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Energy Transfer Debt, Leverage, Downgrade, And Distributions

Jun. 03, 2020 7:29 AM ETEnergy Transfer LP (ET)SUN748 Comments
Ray Merola profile picture
Ray Merola


  • In this article, we'll investigate Energy Transfer's debt and leverage, then look at these metrics through the lens I believe a key rating agency sees it.
  • Solid 1Q 2020 DCF distribution coverage isn't the key operative, it's the "negative outlook" offered by S&P Global.
  • We will look to check the data, handicap the situation, identify the risks, and consider the remedies.
  • The Street is saying the current 14.7% cash distribution yield is toast, but after reviewing the pertinent info, this may not be a foregone conclusion.

Editor's note: This article was amended on 6/4/2020 to reflect minor adjustments to the text and a clarification on the EBITDA figure provided by management.

The issue of Energy Transfer's (NYSE:ET) significant debt, leverage and outsized distribution is an old topic. Recently, an S&P Global investment grade credit affirmation, but including a negative outlook has entered the fray.

Therefore, it's time to roll up our sleeves and try to unpack the situation to see how it impacts us LP investors.

In this article we will detail:

  • Parent/subsidiary debt and other liabilities

  • Debt-to-EBITDA leverage ratio calculations/methodology

  • S&P “negative outlook” implications

  • Potential remedies and impact upon the cash distribution

Financial data sources include Energy Transfer SEC filings and website investor reports.

Energy Transfer Debt

As of March 31, 2020, the company recorded $50.3 billion of long-term debt. Current maturities of long-term debt were negligible.

Since the beginning of 2020, management reduced total debt by ~$0.7 billion.

Energy Transfer Debt

1Q 2020

YE 2019

YE 2018

Total Debt ($B)




The following table highlights the Energy Transfer parent/subsidiary debt pile:

source: Energy Transfer 1Q 2020 10-Q

For information, total operating lease liabilities total $0.87 billion. While not considered “debt” in the traditional sense, such liabilities impact the business in a comparable fashion. We will consider operating leases in the next section.

Recent Developments

In January, Energy Transfer completed a $4.5 billion Senior Notes offering. In conjunction with this activity, the company paid off six old debt issuances coming due later in 2020. The bonds/rates on the new debt was:

  • $1.0 billion debt at 2.90% due in 2025

  • $1.5 billion debt at 3.75% due in 2030

  • $2.0 billion debt at 5.00% due in 2050

The retired debt had coupons between 4.15% and 7.5%, coming due between February and

This article was written by

Ray Merola profile picture
Individual investor focused upon a limited number of diversified stocks. Seeks stocks selling below fair value estimates; favors dividend growth and/or income. Advocates fundamental investment analysis, supplemented by the technical charts. Options strategies primarily employed to generate additional income or hedge risk. If interested, you may find out more about my investment philosophy in the I.S.S. (Investment Strategy Statement) found in my listing of published articles or via this link: Investment Strategy Statement - Ray Merola | Seeking Alpha

Analyst’s Disclosure: I am/we are long ET. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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