Fitch Revises Energy Transfer Partners Outlook to Stable.

NEW YORK -- Fitch has revised Energy Transfer Partners, L.P.'s (ETP) Rating Outlook to Stable from Positive. Fitch rates ETP as follows:

--Long-term Issuer Default Rating (IDR) 'BBB-';

--Senior unsecured debt 'BBB-'.

There is currently $1.95 billion of ETP senior unsecured notes outstanding.

A master limited partnership (MLP), ETP is principally engaged in natural gas midstream and intrastate transportation and storage operations through La Grange Acquisition, L.P., interstate transportation of natural gas through Transwestern Pipeline Company, LLC (Transwestern), and retail propane distribution through Titan Energy Partners, L.P. and Heritage Operating L.P. (Heritage). Energy Transfer Equity, L.P. (ETE, 'BB-' IDR by Fitch) owns approximately 62.5 million ETP limited partner (LP) units and ETP's 2% general partner interest.

The revision in Rating Outlook results from legal proceedings commenced against the company by the Federal Energy Regulatory Commission (FERC) and The U.S. Commodities Futures Trading Commission (CFTC) which could result in material civil penalties and may have a negative overhang on ETP's operations until resolved. ETP has publicly denied the validity of the government charges.

On July 26, 2007, FERC issued a show cause order in which it alleged that ETP and certain of its subsidiaries violated both the Natural Gas Act and the Natural Gas Policy Act of 1978 by manipulating natural gas markets and discriminating against non-affiliated shippers. Civil penalties of $97.5 million have been proposed against the company as well as $69.9 million in disgorgement of profits. In addition, FERC is proposing to temporarily revoke ETP's blanket certificate to sell natural gas into the interstate market for one year. As part of the joint investigation the CFTC alleges that ETP attempted to manipulate the price of natural gas as well as the monthly index prices for natural gas published by Platts. The CFTC is also seeking civil penalties although an amount has not yet been determined.

ETP has 60 days to respond to the show cause order and will file its responses with both agencies by the end of September. Resolution of the cases could extend well into calendar 2008 and beyond. The size, if any, of a settlement, nor its timeframe, cannot be determined at this early stage. However, given the magnitude of the proposed civil penalties a settlement between the parties could result in material payments by the company.

The uncertainty caused by the proceedings has contributed to increasing ETP's borrowing costs and lowering the market value of its LP units which are currently trading approximately 20% below their 52-week high. Consequently, ETP's weighted average cost of debt will likely increase. ETP's $2.0 billion revolving credit facility maturing in 2012 is expandable to $3.0 billion. Fitch estimates that approximately $1.0 billion was outstanding under the facility at the end of the August 2007 fiscal year. While liquidity is adequate for the near term, given ETP's aggressive capital budget, an impaired ability to issue long-term debt and equity would have negative implications.

ETP's 'BBB-' rating reflects the increasing scale, scope, and diversity of its operations, strong quantitative credit measures, a conservative distribution policy, a favorable near-term regional natural gas supply position from expanding Barnett Shale and Bossier Sands development, and the expected benefits of ongoing pipeline expansions. ETP's credit measures are consistent with its peer group of investment grade MLPs. However, a substantial capital spending program directed mostly toward pipeline expansion projects, estimated to total nearly $1.1 billion for fiscal 2007, will result in increased debt leverage until the new projects generate operating returns. The company expects debt-to-EBITDA for fiscal year 2007 (adjusted for a full year's contribution from Transwestern) to approximate 3.3 times (x). ETP's debt leverage will move marginally higher in early fiscal 2008 but should remain consistent with its rating category.

Within the past year ETP has passed several important operating and regulatory hurdles. ETP completed its large East Texas intrastate pipeline expansion, converted its merchant gas supply contract with CenterPoint Energy Resources Corp. to more predictable, long-term fixed fee transportation and storage contracts and purchased Transwestern, its initial interstate natural gas pipeline investment, for nearly $1.5 billion. Then, in June 2007 the FERC approved Transwestern's rate settlement helping to ensure predictable returns from the system for several years.

While ETP's track record of acquiring, integrating and expanding energy infrastructure assets has been favorable, several challenges remain. Of ongoing concern is the event and integration risk inherent in ETP's active growth strategy. In particular, given the industry-wide inflation of pipeline construction costs and their effect on project economics, Fitch will monitor the status of Transwestern's $710 million pipeline expansion into Phoenix and the development of the $1.25 billion Midcontinent Express Pipeline (MEP) joint venture with Kinder Morgan Energy Partners, L.P. Other relevant operating issues include securing a higher percentage of firm capacity contracts for ETP's Bammel Storage facility which is currently contracted at below 50% of working capacity and acquiring additional binding shipper commitments for MEP's initial capacity of 1.4 billion cubic feet per day.

In addition to its ongoing legal proceedings, factors also considered by Fitch in ETP's rating analysis include: the structural subordination of the ETP notes to approximately $750 million of combined debt at Transwestern and Heritage; the financial exposure to changes in commodity price and supply and demand conditions across its operations; and the structural relationships between affiliated companies, including approximately $1.57 billion of debt at ETE.

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.