TEXT-Fitch rates Regency Energy Partners notes 'BB'

Thu Sep 27, 2012 12:34pm EDT

Sept 27 - Fitch Ratings has assigned a 'BB' rating to Regency Energy
Partners L.P.'s (RGP) proposed $500 million senior notes offering due
2023 (senior notes). Proceeds will be used to repay borrowings under RGP's
credit facility. A full list of RGP's ratings appears at the end of this
release. The Rating Outlook is Stable.

RGP's ratings reflect the fixed fee nature of its operations, the quality and
diversity of its portfolio of midstream assets, relatively high leverage, weak
distribution coverage metrics and its affiliation with its general partner
Energy Transfer Equity, LP (ETE; long-term IDR 'BB-'; Outlook Stable). The
ratings consider that RGP is in the midst of a significant capital spending
program which will see the company spend over $1 billion in growth cap-ex
through 2013 and weigh on leverage metrics in the near to medium term. These
growth investments are primarily focused on fee-based or revenue-assured assets,
which should help lower RGP's exposure to changes in commodity prices.
Additionally, Fitch expects RGP's leverage metrics will improve as it benefits
from the earnings and cash flow associated with joint venture and organic
projects as they are completed and begin operation.

Key Rating Factors

Fixed Fee Cash Flow Profile: RGP has over 80% of its gross margin supported by
fixed fee type contracts which largely insulate it from direct changes in
commodity prices. This translates to fairly predictable earnings and cash flow
for the partnership. Additionally, RGP tries to layer on hedges to further lower
open commodity price exposure.

Geographic and Business Segment Diversity: RGP has a diverse set of midstream
assets which allow it to offer fully integrated midstream services to producers.
Its assets are located in and around growing production basins that are
liquids-rich and should continue to provide significant organic growth
opportunities.

High Leverage/Improving Metrics: As a result of RGP's rapid growth over the past
several years its leverage is high with Debt/Adjusted EBITDA for the LTM period
ending June 30, 2012 of 4.7 times (x) based on Fitch calculations. Somewhat
offsetting this high leverage is lower relative commodity price exposure due to
the fixed fee focus of its business and the expectation that as its growth
projects are completed RGP's rising EBITDA will lead to improvement in these
metrics. Based on Fitch's calculations for Debt/Adjusted EBITDA, which excludes
equity in earnings but includes dividends from unconsolidated affiliates, Fitch
expects RGP's 2012 Debt/Adj. EBITDA of roughly 4.6x improving to closer to 4.1x
by 2013 as growth projects are completed.

Large Capital Spending Plan: RGP has a significant capital expenditure program,
with forecasted capital spending of over $1 billion for 2012 and 2013. RGP's
large scale spending will weigh on metrics through 2013 prior to construction
being completed and cash flows coming on line. Fitch expects RGP to fund its
spending with a balance of debt and equity.

Tight Distribution Coverage: Fitch expects RGP's distribution coverage to be
just under 1.0x for 2012, improving to 1.1x in 2013. Fitch prefers to see
distribution coverage in excess 1.0x, as the cash retention can provide a
financial cushion in a downturn, and help fund growth spending and or debt
reduction.

Volumetric Exposure: As typical with gas processor and midstream companies,
volumetric risk can be a concern, particularly in a declining rig count
environment. However, production and volumes have largely held up or increased
in RGP's operating basins, which Fitch expects to continue given the gas from
these areas, like the Permian and Eagle Ford basins, tends to have a high
liquids component or is tied to oil production which should remain strong given
current NGL and oil economics.

JV/Structural Subordination: RGP is the owner of several joint venture (JV)
interests some of which have external debt. RGP is structurally subordinate to
the cash operating and debt service needs of these JVs and reliant on JV
distributions to fund its capital spending and its own distributions.

General Partner Relationship: While Fitch's ratings are largely reflective of
RGP's credit profile on a stand-alone basis, they do consider the company
relationship with ETE, the owner of its general partner interest. ETE's general
partner interest gives it significant control over the MLP's operations,
including most major strategic decisions such as investment plans,
distributions, and management of daily operations. The relationship has also
provided opportunities that might otherwise be unavailable to RGP, such as RGP's
acquisitions of MidContinent Express Pipeline (MEP; IDR 'BBB'; Outlook Stable)
and LDH Energy Assets Holdings, from and with another ETE affiliate, Energy
Transfer Partners, LP (ETP; IDR
'BBB-'; Outlook Negative) and its participation in its LoneStar JV with ETP.

WHAT COULD TRIGGER A RATING ACTION

Positive: Future developments that may, individually or collectively, lead to
positive rating action include:
--Sustained improvement in leverage metrics;
--Successful execution of growth plan and continued metric improvements. Fitch
would likely consider a positive rating action as Debt/Adj. EBITDA moves closer
towards and below 4.0x and distribution coverage remains above 1.0x, provided
RGP's 80%+ fee based margin profile and hedging practices stay consistent with
current practices.

Negative: Future developments that may, individually or collectively, lead to a
negative rating action include:
--Continued large-scale capital expenditure program funded by higher than
expected debt borrowings, with Debt/Adj. EBITDA above 4.8x on a sustained basis;
--An increase in gross margin sensitivity to changes in commodity prices;
--Significant and prolonged decline in demand/prices for NGLs, crude and natural
gas;
--Aggressive growth of distributions at RGP and with continued distribution
coverage below 1.0x.

Note: In its Master Limited Partnership analysis, Fitch typically adjusts EBITDA
to exclude nonrecurring extraordinary items, and noncash mark-to-market
earnings. Adjusted EBITDA excludes equity in earnings and includes dividends
from unconsolidated affiliates.

Fitch currently rates RGP as follows:

--Long-term IDR 'BB'
--Senior Secured Revolver 'BB+'
--Senior Unsecured Notes 'BB'
--Series A Preferred Units 'B+'

Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Master Limited Partnerships 101: Assessing MLPs in a High Growth Environment'
(Nov. 1, 2011);
--'Parent and Subsidiary Rating Linkage ' (Aug. 8, 2012)
--'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit
Analysis' (Dec. 15, 2011).

Applicable Criteria and Related Research:
Corporate Rating Methodology
Master Limited Partnerships 101
Parent and Subsidiary Rating Linkage
Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit
Analysis
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