Fitch Rates Energy Transfer Partner's Notes 'BBB-'
NEW YORK -- January 14, 2013
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 margins.
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
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;
--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.
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);
--'2013 Outlook: Natural Gas Pipelines and MLPs' (Nov. 29, 2012);
--'2013 Outlook: Midstream Services and MLPs' (Nov. 29, 2012);
--'Eagle Ford Shale Report: Midstream and Pipeline Sector Economics Driving
Growth' (Oct. 15, 2012);
--'Pipelines, Midstream, and MLP Stats Quarterly - Second Quarter 2012' (Sept.
--'Marcellus Shale Report: Midstream and Pipeline Sector Challenges and
Opportunities' (June 10, 2012);
--'Top Ten Questions Asked by Pipeline, Midstream, and MLP Investors' (May 1,
--'Master Limited Partnerships 101' (Nov. 1, 2011);
--'Natural Gas Pipelines: Hot Topics' (Oct. 13, 2011).
Applicable Criteria and Related Research:
Corporate Rating Methodology
2013 Outlook: Natural Gas Pipelines & MLPs
2013 Outlook: Midstream Services and MLPs
Eagle Ford Shale Report (Midstream and Pipeline Sector -- Economics Driving
Pipelines, Midstream, and MLP Stats Quarterly -- Second-Quarter 2012
Marcellus Shale Report: Midstream and Pipeline Sector --
Top Ten Questions Asked by Pipeline, Midstream and MLP Investors
Master Limited Partnerships 101
Natural Gas Pipelines: Hot Topics -- Long-Term Trends Affecting Pipeline Risk
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