Fitch Rates Energy Transfer Equity's Secured Notes 'BB+'

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned a 'BB+' rating to Energy Transfer Equity, L.P.'s (ETE) senior secured notes offering due 2027. ETE's Issuer-Default Rating (IDR) is 'BB' and the Rating Outlook is Stable. ETE will use the proceeds to repay borrowings under its term loan and revolving credit facilities and for general partnership purposes.

KEY RATING DRIVERS

Increased Scale and Diversity: Recent mergers and growth projects at and among ETE's subsidiaries have resulted in a larger, more diversified, and generally stronger family of Energy Transfer companies. On a consolidated basis, the percentage of contractually supported fee-based margins has gradually increased. The recently completed merger between subsidiaries Energy Transfer Partners, LP (ETP; 'BBB-'/Stable Outlook) and Regency Energy Partners, LP (RGP; 'BBB-'/Stable Outlook) should provide ETE with increased cash flows driven by expected synergies and improved returns on growth projects previously planned at RGP. Additionally, ETE should benefit somewhat from a simplification of its organizational structure and slightly improved credit profile of its subsidiaries though it remains structurally subordinate to a significant amount of subsidiary debt. ETP remains ETE's largest source of cash flow and earnings.

Leverage Metrics: ETE's adjusted debt-EBITDA, which measures ETE parent company debt against distributions it receives from its affiliates, approximated 4.3x at the end of 2014. Standalone leverage at ETE is expected to be maintained in the 3.0x to 4.0x range on a sustained basis. A material weakening in leverage metrics beyond 4.5x could result in a negative rating action. ETE has the authority to repurchase by ETE of up to $2 billion of its common units at its discretion. Fitch expects ETE to use revolver drawdowns and issue new debt to fund any repurchases.

Liquidity is Adequate: ETE has access to a $1.5 billion secured revolving credit facility that matures in December 2018. ETE's operating affiliates have significant operating flexibility with adequate liquidity and the ability to fund their planned growth with capital market transactions. Potential uses of the revolver include: funding stock buybacks, future acquisitions, and to initiate organic growth projects not financed at the MLPs. ETE has no debt maturing until 2018. Approximately $925 million was drawn under the revolver as of March 31, 2014 leaving $575 million in availability. The revolver capacity was increased to $1.5 billion (from $1.2 billion) in February 2015.

The ETE revolver and term loans have two financial covenants: a maximum leverage ratio of 6.0x to 1.0x; 7.0x to 1.0x during a specified acquisition period and fixed charge coverage ratio of 1.5x to 1.0x. ETE notes, term loan and credit facility are secured by a first priority interest in all tangible and intangible assets of ETE, including its ownership interests in ETP. ETE was in compliance with all of its covenants as of March 31, 2015.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for the issuer include:

--WTI oil price that trends up from $50/barrel in 2015 to $60/barrel in 2016 and a long-term price of $75/barrel; and Henry Hub gas that trends up from $3/mcf in 2015 to $3.25/mcf in 2016 and a long-term price of $4.50/mcf consistent with Fitch's published Base Case commodity price deck;

--Moderate revenue growth on existing assets at subsidiaries;

--Balanced funding of projected growth capital spending at subsidiaries with both debt and equity funding of growth capital spending and acquisitions

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to a positive rating action include:

--ETE parent company debt to EBITDA maintained below 1.5x;

--Improving credit profile at ETP.

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:

--Increasing ETE parent company leverage above 4.5x;

--Weakening credit profiles at ETP.

Date of Relevant Rating Committee: January 26, 2015

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Relevant Research:

--'2015 Outlook: Midstream Services' (December 2014);

--'Pipelines, Midstream and MLP Stats Quarterly - Third Quarter 2014' (December 2014);

--'MLP End Game (Common Goals - Divergent Strategies)' (November 2014);

--'Bakken Shale Report (Prolific Production Prompts New Pipelines)' (October 2014);

--'What Investors Want to Know: Pipelines, Midstream and MLPs' (October 2014);

--'Midstream Spending Significantly Rising for MLPs and C-Corps' (August 2014);

--'Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage' (May 2014)';

--'Rating Pipelines, Midstream and MLPs - Sector Credit Factors' (January 2014).

Applicable Criteria and Related Research:

What Investors Want to Know: Pipelines, Midstream and MLPs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=785149

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Rating Pipelines, Midstream and MLPs -- Sector Credit Factors

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=722082

2015 Outlook: Midstream Services (Midstream Insulated from Falling Prices)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=839188

Pipelines, Midstream and MLP Stats Quarterly -- Third-Quarter 2014 (Third-Quarter Review)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=834968

MLP End Game (Common Goals -- Divergent Strategies)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=802308

Bakken Shale Report (Prolific Oil Production Prompts New Pipelines)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=783488

Midstream Spending Significantly Rising for MLPs and C-Corps

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=759467

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=984908

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View source version on businesswire.com: http://www.businesswire.com/news/home/20150519006679/en/

Fitch Ratings
Primary Analyst
Peter Molica
Senior Director
+1 212-908-0288
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Kathleen Connelly
Director
+1 212-908-0290
or
Committee Chairperson
Mark C. Sadeghian, CFA
Senior Director
+1 312-368-2090
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
[email protected]
Elizabeth Fogerty, +1 212-908-0526
[email protected]

Source: Fitch Ratings

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