EPD, ETP, MMP, and WPZ: In-Depth Leverage Analysis



Debt-to-EBITDA ratios

Both Williams Partners (WPZ) and Energy Transfer Partners (ETP) had a net debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio of ~5x as of June 30. In comparison, Enterprise Products Partners (EPD) had a ratio of 4.7x. Magellan Midstream Partners (MMP) had a lower debt-to-EBITDA ratio of 3.7x at the end of 2Q17.

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Energy Transfer Partners’ improved leverage

Energy Transfer Partners has taken several steps to reduce its leverage—including a merger with Sunoco Logistics and an indirect distribution reduction. EBITDA growth and distribution savings contributed to an improvement in the company’s ratio.

The debt-to-EBITDA ratio is often used to assess a company’s ability to repay debt. A lower ratio is better from a credit perspective, whereas a higher ratio usually increases an MLP’s costs of debt.

Williams Partners’ high leverage

The graph above compares the debt-to-EBITDA ratios for the four MLPs at the end of the second quarter of 2017. WPZ’s ratio is on the higher side among peers under consideration. But, similar to ETP, WPZ’s leverage situation improved by asset sales and financial reorganization plans announced at the start of 2017.

In the next part, we’ll discuss growth in capital expenditures as well as key capital projects for the four MLPs.


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