Moody's Upgrades Regency Energy Partners LP (RGP) to 'Baa3'

Moody's Investors Service (Moody's) upgraded the senior unsecured notes rating for Regency Energy Partners LP (NYSE: RGP) to Baa3 from Ba3. Moody's withdrew Regency's Ba2 Corporate Family Rating (CFR), its Ba2-PD Probability of Default Rating and its SGL-3 Speculative Grade Liquidity Rating. The upgrade to Baa3 followed the April 30 closing of Energy Transfer Partners, L.P.'s (ETP, Baa3 stable) acquisition of Regency and reflects ETP's full and unconditional guarantee of Regency's outstanding notes through the issuance of a series of supplemental indentures. The outlook is stable. The upgrade has no impact on ETP's Baa3 rating or stable outlook, or on the Ba2 CFR or stable outlook of Energy Transfer Equity, L.P. (ETE), who holds the general partnership (GP) interest in ETP and formerly held the GP interest in Regency.

Regency's 4.5% notes due 2023 are guaranteed by Panhandle Eastern Pipe Line Company, LP (Panhandle, Baa3 stable). Moody's understands that ETP intends to guarantee the 4.5% notes, which will conform to the ETP guarantees that were delivered at closing covering all Regency notes issues other than the 4.5% note issue.

"While weak energy commodity prices have pressured throughput volumes and EBITDA in the gathering and processing (G&P) segment of the midstream energy sector, ETP will gain additional scale and scope across its diversified midstream asset base through the Regency acquisition," commented Andrew Brooks, Moody's Vice President. "Moreover, financing the continuing growth of Regency's investment in G&P will benefit from ETP's investment grade balance sheet and lower cost of capital."

Issuer: Regency Energy Partners LP

.....Senior Unsecured Regular Bond/Debentures, Upgraded to Baa3 from Ba3, LGD4

..Outlook Actions:

.....Outlook, Changed To Stable From Rating Under Review

..Withdrawals

.... Probability of Default Rating, Withdrawn , previously rated Ba2-PD

.... Speculative Grade Liquidity Rating, Withdrawn , previously rated SGL-3

.... Corporate Family Rating, Withdrawn , previously rated Ba2

RATINGS RATIONALE

Concurrent with the April 30 closing of its acquisition of Regency in an all units transaction, ETP has fully and unconditionally guaranteed the full and punctual payment of the principal of and interest on Regency's outstanding notes, and the full and punctual payment of all other amounts payable by the Regency to note holders under the indentures. The guarantees are unconditional and absolute, and have been effected through the provision of supplemental indentures to each of Regency's five indentures.

Reflecting the extent of ETP equity used in the financing of the acquisition, ETP's debt leverage will remain relatively unchanged at approximately the 4.4x debt/EBITDA (including Moody's standard adjustments) reported on a proportionately consolidated basis at year-end 2014. Moreover, the fee-based component of consolidated cash flows will remain essentially unchanged at approximately 75% pro forma for the acquisition. The transaction will roughly double the contribution of ETP's existing G&P operations to its consolidated EBITDA from approximately 12% to 23% on a pro forma basis, adding additional scale to its already sizable midstream asset base. The complementary nature of the combined G&P businesses also promises significant savings through shared efficiencies and a rationalization of corporate G&A.

Regency will operate as a wholly-owned subsidiary of ETP, whose pro forma combined asset base will grow to exceed $60 billion as a result of the Regency acquisition. The combination also brings an element of simplification to the historically complex organizational structure characterizing the Energy Transfer family, beyond solving for the 70%/30% ETP/Regency ownership in Lone Star NGL LLC, their jointly owned natural gas liquids (NGL) logistics operating company.

ETP terminated Regency's $2.5 billion revolving credit facility, under which $2.3 billion was outstanding as of the April 30 closing date. In February 2015, ETP increased the size of its unsecured revolving credit facility to $3.75 billion from $2.5 billion, in part to accommodate outstanding Regency borrowings under its revolving credit facility post-closing and post-termination. In March 2015, ETP issued $2.5 billion in unsecured notes whose proceeds were used to repay its revolving credit outstandings and fund growth capital spending.

The principal methodology used in these ratings was Global Midstream Energy published in December 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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