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Rating Action:

Moody's changes Energy Transfer Partners' outlook to negative

29 Jun 2016

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
No Related Data.
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