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What KMI’s and ETE’s Debt Levels Tell Us

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Energy Transfer Equity’s debt

Energy Transfer Equity (ETE) has grown through numerous acquisitions over the years. In the process, the company’s overall debt level has increased significantly. Energy Transfer Equity’s total outstanding debt at the end of 3Q17 stood at a massive ~$45 billion.

The above graph shows the total debt of Enterprise Products Partners (EPD), Williams Companies (WMB), Energy Transfer Equity (ETE), and Kinder Morgan (KMI) over the past 11 quarters.

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Debt levels: KMI versus ETE

Kinder Morgan’s total outstanding debt at the end of 3Q17 stood at ~$38 billion. The company is taking several steps to strengthen its balance sheet. As the above graph shows, KMI’s debt has been on a downward trend for the past several quarters.

On the other hand, Energy Transfer Equity’s debt continues to rise, as the graph shows. This is a key investor concern at the moment and is likely making ETE’s relatively higher yield less attractive.

Williams Companies had a total outstanding debt of ~$21 billion at the end of 3Q17. WMB has also announced a number of measures to reduce leverage, including asset sales, contract restructuring, and a dividend cut. As the above graph shows, its debt has fallen from a high of nearly $25 billion at the end of 2Q16.

EPD’s debt

By comparison, Enterprise Products Partners’ financial discipline is reflected in the relatively slower growth of its debt. The company’s debt stood at ~$24.7 billion at the end of 3Q17. This included $1.7 billion of junior subordinated notes issued in August 2017.

In the next part, we’ll discuss how the debts of these midstream companies stand up to their respective equity values.

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