Oct 12 - Fitch Ratings has affirmed the Issuer Default Rating (IDR) for
Energy Transfer Equity, L.P. (ETE) at 'BB-'. In addition Fitch has
affirmed ratings for ETE's secured debt at 'BB'. ETE has a Stable Rating
A complete list of ETE ratings follows at the end of this release. Approximately
$3.8 billion of debt is affected by today's rating action.
Merger Transaction Completed: On Oct. 5, 2012, ETE affiliate Energy Transfer
Partners, L.P. (ETP; Fitch IDR of 'BBB-', Negative Outlook) completed a merger
with Sunoco, Inc. (SUN). Contemporaneously with the closing of the merger, SUN
contributed to ETP $2 billion in cash and equity interests of Sunoco Partners
LLC, which currently holds the 2% general partner (GP) interest, incentive
distribution rights, and 32.4% limited partner (LP) interest in Sunoco Logistics
Partners, L.P. (SXL; IDR 'BBB', Stable Outlook) in exchange for 90,706,000 newly
issued Class F units of ETP. In addition, immediately following the merger, ETE
contributed its interest in Southern Union Company (SUG; IDR 'BBB-', Stable
Outlook) to ETP HoldCo Corporation (ETP HoldCo) in exchange for a 60% equity
interest in ETP HoldCo. In conjunction with ETE's contribution, ETP contributed
its interest in SUN to ETP HoldCo and retained a 40% equity interest in ETP
In addition to its 40% equity interest in ETP HoldCo, ETE owns ETP's GP interest
and 52.5 million ETP LP units, and the GP interest in Regency Energy Partners LP
(RGP; IDR 'BB', Stable Outlook) and 26.3 million RGP LP units.
Rating Rationale: Fitch believes the merger transaction and resulting HoldCo
structure provides significant direct benefits to ETP. ETE primarily stands to
gain through its ownership interests in ETP and from the amount and quality of
partner distributions it receives from ETP. ETP and ETP HoldCo are expected to
provide approximately 95% of ETE's 2013 cash flow. The new holding company
simplifies ETP's organizational structure and diversifies and increases the
scale of its operations. It has provided an efficient way to drop down SUG
assets under ETP control, minimizing transactional risk and external financing.
Furthermore, ETP HoldCo will generate tax benefits and contribute to improving
adjusted leverage metrics at ETP, which Fitch anticipates will decline to the
4.0x to 4.25x range in 2013 from 4.8x today.
Fitch expects ETE's credit profile to remain consistent with its current rating
over the near term. For 2013 Fitch projects ETE's standalone adjusted debt to
EBITDA, which measures ETE parent company debt against the distributions it
receives from ETP, RGP, and ETP HoldCo less expenses, to range between 3.5x and
3.75x. On a fully consolidated basis, 2013 debt to EBITDA is expected to
approximate 5.25x. However, ETE's leverage ratios are expected to improve in
future periods through increasing affiliate distributions and potentially from
the use of proceeds from the sale of assets to retire debt. It is expected that
SUG's utility operations will be sold in 2013 with proceeds to be used to reduce
debt at SUG and ETE.
The 2012 acquisitions of SUN and SUG not only increased and diversified ETE's
consolidated operations, they resulted in a higher percentage of contractually
supported fee-based margins. The SUN acquisition added crude oil, refined
products, and retail operations. SUG provided stable interstate pipelines and
midstream services. Also, in January 2012 ETP sold its propane operations which
reduced its and ETE's sensitivity to weather and commodity prices.
Liquidity is Adequate: ETE has access to a $200 million secured revolving credit
facility that matures in June 2015. At June 30, 2012, $10 million was
outstanding under the revolver. ETE has minimal working capital needs. The
revolver has a maximum leverage test of 5.5x, a minimum fixed-charge coverage
test of 1.5x, and a minimum value to loan test of 2.0x. At June 30, 2012, ETE
met its financial covenants.
Positive: Future developments that may, individually or collectively, lead to
positive rating action include:
--A lessening of consolidated business risk as ETE affiliates acquire and expand
pipeline and fixed-fee midstream businesses;
--Positive rating actions at ETP and RGP:
--A material improvement in ETE credit metrics with sustained leverage below
3.0x as affiliate cash distributions increase.
Negative: Future developments that may, individually or collectively, lead to a
negative rating action include:
--Higher leverage at ETE's operating affiliates to support organic growth and
--Weakening operating performance resulting in negative rating actions at ETP
--Standalone ETE debt to EBITDA above 5.0x.
The following ratings have been affirmed by Fitch with a Stable Outlook:
Energy Transfer Equity, L.P.
--Secured senior notes 'BB';
--Secured revolving credit facility;
--Secured term loan.