Business Context and Reporting Period
This Form 8-K Current Report was filed by Energy Transfer Equity, L.P. ("ETE") on September 15, 2010, with the earliest event reported on September 15, 2010. The filing details the entry into material definitive agreements regarding debt financing and the creation of direct financial obligations.
Key Financial Metrics and Capital Structure
- Senior Notes Offering: ETE completed a public offering of $1.8 billion aggregate principal amount of 7.500% senior notes due 2020.
- Net Proceeds: ETE expects to receive approximately $1.77 billion in net proceeds after deducting underwriters' discounts and estimated offering expenses.
- Revolving Credit Facility: ETE entered into a new $200 million five-year senior secured revolving credit facility maturing on September 20, 2015.
- Interest Rates: The new revolving credit facility bears interest at the Eurodollar rate plus 2.75% to 3.75% or the base rate plus 1.75% to 2.75%, depending on leverage ratios.
- Debt Repayment: Proceeds from the notes offering are designated to repay $142.1 million of an existing $500 million revolving credit facility and $1.45 billion of a term loan facility.
- Swap Termination: Approximately $168.6 million of net proceeds will fund the cost to terminate interest rate swap agreements related to the repaid borrowings.
Material Changes Versus Prior Period
The filing represents a significant restructuring of ETE's debt profile. The company is replacing existing indebtedness (a $500 million revolving facility and a term loan facility) with a new $1.8 billion unsecured senior notes offering and a new $200 million secured revolving credit facility. Consequently, the new notes will be unsecured upon issuance as the term loan facility was discharged concurrently with the closing of the offering.
Guidance, Outlook, Risks, and Contingencies
Management Commentary and Use of Proceeds: Management intends to use the remaining net proceeds from the offering for general partnership purposes. The new notes mature on October 15, 2020, with interest payable semi-annually starting April 15, 2011.
Risks and Covenants:
- Financial Covenants: The new Credit Agreement includes covenants regarding maximum leverage ratios, maximum consolidated leverage ratios, minimum fixed charge coverage ratios, and minimum loan-to-value ratios.
- Events of Default: The Indenture for the Notes includes standard events of default, including failure to pay interest or principal, failure to comply with covenants, cross-defaults on indebtedness aggregating $25 million or more, and bankruptcy or insolvency events.
- Collateral: The new revolving credit facility is secured by all tangible and intangible assets of ETE and certain subsidiaries, including equity interests in Energy Transfer Partners, L.P. and Regency Energy Partners LP.
Important Facts for Investor Verification
- Verify the exact net proceeds received versus the estimated $1.77 billion.
- Confirm the successful termination of the interest rate swap agreements and the associated costs.
- Review the full text of the Credit Agreement (Exhibit 10.1) to understand specific leverage ratio thresholds that could trigger a default.
- Monitor the company's ability to meet the semi-annual interest payments on the new 7.500% notes commencing April 15, 2011.
- Assess the impact of the new debt structure on the company's overall liquidity and fixed charge coverage ratio.