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Announcement:

Moody's affirms Energy Transfer's and Regency's ratings

28 Mar 2011

New York, March 28, 2011 -- Moody's Investors Service affirmed Energy Transfer Partners, L.P.'s (ETP) Baa3 senior note rating with a stable outlook, Regency Energy Partners LP's (Regency) Ba3 Corporate Family Rating with a positive outlook, and Energy Transfer Equity's (ETE) Ba1 Corporate Family Rating with a negative outlook, in response to the announcement that ETP and Regency would acquire LDH Energy Asset Holdings LLC (LDH) in an all-cash transaction valued at $1.925 billion. The assets will be held in a new joint venture owned 70% by ETP and 30% by Regency, with expected closing in the May 2011 time frame.

"The ratings affirmations reflect the increased scale and asset diversification for the MLPs and further gains in more stable fee businesses arising from the addition of LDH's assets," said Tom Coleman, Senior Vice President. "While we continue to see financial leverage for the MLPs and consolidated family as elevated in the wake of the acquisition, expected equity issuances and the rising cash flow from ETP's and Regency's existing operations and from LDH should lead to improved financial leverage by the end of 2011."

LDH's acquired assets will provide operational and geographic diversification in natural gas liquids storage, fractionation and transportation, with the West Texas Pipeline connecting NGLs production from the Permian basin and northern Barnett Shale to storage facilities in the key Mt. Belvieu NGLs hub. The LDH assets are characterized overall at about 70% fee-based on a gross margin basis, and provide a new NGLs platform contributing to a more stable cash generating profile for ETP and Regency.

ETP will own 70% of the acquired assets through an unlevered joint-venture and will operate it on behalf of Regency. Moody's notes the acquisition multiple appears to be fully valued and will be a leveraging transaction for the Energy Transfer entities. The incremental debt post-acquisition will push ETP's proforma 2010 leverage to about 5.4 x Debt/EBITDA from 4.8x (including Moody's debt adjustments and LDH's prorata EBITDA). Regency's Debt/EBITDA also remains elevated at 5.7x on a prorata basis, including similar adjustments.

Given the higher implicit leverage and growth spending for the MLPs, timely issuance of equity and continuing access to both equity and debt markets will be critical to reduce leverage and retain access to their revolvers to help fund growth capital, including potential investments on the LDH assets. Moody's expects ETP to issue equity in the near-term, while Regency has already obtained $204 million of equity financing to moderate acquisition leverage. Structural complexity will also continue to be an issue for the Energy Transfer entities, with bondholders removed from direct access to cash flows by debt at the subsidiaries and various joint ventures.

ETP and Regency should both benefit from rising cash flow in 2011. ETP's large Fayetteville Express and Tiger Express Pipeline projects are expected to ramp up and add tariff-based revenues in 2011 and 2012, while Regency should show an uptick in fee-based contributions with a full year's EBITDA from its Zephyr gas treatment services and distributions from Midcontinent Express Pipeline. LDH's expected EBITDA contribution for a part of 2011 and into 2012 should also help both entities restore leverage metrics to more appropriate levels.

To maintain a stable outlook ETP will need to restore Debt/EBITDA to around 4.5x, and Regency will need to stabilize leverage below 4.8x Debt/EBITDA to maintain positive ratings momentum. Failure to raise timely and adequate amounts of equity to fund growth, or shortfalls in expected cash flow from operations could pressure the outlooks and ratings for both ETP and Regency, especially in light of the MLP distribution model.

Moody's is maintaining ETE's negative outlook for the Ba1 Corporate Family Rating and Ba2 securities ratings, reflecting already high consolidated leverage and the risk that the EBITDA of its two MLP investments and in turn, the support provided by growing distributions, could fall short. ETE's consolidated family leverage at just under 6.1x Debt/EBITDA and 6.5x proforma for the LDH acquisition is quite elevated and pressures its ratings as well as those of ETP and Regency. ETE's consolidated EBITDA and cash distributions from the MLPs will need to show continued growth and bring Debt/EBITDA back in line to 5.5x or lower in 2011 to stabilize ETE's rating outlook.

Please see ratings tab on issuer/entity page on Moodys.com for the last rating action and the rating history.

The principal methodology used in this rating was Global Midstream Energy rating methodology published in December 2010.

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

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

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms Energy Transfer's and Regency's ratings
No Related Data.
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