Fitch: Effects of Sponsor Leverage on MLP Credit Quality

Business Wire, Oct 5, 2005

NEW YORK -- Fitch Ratings has published a report examining sponsor leverage and its effects on the credit ratings of Master Limited Partnerships (MLPs) in the U.S. energy sector.

When evaluating the effects of sponsor leverage on MLP credit quality, Fitch considers the risk of consolidation of the MLP in the event of a sponsor-level bankruptcy, as well as the terms, conditions, and use of proceeds of the underlying sponsor debt. The sponsor's standalone credit quality and the potential impact of the sponsor level debt on the MLP's business strategy are also key credit considerations. Each of these credit factors is examined in the report.

Fitch, to date, has not taken any rating action as a direct consequence of sponsor related leverage. However, financial leverage at entities above the general partner add an element of risk to the MLP credit profile as the ultimate repayment of this debt almost exclusively depends on upstream cash flows from the MLP; in effect, a layer of 'double leverage' occurs. For perspective, individual analysis of three MLPs - Energy Transfer Partner, LP; Enterprise Products Operating, LP; and Kinder Morgan Energy Partners, LP - is provided.

The full report 'Master Limited Partnerships: Evaluating Sponsor Leverage,' can be found on the Fitch Ratings website at www.fitchratings.com under the header 'Corporate Finance' then 'Global Power' then 'Special Reports.'

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.