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Behind 4 Key MLP General Partners

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Part 6
Behind 4 Key MLP General Partners PART 6 OF 11

Why Energy Transfer Equity Has the Highest Leverage among Peers

Net-debt-to-EBITDA

Energy Transfer Equity (ETE) continues to have the highest leverage among its peers in our select group, despite recent measures with the legacy Energy Transfer Partners-Sunoco Logistics Partners merger, asset monetization, and project-level JVs (joint ventures) and financing.

ETE’s net-debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio stood at 6.9x at the end of 2Q17. ETE is followed by Williams Companies (WMB) and Plains GP Holdings (PAGP), which had net-debt-to-EBITDA ratios of 5.1x and 4.8x, respectively, as of June 30, 2017.

Why Energy Transfer Equity Has the Highest Leverage among Peers

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ETE’s, WMB’s, and PAGP’s leverages are above the industry standards. Midstream companies generally target a ratio between 4.0x and 4.5x.

Western Gas Equity Partners (WGP) is better placed in terms of leverage with a net-debt-to-EBITDA multiple of 2.9x as of June 30, 2017. WMB’s leverage position has improved significantly in recent quarters, driven by measures undertaken to strengthen the balance sheet. Moody’s recently changed its outlook on Williams Companies and Williams Partners (WPZ) to positive from stable.

According to Pete Speer, Moody’s Senior Vice President, “The change in outlook to positive reflects the culmination of several steps completed by management this year to strengthen WPZ’s credit profile, lower its business risk and improve its operational execution and earnings predictability.”

Speer added: “If the partnership can continue its strong execution on growth projects while maintaining its lower financial leverage and good distribution coverage, the ratings could be upgraded in 2018.”

At the same time, PAGP expects to lower its leverage through distribution cuts and asset sales. PAGP’s subsidiary, Plains All American Pipeline (PAA), aimed to reduce its total debt from $11.2 billion as of June 30, 2017, and aims to reach $9.7 billion by March 31, 2019.

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