Fitch Ratings has affirmed its ratings for Energy Transfer
Equity, LP (ETE) and Energy Transfer Partners, LP (ETP) with a
Stable Outlook. Fitch has also placed it ratings for Regency Energy
Partners, LP (RGP) on Rating Watch Positive following the
announcement that ETP is proposing to acquire RGP in a
unit-for-unit transaction valued at roughly $18 billion including
the assumption RGP debt. In association with the proposed
transaction ETP will assume all of RGP's outstanding senior debt
and refinance any RGP revolver borrowings. ETE has agreed to
provide a 5-year, incentive distribution rights subsidy of $320
million in support of the transaction. The proposal has been
reviewed and accepted by the Boards of Directors and Conflicts
Committees of both ETP and RGP, and is expected to close in the
second quarter of 2015 subject to Hart-Scott-Rodino approval and an
ETP and RGP unitholder vote.
The affirmation of ETP with a Stable Outlook is reflective of
FItch's belief that the transaction provides ETP with significant
benefits including increased size and scale, a robust platform for
growth, increased geographic exposure to the Marcellus and Utica
shale in particular, and the opportunity for a fair amount of what
should be easily achievable synergies. For ETE the affirmation
recognizes that ETE's consolidated credit profile does not
materially change as a result of the merger but by consolidating
RGP into ETP (a lower cost of capital entity) cash flows up to ETE
should improve, driven by expected synergies and improved returns
on growth projects previously planned at RGP. Additionally, ETE
should benefit somewhat from a simplification of its organizational
structure and slightly improved credit profile of its subsidiaries
though it remains structurally subordinate to a significant amount
of subsidiary debt.
Fitch expects no material impact to leverage at ETP as a result
of the transaction. Prior to the transaction Fitch's expectations
for leverage at ETP for 2015 and 2016 was a range of 4.0x to 4.5x,
and ETE leverage (non-consolidated) of between 3.0x and 4.0x. Both
companies, pro forma for the transaction, are expected by Fitch to
remain within these ranges through 2015 - 2016.
For RGP the Positive Watch reflects that in being acquired and
with its debt assumed by its higher rated affiliate, RGP's notes at
closing should be rated at ETP's rating. Fitch would expect to
resolve the Rating Watch at or near closing following Federal and
unit-holder approvals.
RATING SENSITIVITIES:
Positive: Future developments that may, individually or
collectively, lead to a positive rating action include:
ETP
--A material improvement in credit metrics with ETP adjusted
leverage sustained at between 3.5x and 4.0x;
--A lessening of consolidated company business risk as ETP
acquires and expands fixed-fee operations.
ETE
--Parent company debt-to-EBITDA maintained below 1.5x;
--Improving credit profile and ratings at subsidiaries.
Negative: Future developments that may, individually or
collectively, lead to a negative rating action include:
ETP
--Weakening credit metrics with ETP adjusted leverage above
5.0x;
--Increasing commodity exposure.
ETE
--Increasing parent company leverage above 4.5x;
--Weakening credit profiles at ETP and RGP.
The following ratings have been affirmed by Fitch with a Stable
Outlook:
Energy Transfer Equity, L.P.
-- Issuer Default Rating (IDR) at 'BB';
--Secured senior notes at BB+';
--Secured term loan at 'BB+';
--Secured revolving credit facility at 'BB+'.
Energy Transfer Partners, L.P.
-- IDR at 'BBB-';
--Senior unsecured debt at 'BBB-';
--Junior subordinated debt at 'BB'.
RGP's ratings have been placed on Rating Watch Positive. Fitch
currently rates RGP as follows:
--Long-term IDR 'BB';
--Senior secured revolver 'BB+';
--Senior unsecured notes 'BB';
--Series A preferred units 'B+'.
Additional information is available at
'www.fitchratings.com'.
Applicable Criteria and Relevant Research:
--'2015 Outlook: Natural Gas Pipelines (Stability Despite Price
Uncertainty)' (December 2014);
--'Pipelines, Midstream and MLP Stats Quarterly - Third Quarter
2014' (December 2014);
--'MLP End Game (Common Goals - Divergent Strategies) (November
2014);
--'Bakken Shale Report (Prolific Production Prompts New
Pipelines) (October 2014);
--'What Investors Want to Know: Pipelines, Midstream and MLPs'
(October 2014);
--'Midstream Spending Significantly Rising for MLPs and C-Corps'
(August 2014);
--'Corporate Rating Methodology - Including Short-Term Ratings
and Parent and Subsidiary Linkage' (May 2014)';
--'Rating Pipelines, Midstream and MLPs - Sector Credit Factors'
(January 2014).
Applicable Criteria and Related Research:
Rating Pipelines, Midstream and MLPs - Sector Credit Factors
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=722082
Corporate Rating Methodology - Including Short-Term Ratings and
Parent and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393
Midstream Spending Significantly Rising for MLPs and C-Corps
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=759467
What Investors Want to Know: Pipelines, Midstream and MLPs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=785149
Bakken Shale Report (Prolific Oil Production Prompts New
Pipelines)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=783488
MLP End Game (Common Goals -Divergent Strategies)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=802308
Pipelines, Midstream and MLP Stats Quarterly -- Third-Quarter
2014 (Third-Quarter Review)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=834968
2015 Outlook: Natural Gas Pipelines (Stability Despite Price
Uncertainty)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=839208
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=978624
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ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
Fitch RatingsPrimary AnalystPeter MolicaSenior
Director+1-212-908-0288Fitch Ratings, Inc.33 Whitehall St.New York,
NY 10004orKathleen ConnellyDirector+1-212-908-0290orCommittee
ChairpersonMark C. Sadeghian, CFASenior
Director+1-312-368-2090orMedia Relations:Alyssa Castelli, New York,
+1 212-908-0540Email: alyssa.castelli@fitchratings.comElizabeth
Fogerty, New York, +1 212-908-0526Email:
elizabeth.fogerty@fitchratings.com