Approximately $25.4 billion rated debt affected
New York, June 29, 2016 -- Moody's Investors Service (Moody's) changed Energy Transfer
Partners, L.P.'s (ETP) and Energy Transfer Equity,
L.P.'s (ETE) outlooks to negative from stable.
Moody's affirmed ETP's Baa3 senior unsecured rating and affirmed
ETE's Ba2 Corporate Family rating (CFR), its Ba2 senior secured
debt rating and its SGL-3 liquidity rating. The ratings
and stable outlooks at Sunoco Logistics Partners Operations L.P.
(SXL-backed, Baa3), Sunoco LP (SUN, Ba2),
Florida Gas Transmission Company LLC (Baa2) and Panhandle Eastern Pipe
Line Company LP (Baa3) were not affected by these actions.
The negative outlooks at ETP and ETE reflect the more challenging energy
market which confronts their midstream energy operations, which
has resulted in higher debt leverage at both entities, as well as
ETP's weaker distribution coverage, and the potential litigation
fallout emanating from ETE's recently terminated bid to acquire
The Williams Companies, Inc. (WMB, Ba1 review downgrade).
"The extremely challenging oil and gas operating environment characterized
by weak commodity prices, two years of heavy exploration and production
(E&P) spending cuts, declining production and weakening counterparty
credit has driven ETP's debt leverage over 5x and weakened its already
marginal distribution coverage. With limited near term prospects
for EBITDA growth and costly access to equity capital markets, ETP
faces heightened execution risk in its efforts to shore up its balance
sheet and improve distribution coverage," commented Andrew
Brooks, Moody's Vice President. "Relying on ETP
as the source for 85% of its distributable cash flow, ETE's
credit is fundamentally a derivative of that of ETP, exacerbated
by the unknowns of potential litigation fallout resulting from the terminated
WMB merger."
Affirmations:
..Issuer: Energy Transfer Equity, L.P.
.... Probability of Default Rating,
Affirmed Ba2-PD
.... Speculative Grade Liquidity Rating,
Affirmed SGL-3
.... Corporate Family Rating, Affirmed
Ba2
....Senior Secured Bank Credit Facility,
Affirmed Ba2 (LGD3)
....Senior Secured Regular Bond/Debentures,
Affirmed Ba2(LGD3)
..Issuer: Energy Transfer Partners, L.P.
....Junior Subordinated Regular Bond/Debenture,
Affirmed Ba1
....Senior Unsecured Regular Bond/Debentures,
Affirmed Baa3
....Senior Unsecured Shelf, Affirmed
(P)Baa3
..Issuer: Regency Energy Partners LP
....Senior Unsecured Regular Bond/Debentures,
Affirmed Baa3
..Issuer: Southern Union Company
....Junior Subordinated Regular Bond/Debenture,
Affirmed Ba1
....Senior Unsecured Regular Bond/Debentures,
Affirmed Baa3
..Issuer: Sunoco, Inc.
....Senior Unsecured Regular Bond/Debentures,
Affirmed Baa3
Outlook Actions:
..Issuer: Energy Transfer Equity, L.P.
....Outlook, Changed To Negative From
Stable
..Issuer: Energy Transfer Partners, L.P.
....Outlook, Changed To Negative From
Stable
..Issuer: Sunoco, Inc.
....Outlook, Changed To Negative From
Stable
RATINGS RATIONALE
ETP's Baa3 rating reflects its scale, which ranks among the
largest publicly traded midstream master limited partnerships (MLP) in
terms of its size, geographical reach and the operational diversification
of its businesses. Its $64 billion midstream energy infrastructure
asset base generates a largely fee-based cash flow stream,
around 90%, with $5.7 billion of 2015 EBITDA.
Debt leverage, however, weakened considerably in 2015,
a function of acquisition financing and heavy growth capital spending,
now compounded by limited near term prospects for EBITDA growth and costly
equity capital markets access, reaching 5.6x at year-end
2015. Flat distributable cash flow will pressure 2016's distribution
coverage, potentially dropping it below 1x. While ETP has
an array of options available to alleviate its excessively leveraged balance
sheet, 2016 will also be another year of heavy capital spending
which is likely to push significant deleveraging into 2017.
ETP is controlled by ETE, who holds the general partner (GP) interest
in ETP and 100% of its incentive distribution rights (IDRs).
ETE is also a publicly traded MLP. ETE's Ba2 CFR is largely
a function of the credit of ETP and further reflects the extent of ETP
level debt, and that of its subsidiaries and investments,
approximating $28 billion, to which ETE's debt is structurally
subordinated. ETE's rating further recognizes the benefits of the
massive size, scope and diversification of ETE's midstream asset
base, and is heavily influenced by the asset quality of the entities
controlled by ETE through its GP interests and investments, most
specifically ETP.
Unshackled from the restrictions of the now terminated WMB merger agreement,
Moody's believes that ETE also has options, among them IDR
waivers and potential flexibility around the level of cash distributions,
which can be employed to support ETP's credit standing as well as
its own Ba2 CFR. Both ETP and ETE have evidenced a history of consistent
support for ETP's investment grade rating. However,
the ETE entities operate in a stressed energy environment, which
elevates execution risk, particularly when deleveraging is more
dependent on EBITDA growth versus absolute debt reduction.
ETP is projecting good liquidity over the remainder of 2016 into 2017.
At March 31, it reported $715 million of balance sheet cash
and its $3.75 billion revolving credit facility, with
a November 2019 scheduled maturity, was fully available but for
$4 million of usage. ETP's approximate $4.0
billion of growth capital spending in 2015 will look to several alternative
sources to supplement its financing including joint ventures, limited
asset sales and asset level project financing. It expects there
will be no need to access the equity or debt capital markets, beyond
the presumed use of its at-the-market (ATM) equity program.
ETE has limited liquidity needs with the demise of the WMB merger,
which would have imposed on it a $6.05 billion cash requirement.
At March 31, ETE had $535 million available under its $1.5
billion secured revolving credit facility. Its SGL-3 Speculative
Grade Liquidity Rating indicates adequate liquidity.
ETP's negative outlook reflects its elevated debt leverage and weakened
distribution coverage. Its outlook could be restored to stable
provided it has taken demonstrable actions to reduce leverage approaching
5x by the end of 2016, with distribution coverage exceeding 1x.
ETP's ratings could be downgraded if it fails to achieve sustained debt
leverage approaching 4.5x.
ETP's rating could also be lowered in the medium-term if major
projects and cash flows are delayed, if Moody's deems ETP's
business risk profile to have meaningfully deteriorated, should
financing pressure materialize further delaying the deleveraging process
or if ETE's credit profile weakens materially. Reducing debt
leverage on a sustained basis to the vicinity of 4x could prompt consideration
of an upgrade. ETP remains exposed to increased consolidated group
leverage, and could be negatively impacted should ETE's debt service
and distribution needs materially increase.
ETE's negative outlook is consistent with the negative outlook at
ETP, as well as residual concerns regarding its potential exposure
to WMB merger-related fallout. ETE's rating could be upgraded
if its stand-alone leverage approaches 2.5x and consolidated
leverage drops below 5x. ETE's ratings could be downgraded should
consolidated leverage increase on a permanent basis to over 6x EBITDA.
A downgrade of ETP's Baa3 rating to below investment grade could prompt
an ETE rating downgrade. Should cash distributions to ETE become
compromised through higher leverage or weakness in distributable cash
flows at partnership and subsidiary levels, ratings could be downgraded.
The principal methodology used in these ratings was Global Midstream Energy
published in December 2010. Please see the Ratings Methodologies
page on www.moodys.com for a copy of this methodology.
Energy Transfer Equity, L.P. is headquartered in Dallas,
Texas and through its subsidiaries, principally Energy Transfer
Partners, L.P., a publicly traded MLP in which
it holds the general partnership interest, owns and operates a broad
array of midstream energy assets.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Andrew Brooks
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's changes Energy Transfer Partners' outlook to negative
