Business Context and Reporting Period
This Form 8-K filing by Energy Transfer Equity, L.P. (the "Partnership") reports events occurring on February 2, 2017. The filing details the entry into a new senior secured term loan agreement and the termination of prior debt facilities. These actions are part of the financial restructuring associated with the pending merger between Energy Transfer Partners, L.P. (ETP) and Sunoco Logistics Partners L.P. (SXL), known as the "SXL Transaction."
Key Financial Metrics and Debt Structure
- New Financing: Entered into a Senior Secured Term Loan Agreement with an aggregate principal amount of $2.2 billion.
- Maturity: The new facility matures on February 2, 2024, with an extension option.
- Interest Rates: LIBOR plus 2.75% or Base Rate plus 1.75%.
- Amortization: No amortization payments are required.
- Collateral: Obligations are secured by a lien on substantially all tangible and intangible assets, including approximately 18.4 million ETP common units, 81.0 million ETP Class H units, and 100% equity interests in Energy Transfer Partners, L.L.C. and Energy Transfer Partners GP, L.P.
- Use of Proceeds: Refinancing existing term loans and paying transaction fees and expenses.
Material Changes Versus Prior Period
The Partnership terminated two existing debt agreements on February 2, 2017, coinciding with the new borrowing:
- Senior Secured Term Loan Agreement dated December 2, 2013.
- Senior Secured Term Loan C Agreement dated March 5, 2015.
This represents a refinancing of the Partnership's existing term loan facilities into a single, larger facility.
Covenants, Risks, and Management Commentary
- Financial Covenants:
- Debt-to-EBITDA: Limited to a maximum ratio of 6.00 to 1.00 (measured over the preceding 12 months). This may increase to 7.00 to 1.00 for certain future acquisitions.
- Interest Coverage: EBITDA to consolidated interest expense must be not less than 1.50 to 1.00.
- Prepayment Triggers: Mandatory prepayment is required if the Partnership disposes of Incentive Distribution Rights (IDRs) or equity interests owning IDRs yielding net proceeds in excess of $50 million.
- Restrictive Covenants: The agreement includes limitations on liens, new lines of business, mergers, affiliate transactions, and restrictive agreements. It also contains a change of control event of default.
- Default Consequences: During an event of default, lenders may declare the entire outstanding amount due and payable.
Investor Verification Checklist
- Verify the status of the SXL Transaction (merger between ETP and SXL) as the collateral structure and prepayment triggers are tied to its consummation.
- Confirm the Partnership's current funded debt and EBITDA to ensure compliance with the 6.00:1.00 leverage covenant.
- Review the full text of the Term Credit Agreement (Exhibit 10.1) for specific definitions of EBITDA and interest expense used in covenant calculations.
- Monitor any potential dispositions of IDRs that could trigger mandatory prepayments exceeding $50 million in net proceeds.