Energy Transfer Partners’ High Leverage Remains a Key Concern



Debt-to-EBITDA ratios

Based on annualized adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) for the latest quarter, Energy Transfer Partners (ETP) had a net debt-to-EBITDA ratio of ~6x as of September 30, 2017. ETP’s ratio is higher than Enterprise Products Partners’ (EPD) and Williams Partners’ (WPZ) ratio of ~5x each. Magellan Midstream Partners (MMP) had a much lower debt-to-EBITDA ratio of 4x at the end of 3Q17.

The above graph compares the debt-to-EBITDA ratios for the four MLPs at the end of 3Q17. The right axis shows total debt.

Energy Transfer Partners’ leverage

Energy Transfer Partners’ total debt stood at a massive $33.6 billion at the end of 3Q17. In comparison, Magellan had a total debt of just $4.3 billion at the end of 3Q17. Energy Transfer Partners is taking various steps to reduce its leverage including the merger with Sunoco Logistics and an indirect distribution reduction.

Similarly, WPZ’s leverage situation improved by asset sales and its financial reorganization plan announced at the start of 2017.

The debt-to-EBITDA ratio is a key metric used to assess an MLP’s ability to repay debt. A lower ratio is considered better. A higher debt-to-EBITDA ratio usually increases costs of debt for an MLP.

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

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