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Rating Action:

Moody's Changes Energy Transfer Equity's Rating Outlook to Negative

12 May 2010

New York, May 12, 2010 -- Moody's Investors Service affirmed the Corporate Family Rating (CFR) and related securities ratings of Energy Transfer Equity L.P. (ETE), as well as the Baa3 long-term debt rating of Energy Transfer Partners, L.P. (ETP). At the same time, the rating agency changed ETE's rating outlook to negative from stable. ETP's rating outlook remains stable.

The ratings affirmations and outlooks are in response to announced transactions in which ETE will acquire the GP of Regency Energy Partners from GE Financial Services and transfer direct ownership of a 49.9% stake in Midcontinent Express Pipeline LLC (MEP) from ETP to Regency.

ETE will acquire Regency's GP for $300 million of preferred units issued to GE Financial Services. In a concurrent two-step process, ETE will acquire ETP's stake in MEP for consideration of $600 million via redeemed ETP common units, and then exchange the MEP stake for common units of Regency. When completed, ETE will control Regency and ETP through their respective GP interests. ETE will also own approximately 22% of Regency's common units and 28% of ETP's common units. Regency will have a direct 49.9% stake in MEP.

Moody's is affirming ETE's Ba1 CFR and, in turn, its Ba2 senior secured rating based on the increased scale, asset footprint and diversification provided by control over two independent MLPs, each with different growth and leverage profiles that should support increased distributions to ETE. As a contributor to ETE, Regency will provide a slightly less leveraged cash flow stream that provides diversification to ETE's distribution streams and consolidated operating profile.

However, ETE's outlook is changed to negative to reflect the increased debt of the consolidated entity, including about $1 billion of incremental debt at the Regency level and $300 million of preferred stock issued directly by ETE. Moody's estimates ETE's proforma Debt/EBITDA on a consolidated basis at about 5.7 times, including standard adjustments such as operating leases and the proportionate share of MEP's debt. Moody's remains concerned that ETE's consolidated corporate family leverage will remain elevated based on the inherent tension between ETE's call for growing distributions and the internal growth needs of the two MLPs.

In addition, the multiple layers of operations and debt placement within the ETE consolidated entity add complexity and prior calls on the cash distributions available to ETE. Over the medium-term, Moody's will monitor ETE's ability to manage and reduce its consolidated leverage as well as to balance the capital needs of and distributions from its MLPs in order to stabilize the negative outlook.

For ETP, the transfer of the stake in MEP is tax-efficient and relatively neutral for its Baa3 long-term debt rating, which is affirmed with a stable outlook. ETP will be will be shedding $400 million of pro-rata MEP non-recourse debt in a non-operated asset and $86 million in expansion capital required for MEP in 2010. It will also save approximately $68 million in distribution outflows on the redeemed units and have modestly increased flexibility to issue common units to fund future growth opportunities. In addition, ETP is showing good progress on its major pipeline growth projects, which are expected to diversify cash flows as they come onstream in the relative near-term.

Under current circumstances, Moody's does not believe the transfer of the MEP ownership interest to Regency from ETP has any significant impact on MEP's Ba1 long-term debt rating, although MEP's equity earnings and distributions will diversify Regency's own cash flow streams and improve its risk profile.

The last rating action affecting ETE occurred on April 16, 2010 when Moody's withdrew ratings assigned to a proposed senior note offering and credit facility, following postponement of the transactions. The last rating action affecting ETP occurred on September 23, 2008, when Moody's affirmed ETP's Baa3 senior unsecured note rating.

The principal rating methodology used in rating Energy Transfer Equity, L.P., Energy Transfer Partners, L.P, and Regency Energy Partners L.P. is the Midstream Energy Companies and Partnerships Industry Rating Methodology, which can be found on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating these companies can also be found in the Rating Methodologies sub-directory on Moody's website.

Energy Transfer Equity, L.P., Energy Transfer Partners, L.P., and Regency Energy Partners L.P. are all headquartered in Dallas, Texas.

New York
Steven Wood
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Thomas S. Coleman
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Changes Energy Transfer Equity's Rating Outlook to Negative
No Related Data.
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