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Rating Action:

Moody's assigns Ba2 rating to proposed senior secured notes of Energy Transfer Equity

15 Sep 2010

New York, September 15, 2010 -- Moody's Investors Service affirmed the Ba1 Corporate Family Rating (CFR) of Energy Transfer Equity, L.P. and assigned a rating of Ba2 (LGD 6, 92%) to its proposed $1 billion senior note issue. Moody's also affirmed the Ba1 Probability of Default rating (PDR), and the Ba2 (LGD 6, 92%) ratings on ETE's $500 million guaranteed senior secured revolving credit facility and $1.45 billion senior secured Term Loan B facility. The rating outlook is negative.

Assignments:

..Issuer: Energy Transfer Equity, L.P.

....Senior Secured Bank Credit Facility, Assigned 92 - LGD6 to Ba2

....Senior Unsecured Regular Bond/Debenture, Assigned 92 - LGD6 to Ba2

RATINGS RATIONALE

" We view the refinancing as largely leverage and credit neutral for the Energy Transfer family, with some reduced liquidity risk," said Tom Coleman, Senior Vice President. ETE will use the senior note proceeds to pay off its $500 million revolving credit facility and a portion of its Term Loan B facility, which currently has $1.45 billion outstanding. ETE will then enter into a new $200 million revolver that matures in September 2015. Proceeds will also be applied to swap breakage costs and other fees.

The ratings reflect the transaction's relatively neutral leverage impact on ETE as well as its enhanced liquidity profile. The new debt issuance will modestly increase ETE's debt, resulting in a standalone Debt/EBITDA of 2.8x for ETE in 2010 (including Moody's adjustments) and Total Debt/EBITDA of about 5.4x for the Energy Transfer consolidated family. From a liquidity perspective, the new $200 million revolver should remain largely undrawn. The paydown of the revolving facility and a portion of the Term Loan B will spread out ETE's debt maturities and push out refinancing risk on the revolver from 2011 to 2015. However, the eventual payoff of the Term Loan B will fix the bulk of ETE's liability structure as senior long-term debt, which could limit its ability to reduce standalone leverage in the future.

ETE depends directly on cash flows from its direct and indirect interests in Energy Transfer Partners L.P. (ETP, Baa3 senior, with stable outlook) and Regency Energy Partners L.P. (RGNC, Ba3 positive outlook) to meet its debt service obligations and distributions. ETP contributes the bulk of ETE's consolidated earnings and cash flow, as well as its distributions, and its Baa3 long-term rating underpins ETE's Ba1 CFR. ETP's trend of growing distributions and ability to issue new common units have resulted in increasing cash flow support for ETE's debt and unit distributions.

While ETP's Baa3 rating reflects its position as one of the largest diversified mid-stream MLPs, it is also constrained by elevated leverage associated with a sizable capital spending program, including investments in large interstate pipelines, and by the high distribution payout inherent in the MLP growth model. RGNC likewise provides diversification and fee-based cash flow within ETE's consolidated operations, but also contributes to ETE's leverage and structural complexity. Stabilization of ETE's negative rating outlook will depend on the ability of both MLPs to continue to access a balance of new equity and debt to fund their growth, which is key to their credit ratings and to ETE's ability to moderate consolidated financial leverage. Timely execution and cash flow growth from major projects such as the Fayetteville Express and Tiger Pipelines could also support a stable outlook.

The Ba2 (LGD 6, 92%) ratings reflect application of LGD methodology to the consolidated ETE family, with the revolver, Term Loan B and senior notes notched down from the Ba1 CFR to reflect their subordination to sizable direct claims against ETP and RGNC. ETE debt holders are structurally subordinated to the MLP creditors and effectively equal to the common unit holders in the event of an MLP bankruptcy. In addition, Moody's notes that ETE's senior notes will be secured by ETE's equity in the two MLPs and will rank pari passu with the revolver and Term Loan B as long as the latter remains outstanding. When the term loan is fully paid off, security for the senior notes will fall away. Moody's would not expect the payoff of the Term Loan B to affect notching of the senior notes when the collateral is lifted.

The last rating action affecting ETE occurred on May 12, 2010, when Moody's affirmed ETE's ratings and changed the outlook to negative.

The principal methodologies used in rating Energy Transfer Equity, L.P. were Midstream Energy Companies & Partnerships published in September 2007, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found 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.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

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

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Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

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
USA

Moody's assigns Ba2 rating to proposed senior secured notes of Energy Transfer Equity
No Related Data.
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