Sunoco 2006 Annual Report Download - page 24

borrowings under the credit facility. In the third quarter of 2006, the Partnership utilized
cash and a $46 million draw against the facility to finance the $65 million acquisition from
Sunoco of its 55 percent interest in Mid-Valley Pipeline Company. Amounts outstanding
under the facility totaled $68 and $107 million at December 31, 2006 and 2005, re-
spectively. The credit facility contains covenants requiring the Partnership to maintain a
ratio of up to 4.75 to 1 of its consolidated total debt to its consolidated EBITDA (each as
defined in the credit facility) and an interest coverage ratio (as defined in the credit fa-
cility) of at least 3 to 1. At December 31, 2006, the Partnership’s ratio of its consolidated
debt to its consolidated EBITDA was 2.9 to 1 and the interest coverage ratio was 4.9 to 1.
The following table sets forth Sunoco’s outstanding debt:
December 31
(Millions of Dollars) 2006 2005
Short-term borrowings $ 275 $—
Current portion of long-term debt 7177
Long-term debt 1,705 1,234
Total debt $1,987 $1,411
In December 2006, the Company issued $400 million of senior notes under its shelf regis-
tration statement that are due in 2017. Proceeds from this offering were used to repay the
then outstanding commercial paper. In June 2006, the Company redeemed its 9
3
⁄ 8 percent
debentures with a book value of $56 million. The Company recognized a loss of less than
$1 million on the early extinguishment of the debentures. In May 2006, Sunoco Logistics
Partners L.P. issued $175 million of senior notes under its shelf registration statement that
are due in 2016. Proceeds from this offering and from the Partnership’s issuance of
2.7 million limited partnership interests also under its shelf registration statement were
used in part to repay the then outstanding borrowings under the Partnership’s revolving
credit facility with the balance used to fund a portion of its 2006 growth capital program.
Epsilon, the Company’s consolidated joint venture, was unable to repay its $120 million
term loan that was due in September 2006 and $31 million of borrowings under its $40
million revolving credit facility that matured in September 2006. Upon such default, the
lenders made a demand on Sunoco, Inc., as guarantor, and Sunoco, Inc. satisfied its
guarantee obligations in the third quarter of 2006. Sunoco, Inc. is now subrogated to the
rights and privileges of the former debtholders. In January 2007, Sunoco, Inc., as subrogee,
made a demand for payment of the outstanding amounts, but Epsilon was unable to make
payment. Sunoco, Inc., Epsilon and the Epsilon joint-venture partners are currently in liti-
gation to resolve this matter.
In September 2004, the Company repurchased long-term debt with a par value of $352
million through a series of tender offers and open market purchases utilizing the net pro-
ceeds from the issuance of $250 million of 4
7
⁄ 8 percent, 10-year notes under its shelf regis-
tration statement and $154 million of cash. The Company recognized a $34 million
after-tax loss in 2004 due to the early extinguishment of this debt, which is reported sepa-
rately under Corporate and Other in the Earnings Profile of Sunoco Businesses. In No-
vember 2004, the Company issued $103 million of 30-year floating-rate notes and used the
proceeds to redeem its 7.60 percent environmental industrial revenue bonds that were due
in 2024. As a result of the above debt restructuring activities, pretax interest expense de-
clined approximately $20 million in 2005. In March 2004, the Company issued $100 mil-
lion of commercial paper and used the proceeds to repay its maturing 7
1
⁄ 8 percent notes.
The commercial paper was repaid in October 2005.
Management believes there is sufficient financial capacity available to pursue strategic
opportunities as they arise. In addition, the Company has the option of issuing additional
common or preference stock or selling an additional portion of its Sunoco Logistics Part-
ners L.P. common units, and Sunoco Logistics Partners L.P. has the option of issuing addi-
tional common units.
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