ETP Bonds Drop After It Agrees to Buy Sunoco for $5.3 Bln

Bonds of Energy Transfer Partners LP, owner of more than 17,500 miles of natural-gas pipelines, dropped by the most since they were issued in January as the company agreed to buy Sunoco Inc.

Energy Transfer’s $1 billion of 6.5 percent senior unsecured notes maturing in February 2042 slumped 4.7 cents to 102.7 on the dollar to yield 6.30 percent, the highest ever, at 11:58 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That’s the biggest fall since the bonds started trading on Jan. 11. The Dallas-based firm’s $1 billion issue of 5.2 percent notes maturing in February 2022 fell 3.3 cents to 103.9 cents, and was the most actively traded security with 57 trades of $1 million or more.

The pipeline operator agreed to buy Sunoco for $5.3 billion in shares and cash to add oil terminals and transportation assets, the pipeline owner said in a statement today. Energy Transfer Equity LP, which controls Energy Transfer Partners, bought Southern Union Co. last month for more than $5 billion.

“Half of the price is being paid for in cash, so ETP has a funding need to meet,” Andy DeVries, an analyst at CreditSights Inc., said in a telephone interview. “The parent company just bought Southern Union,” he said. “You usually try and digest such an acquisition before moving on to the next one, and bondholders are wary about this management move.”

The transaction represents the next step in Energy Transfer Partner’s transformation into a more diversified enterprise, the company said in the statement.

Credit Outlook

Standard & Poor’s, which ranks Energy Transfer at BBB-, the lowest rung of investment grade, has a negative watch on the company’s ratings. New York-based Moody’s Investors Service has an equivalent long-term rating of Baa3 on the company.

The Sunoco deal may end negative credit outlooks, Kelcy Warren, the chief executive officer of Energy Transfer said in a call with investors.

“Bondholders are always worried about M&A,” said DeVries, adding the decision is good in the long run. “It all hinges on how they finance the cash component.”

Energy Transfer Partners had $9 billion of total debt as of Dec. 31, it said in its February annual filing. The company had $108 million of cash and equivalents as of Dec. 31 and $108 million of bonds maturing in 2012, Bloomberg data show.

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