Jan 14 - Fitch Ratings assigns a 'BBB-' rating to Energy Transfer Partners,
L.P.'s (ETP) proposed offering of $1.0 billion to $1.25 billion of
senior notes due 2023 and 2043. Note proceeds will be used to reduce
short-term debt. The Rating Outlook for ETP is Negative.
SUNOCO MERGER COMPLETED
On Oct. 5, 2012, ETP completed a merger with Sunoco, Inc. (SUN).
Contemporaneously with the closing of the merger SUN contributed to ETP $2.0
billion in cash and 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 by Fitch) in exchange for 90,706,000 newly
issued Class F units of ETP. Additionally, immediately following the merger,
Energy Transfer Equity, L.P. (ETE), owner of ETP's GP, 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 Holdco. Pursuant to a
shareholder agreement between ETP and ETE, ETP controls ETP Holdco.
UTILITY SALE CREDIT NEUTRAL
On Dec. 17, 2012, ETP announced an agreement to sell SUG's gas utility
operations in Missouri and New England for $1.015 billion of cash and $20
million of assumed debt. The transaction is expected close by the end of the
third quarter of 2013. Sale proceeds are expected to be used to repay a portion
of SUG's outstanding debt. Fitch expects the utility sale to be credit neutral
for ETP, ETE, and SUG.
Fitch believes the SUN merger and resulting Holdco provides meaningful benefits
to ETP. The merger diversifies and increases the scale of ETP's operations, and
allows for the purchase of SXL interests and drop down of SUG assets under ETP
control while minimizing transactional risk and external financing. The merger
has also resulted in a higher percentage of contractually supported fee-based
SUN and SXL will add crude oil, refined products, and retail operations to ETP's
operations. SUG provides stable interstate pipelines and midstream services.
Also, in January 2012 ETP sold its propane operations which reduced its
sensitivity to weather and commodity prices.
Furthermore, ETP Holdco should 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 more than 4.5x today.
ETP's current Negative Outlook reflects its aggressive acquisition and organic
growth activities and credit metrics which are currently weak for its rating
category. Also considered are ETP's structural subordination to approximately
$6.9 billion of subsidiary debt and the uncertainties resulting from ongoing
structural and operational changes and potential future structural changes as
management attempts to simplify the organization.
LIQUIDITY IS ADEQUATE
ETP has access to a $2.5 billion unsecured revolving credit facility that
matures on Oct. 27, 2016. At Jan. 8, 2013, $1.45 billion of borrowings and $73.9
million of letters of credit were outstanding under the revolver. The revolver
has one financial covenant, a maximum leverage test of 5.0x, (5.5x following
acquisitions of $100 million or more). At Sept. 30, 2012, ETP's revolver
leverage ratio, which includes a material projects adjustment, was 4.33x.
WHAT COULD TRIGGER A RATING ACTION
Negative: Future developments that may, individually or collectively, lead to
negative rating action include:
--An inability to maintain adjusted consolidated debt to EBITDA below 5.0x; and
--Poor operating performance at ETP or poor operating performance and/or
negative rating actions at SXL, SUN, and SUG: and
Positive: Future developments that may, individually or collectively, lead to a
positive rating action include:
--A lessening of consolidated company business risk including lower commodity
--Improving operating performance; and
--Expectations for sustainable adjusted consolidated debt to EBITDA in the 4.0x
to 4.25x range or below.