Fitch Affirms Panhandle Eastern Pipe Line Co. at 'BBB-'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed its Issuer Default Rating (IDR) and senior unsecured rating on Panhandle Eastern Pipe Line Co. (Panhandle) at 'BBB-' and its junior subordinated notes at 'BB'. The Rating Outlook is Stable. Approximately $1.1 billion in debt is affected by today's action.

KEY RATING DRIVERS

Parent Company Affiliation: The affirmation reflects Panhandle's affiliation with Energy Transfer Partners, LP (ETP; IDR: 'BBB-'/Stable Outlook) and expectations that ETP will continue to manage Panhandles's credit metrics and liquidity needs at levels appropriate to support its 'BBB-' rating. Panhandle is a wholly-owned subsidiary of ETP. Panhandle was merged with Southern Union Company (SUG) last year, with all notes of SUG and Panhandle becoming pari passu. Fitch does not expect any additional material transactions or growth initiatives at Panhandle and expects that future debt maturities will be financed through issuance at the ETP level. ETP is expected to provide any liquidity needs to Panhandle and refinance any Panhandle maturities at the ETP level and take any excess cash flow to use at ETP. Panhandle's standalone credit profile is consistent with a 'BBB-' or better IDR; however, given their strategic, operational and legal ties, Fitch believes it appropriate to link Panhandle's ratings with those of its parent ETP. An upgrade or downgrade at ETP would likely lead to an upgrade or downgrade at Panhandle.

Stable Cash Flow: Panhandle's revenue is largely derived from long-term capacity reservation contracts for its pipeline operations. The majority of Panhandle's revenue and cash flow is from volume and commodity price-insensitive reservation contracts on its various pipelines and storage assets. Panhandle's operations currently consist of interstate pipelines that transport natural gas from the Gulf of Mexico, South Texas and the Panhandle regions of Texas and Oklahoma to major U.S. markets in the Midwest and Great Lakes region, as well as underground storage. Fitch expects liquidity at Panhandle to be adequate given support from ETP and leverage to be roughly 3x to 3.5x over the next several years.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for the issuer include:

--Large growth projects, such as the Trunkline conversion to oil service, will be developed outside of Panhandle.

--Future debt maturities to be refinanced through issuance at ETP level; any liquidity needs provided by ETP.

--Any excess cash upstreamed to ETP

RATINGS SENSITIVITIES

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:

--Weakening credit metrics with leverage above 5x;

--Negative ratings action at ETP.

Positive: Future developments that may, individually or collectively, lead to a positive rating action include:

--Positive ratings action at ETP.

Fitch has affirmed the following ratings with a Stable Outlook:

--IDR at 'BBB-';

--Senior unsecured notes at 'BBB-';

--Jr. subordinate notes at 'BB'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Relevant Research:

--'2015 Outlook: Natural Gas Pipelines (Stability Despite Price Uncertainty)' (December 2014);

--'Pipelines, Midstream and MLP Stats Quarterly - Third Quarter 2014' (December 2014);

--'MLP End Game (Common Goals - Divergent Strategies)' (November 2014);

--'Bakken Shale Report (Prolific Production Prompts New Pipelines)' (October 2014);

--'What Investors Want to Know: Pipelines, Midstream and MLPs' (October 2014);

--'Midstream Spending Significantly Rising for MLPs and C-Corps' (August 2014);

--'Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage' (May 2014)';

--'Rating Pipelines, Midstream and MLPs - Sector Credit Factors' (January 2014).

Applicable Criteria and Related Research:

Rating Pipelines, Midstream and MLPs -- Sector Credit Factors

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=722082

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Midstream Spending Significantly Rising for MLPs and C-Corps

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=759467

What Investors Want to Know: Pipelines, Midstream and MLPs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=785149

Bakken Shale Report (Prolific Oil Production Prompts New Pipelines)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=783488

MLP End Game (Common Goals -- Divergent Strategies)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=802308

Pipelines, Midstream and MLP Stats Quarterly -- Third-Quarter 2014 (Third-Quarter Review)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=834968

2015 Outlook: Natural Gas Pipelines (Stability Despite Price Uncertainty)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=839208

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=980265

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst
Peter Molica
Senior Director
+1-212-908-0288
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Kathleen Connelly
Director
+1-212-908-0290
or
Committee Chairperson
Michael Weaver
Managing Director
+1-312-368-3156
or
Media Relations
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Peter Molica
Senior Director
+1-212-908-0288
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Kathleen Connelly
Director
+1-212-908-0290
or
Committee Chairperson
Michael Weaver
Managing Director
+1-312-368-3156
or
Media Relations
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com