Morningstar DBRS Places Parkland Corporation's Credit Ratings Under Review With Developing Implications Following Definitive Agreement to Combine With Sunoco LP

DBRS Limited (Morningstar DBRS) placed Parkland Corporation's (Parkland or the Company) Issuer Rating of BB and its Senior Unsecured Notes credit rating of BB Under Review with Developing Implications. These credit rating actions follow the Company's announcement that it has entered into a definitive agreement with Sunoco LP (Sunoco) whereby Sunoco will acquire all outstanding shares of Parkland in a cash and equity transaction valued at approximately USD 9.1 billion, including assumed debt of approximately USD 3.8 billion (the Transaction).

As part of the Transaction, Sunoco intends to form a new publicly traded limited liability company named SUNCorp, LLC (SUNCorp). SUNCorp will hold limited partnership units of Sunoco that are economically equivalent to Sunoco's publicly traded common units and will be treated as a corporation for tax purposes. Under the terms of the agreement, Parkland shareholders will receive 0.295 SUNCorp units and $19.80 for each Parkland share, implying a 25% premium based on the seven-day volume-weighted average price of both Parkland and Sunoco as of May 2, 2025. Parkland shareholders can elect, in the alternative, to receive $44.00 per Parkland share in cash or 0.536 SUNCorp units for each Parkland share, subject to pro ration. Sunoco expects USD 3.00 billion of SUNCorp equity will be issued to Parkland shareholders as part of the Transaction and USD 2.60 billion of cash consideration will be supported by fully committed bridge facility.

The proposed Transaction has been unanimously approved by the boards of directors of both companies and is expected to close in H2 2025 upon the satisfaction of closing conditions, including approval by Parkland's shareholders, regulatory approvals, court approvals, and stock exchange listing approvals. Morningstar DBRS notes that the Company's largest shareholder, Simpson Oil with a 19.8% stake, sought a court order to conduct an annual general meeting, as per original schedule but this was not granted. The agreement also contains an option whereby Sunoco, at its election any time before Parkland's special shareholder meeting scheduled on June 24, 2025, may elect to effect and complete the Transaction on the same terms by way of a takeover bid, which would require support from Parkland shareholders owning at least 50% of the Company's outstanding shares.

On a standalone basis, Morningstar DBRS expects the Transaction to have a moderately positive effect on Parkland's business risk profile. Given the complementary businesses with Sunoco, Parkland's business risk profile could benefit over the medium to long term from increased scale, operational synergies, and Sunoco's existing presence in North America. Morningstar DBRS believes the impact on Parkland's financial risk profile would be predicated on the final capital structure and management's financial policies.

Morningstar DBRS expects to resolve the Under Review with Developing Implications status at the close of the Transaction. In its review, Morningstar DBRS will focus on (1) reassessing the business risk profile, (2) the risks associated with integration and realization of potential synergies, (3) capital structure plans and pro forma financial risk profile, and (4) the Company's long-term business and financial strategy. Morningstar DBRS will review additional information as it becomes available and provide an update if there is additional clarity on the direction of the credit ratings.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) at https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in Canadian dollars unless otherwise noted.

Morningstar DBRS applied the following principal methodology:
-- Global Methodology for Rating Companies in Services Industries (February 3, 2025),
https://dbrs.morningstar.com/research/447184

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (February 3, 2025; https://dbrs.morningstar.com/research/447186) which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodologies have also been applied:

-- Morningstar DBRS Criteria: Approach to ESG Factors in Credit Ratings (August 13, 2024), https://dbrs.morningstar.com/research/437781

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info-DBRS@morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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