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Energy Transfer Partners, L.P. ( NYSE:ETP ) and Energy Transfer Equity, L.P. ( NYSE:ETE ) announced today the exchange of 50.16 million ETP common units, currently owned by ETE, for newly issued Class H units by ETP that track 50% of the underlying economics of the general partner (GP) interest and the incentive distribution rights (IDRs) of Sunoco Logistics Partners L.P. ( NYSE: SXL). A subsidiary of ETP will remain the general partner of SXL, and ETP will continue to benefit from 50% of the economics related to SXL’s GP interest and IDRs. The transaction will be effectuated through the redemption of ETP common units and ETP’s issuance of new Class H units (see Exhibit A).

As a result of the significant cash flow accretion expected to be realized by ETP from this transaction ($0.25-$0.35 per common unit per annum), ETP anticipates an increase of $0.01 per common unit per quarter for each of the quarters ending September 30 and December 31, 2013. For 2014 and beyond, ETP is targeting continued distribution increases and a distribution coverage ratio of 1.05x, thereby promoting a prudent balance between distribution increases and enhanced financial flexibility and strength.

For ETE, this transaction continues its transition back to a pure play general partner for the overall Energy Transfer family. ETE expects to increase its distribution by $0.01 per common unit per quarter through 2013 and thereafter to maintain its distribution growth rate while resuming its 1.0x distribution coverage ratio.

Description of the new Class H units includes the following:

  • Class H units will entitle ETE to receive a quarterly cash distribution from ETP equal to approximately 50% of the economics related to SXL’s GP interest and IDRs;
  • Class H units will entitle ETE to receive additional cash distributions of $329 million. These incremental distributions will be received over 15 quarters commencing with the quarter ending September 30, 2013 and are intended to partially offset the IDR subsidies agreed to by ETE in prior transactions;
  • The Class H units will not be convertible or exchangeable for any security of either ETP or SXL and will not be traded on any public securities market; and
  • ETE will not receive any IDR distributions with respect to the Class H units.

The impact of the incremental cash distributions of $329 million, over 15 quarters, is an offset to the prior IDR subsidies granted by ETE to ETP. The adjustments to the IDR subsidy calculation result in net fixed subsidy amounts as reflected in the table in Exhibit B. Setting these net subsidies as fixed amounts should make the impact of the IDR subsidies easier and simpler for analysts and investors alike.

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