8-KMaterial AgreementsFinancial EventsExhibits & Filings

Energy Transfer LP 8-K Report, Material Agreement (Oct 21, 2011)

Filed October 21, 2011For Securities:ETET-PI

Summary

This Form 8-K filing from Energy Transfer Equity, L.P. (ET) on October 21, 2011, primarily details the execution of a Senior Bridge Term Loan Credit Agreement on October 17, 2011. This agreement provides the Partnership with up to $3.7 billion in unsecured financing. The primary purpose of this loan is to fund the previously announced merger with Southern Union Company (SUG), repay existing indebtedness, and cover associated transaction costs. The loan agreement has a term of 364 days, with an option for the Partnership to extend it to 15 months under certain conditions. The interest rates are variable, initially based on the Alternate Base Rate or adjusted LIBO rate, and later shifting to a range of 10.5% to 13.0% plus a basis point adjustment, depending on ET's senior unsecured debt rating. The agreement also includes covenants related to financial ratios, operational restrictions, and events of default.

Key Highlights

  • 1Energy Transfer Equity (ET) entered into a $3.7 billion Senior Bridge Term Loan Credit Agreement with Credit Suisse AG on October 17, 2011.
  • 2The unsecured financing is intended to fund the acquisition of Southern Union Company (SUG), repay existing debt, and cover transaction expenses.
  • 3The loan has an initial term of 364 days, with a potential extension to 15 months at ET's option.
  • 4Interest rates are structured in tiers, starting with Alternate Base Rate or adjusted LIBO rate plus a spread, and later shifting to a range of 10.5%-13.0% plus a basis point adjustment based on credit rating.
  • 5The agreement includes significant covenants, such as debt-to-EBITDA limits (max 5.5:1.0), net debt-to-EBITDA limits (max 6.5:1.0), and a minimum EBITDA to fixed charges ratio (min 1.5:1.0).
  • 6Negative covenants restrict ET's ability to merge, incur additional debt, grant liens, make acquisitions, pay dividends, or transfer assets without lender consent.
  • 7The filing emphasizes the importance of the merger proxy statement for investors, urging them to read it for crucial details regarding the transaction.

Frequently Asked Questions

The primary purpose of the $3.7 billion senior bridge term loan is to finance Energy Transfer Equity's (ET) acquisition of Southern Union Company (SUG), repay ET's outstanding debt under its existing credit facility, and cover the costs associated with both the merger and the credit agreement itself.

The loan has a 364-day term, with an option to extend to 15 months under specific conditions and fee payments. Interest rates vary based on the period and ET's creditworthiness, with initial rates tied to the Alternate Base Rate or adjusted LIBO rate plus a spread, and later a potential range of 10.5% to 13.0% plus an index-based adjustment. The agreement also imposes financial covenants and operational restrictions on ET and its subsidiaries.

The covenants include maintaining specific financial ratios, such as maximum debt-to-EBITDA and minimum EBITDA-to-fixed charges. Negative covenants significantly restrict ET's actions, limiting its ability to engage in mergers, take on more debt, sell assets, pay dividends, or make new investments without approval. These are designed to protect the lenders by ensuring ET maintains financial stability and operational capacity.

While the loan provides necessary funding for the SUG acquisition, it also introduces substantial financial obligations and operational constraints. The covenants and restrictions will require careful management to ensure compliance. The higher interest rate potential and the need to repay the bridge loan within 15 months (if extended) create a short-to-medium term financial pressure that investors should monitor.