a separate reportable segment.
The Company evaluates the performance of its
segments based primarily on income from operations. Income from operations includes those revenues and expenses that are directly attributable to management of the respective segment. Activities of the Companys business that are not included
in the two operating segments are included in Corporate. Such activities consist primarily of corporate staff operations and other items that are not specific to the normal operations of the two operating segments.
The following table presents segment data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
|
|
Refining
|
|
|
Logistics
|
|
|
Corporate
|
|
|
Eliminations
|
|
|
Total
|
|
Revenues(1)
|
|
$
|
8,626,170
|
|
|
$
|
118,929
|
|
|
$
|
8,543
|
|
|
$
|
(127,472
|
)
|
|
$
|
8,626,170
|
|
Depreciation and amortization
|
|
|
51,848
|
|
|
|
3,596
|
|
|
|
|
|
|
|
|
|
|
|
55,444
|
|
Operating income
|
|
|
73,973
|
|
|
|
90,644
|
|
|
|
|
|
|
|
|
|
|
|
164,617
|
|
Interest (expense) income, net
|
|
|
(49,845
|
)
|
|
|
(565
|
)
|
|
|
21
|
|
|
|
|
|
|
|
(50,389
|
)
|
Other income
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
228
|
|
Income before income tax expense
|
|
|
24,356
|
|
|
|
90,079
|
|
|
|
21
|
|
|
|
|
|
|
|
114,456
|
|
(1)
|
Revenues for Logistics and Corporate segments represent intersegment revenues.
|
The following
table presents total assets and capital expenditures by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Refining
|
|
|
Logistics
|
|
|
Corporate
|
|
|
Eliminations
|
|
|
Total
|
|
Total assets
|
|
$
|
1,669,173
|
|
|
$
|
108,856
|
|
|
$
|
6,998
|
|
|
$
|
(20,519
|
)
|
|
$
|
1,764,508
|
|
Capital expenditures
|
|
|
187,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
187,397
|
|
F-54
PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
18. REVENUES
The following table presents revenues from external customers for each product or group of similar products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Gasoline
|
|
$
|
4,318,305
|
|
|
$
|
6,489,758
|
|
|
$
|
6,217,594
|
|
Distillates
|
|
|
3,713,903
|
|
|
|
5,432,698
|
|
|
|
5,806,075
|
|
Residual
|
|
|
356,917
|
|
|
|
894,898
|
|
|
|
976,901
|
|
Propane
|
|
|
39,544
|
|
|
|
105,434
|
|
|
|
87,444
|
|
Chemicals
|
|
|
178,676
|
|
|
|
380,126
|
|
|
|
374,882
|
|
Other
|
|
|
18,825
|
|
|
|
16,131
|
|
|
|
164,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,626,170
|
|
|
$
|
13,319,045
|
|
|
$
|
13,627,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19. QUARTERLY FINANCIAL INFORMATION (Unaudited)
The following tables summarizes quarterly financial data for the years ended December 31, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31
2015
|
|
|
June 30
2015
|
|
|
September 30
2015
|
|
|
December 31
2015
|
|
|
Total
|
|
Net Sales
|
|
$
|
1,874,622
|
|
|
$
|
2,390,332
|
|
|
$
|
2,506,769
|
|
|
$
|
1,854,447
|
|
|
$
|
8,626,170
|
|
Operating income (loss)
|
|
$
|
49,550
|
|
|
$
|
148,868
|
|
|
$
|
72,578
|
|
|
$
|
(106,379
|
)
|
|
$
|
164,617
|
|
Net income (loss)
|
|
$
|
36,532
|
|
|
$
|
135,721
|
|
|
$
|
60,993
|
|
|
$
|
(119,715
|
)
|
|
$
|
113,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31
2014
|
|
|
June 30
2014
|
|
|
September 30
2014
|
|
|
December 31
2014
|
|
|
Total
|
|
Net Sales
|
|
$
|
2,961,281
|
|
|
$
|
3,814,610
|
|
|
$
|
3,479,101
|
|
|
$
|
3,064,053
|
|
|
$
|
13,319,045
|
|
Operating income (loss)
|
|
$
|
33,484
|
|
|
$
|
56,430
|
|
|
$
|
99,011
|
|
|
$
|
(1,792
|
)
|
|
$
|
187,133
|
|
Net income (loss)
|
|
$
|
22,908
|
|
|
$
|
47,568
|
|
|
$
|
85,681
|
|
|
$
|
(12,529
|
)
|
|
$
|
143,628
|
|
F-55
ANNEX A:
LETTER OF TRANSMITTAL
TO TENDER
6.375% SENIOR
NOTES DUE 2023 (CUSIP NOS. 86765L AA5 and U86759 AA2)
6.250% SENIOR NOTES DUE 2021 (CUSIP NOS. 86765L AD9 and U86759 AC8)
OF
SUNOCO LP AND
SUNOCO FINANCE CORP.