-- U.S. midstream energy master limited partnership Energy Transfer
Partners (ETP) announced an agreement to purchase Sunoco Inc.
for $5.3 billion.
-- We are affirming our 'BBB-' corporate credit rating on ETP and
revising the outlook to stable from negative.
-- We are also placing the 'BB+' corporate credit rating on Sunoco on
CreditWatch with positive implications. We are also placing the 'BBB'
corporate credit rating on Sunoco Logistics Partners on CreditWatch with
-- The stable outlook on our rating for Energy Transfer Partners reflects
our expectation that its debt/EBITDA will be near or about 4.5x in the
long-term because we expect the company's more diversified mix of assets can
tolerate somewhat higher debt leverage for the rating than currently.
On April 30, 2012, Standard & Poor's Ratings Services affirmed its 'BBB-'
corporate credit rating Energy Transfer Partners L.P.'s (ETP) and revised the
outlook to stable from negative. We also placed the 'BB+' corporate credit
rating on Sunoco Inc. on CreditWatch with positive implications. In addition,
we placed the 'BBB' corporate credit rating on Sunoco Logistics Partners L.P.
on CreditWatch with negative implications. We affirmed the 'BB' corporate
credit rating on Energy Transfer Equity L.P. (ETE) and maintained the stable
We have reviewed the $5.3 billion transaction and believe it will be slightly
positive for ETP's credit risk profile because it is broadly neutral to the
company's debt leverage measures. At the same time, it would extend ETP's
scale and enhance its competitive position across the natural gas, oil, and
natural gas liquids (NGL) value chain. The contribution from ETP's challenged
intrastate natural gas business will also notably decrease and be replaced by
Sunoco's more stable crude oil and refined products transportation assets.
ETP's EBITDA base will grow materially to about $3 billion with its overall
cash flow diversity notably improving, too. The transaction does, however,
lend further credence to ETP's highly aggressive growth strategy and that of
the ETE family of companies as a whole. ETP will fund the purchase with 50%
common units and 50% cash. Sunoco's $965 million of debt will remain
The CreditWatch listings on Sunoco and Sunoco Logistics reflect our
expectation that their corporate credit ratings will be in line with that of
ETP. Sunoco will be a wholly owned subsidiary, with ETP's management
controlling Sunoco and exerting significant control over Sunoco Logistics,
given its role as general partner. ETP will in essence control Sunoco
Logistics as its general partner and its role on the company's board of
directors. Sunoco Logistics is also ultimately controlled by ETE, through ETP,
so we feel its rating is limited to 'BBB-'.
There is no effect on our rating and outlook on ETE. ETE's debt leverage
measures will improve slightly given the Sunoco addition. However, the
improvement is not sufficient to warrant a higher rating or positive outlook
at this time. We expect ETE's credit measures to remain appropriate for the
rating. We expect ETE's stand-alone debt/EBITDA to be about 3.5x in 2013
versus previous expectations of 3.75x. We also expect ETE's consolidated
debt/EBITDA to be just over 5x in 2013 versus previous expectations of about
We link the ratings on ETE and ETP, and ultimately Sunoco and Sunoco
Logistics, because several members of the management teams and boards of
directors overlap. In addition, ETE can, through its general partner interest,
significantly influence the business activities and financial policies,
including setting distribution levels.
We expect ETP's credit measures to remain broadly unchanged, with debt/EBITDA
near or about 4.5x in 2013. However, we still expected it to be elevated in
2012 at about 4.75x. ETP's greater size and cash flow diversity, however,
makes it more resilient to commodity price risk or pressure from any one of
its business lines. ETP's ability to maintain debt leverage at this level
depends on industry conditions and management's ability to integrate the
assets and realize synergies. In our view, however, the ETE family of
companies continues to pursue a highly aggressive growth strategy, which often
results in weak credit measures, particularly when we view them on a trailing
12-month basis. At the same time, we recognize that the company has been
willing to issue equity and fund transactions in such a way as to preserve the
The new ETP will have greater asset and geographic diversity with the
following business lines:
-- Intrastate natural gas pipelines (about 26% of pro forma cash flow),
-- Interstate natural gas pipelines (25%),
-- Crude oil and refined products (20%),
-- Midstream and NGLs (19%), and
-- Retail (10%).
ETP previously had high exposure to natural gas prices and commodity price
differentials. With the recent Louis Dreyfus acquisition and the pending
Sunoco purchase, the partnership will now have more exposure to NGLs and crude
oil infrastructure, which, given the pricing disparity between NGLs and
natural gas, should serve the partnership well in coming years.
We expect to resolve the positive CreditWatch on Sunoco and the negative
CreditWatch on Sunoco Logistics when the transaction is complete in the third
or fourth quarter of 2012. We have reviewed the transaction and expect to
raise Sunoco's corporate credit rating to 'BBB-' and lower Sunoco Logistics'
corporate credit rating to 'BBB-', both in line with that of ETP.
Energy Transfer Partners
The stable outlook on our rating for ETP reflects our expectation that its
debt/EBITDA will be near or about 4.5x in the long term because we expect the
company's more diversified mix of assets can tolerate somewhat higher debt
leverage for the rating than currently. We also expect the partnership to
manage and finance its capital spending program while keeping an adequate
liquidity position. We could lower the rating if it appears that ETP will
sustain its debt to EBITDA ratio at or above 4.75x. We do not currently
contemplate a higher rating unless there is sustained improvement in credit
measures. Specifically, ETP would need to maintain debt to EBITDA below 4x to
4.25x for a sustained period to warrant an upgrade.
Energy Transfer Equity
The stable rating outlook on ETE reflects our expectation for continued
stability in the distribution payments it receives from its ownership
interests in ETP, Southern Union Gas Co., and Regency Energy Partners L.P.. We
expect ETE to slightly deleverage its balance sheet following the Southern
Union transaction, with stand-alone and consolidated debt to EBITDA of roughly
3.5x and 5.5x, respectively. However, we expect debt leverage to improve
further when the Sunoco transaction is complete. We could lower the ratings on
ETE if it sustains its stand-alone or consolidated debt to EBITDA ratios above
4x and 6x, respectively, or if it pursues large acquisitions that do not
improve its business risk or consolidated cash flow profile. A downgrade of
ETP would not necessarily lead to a lower rating on ETE unless we believe
there is a greater risk that distributions to ETE will decrease. We are not
contemplating higher ratings on ETE, absent a materially more conservative
Related Criteria And Research
Key Credit Factors: Criteria For Rating The Global Midstream Energy Industry,
April 18, 2012
Ratings Affirmed; Outlook Revised
Energy Transfer Partners L.P.
Corporate credit rating BBB-/Stable/-- BBB-/Negative
Senior unsecured BBB-
Energy Transfer Equity L.P.
Corporate credit rating BB/Stable/--
Senior secured BB
Recovery rating 3
Ratings Placed On CreditWatch
Corporate credit rating BB+/Watch Pos/-- BB+/Stable/--
Senior unsecured BB+
Recovery rating 4
Sunoco Logistics Partners L.P.
Corporate credit rating BBB/Watch Neg/-- BBB/Stable/--
Sunoco Logistics Partners Operations L.P.
Corporate credit rating BBB/Watch Neg/-- BBB/Stable/--
Senior unsecured BBB/Watch Neg BBB
Complete ratings information is available to subscribers of RatingsDirect on
the Global Credit Portal at www.globalcreditportal.com. All ratings affected
by this rating action can be found on Standard & Poor's public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left