If you ask the Energy Transfer Investor Relations Department directly, they will tell you that Moody's analysis places ET's adjusted D/EBITDA ratio at 4.3 while S&P's less conservative analysis places ET's leverage ratio at 4.2. The company has reduced debt by $4 billion since the end of 2020 - despite assuming more than $4 billion in the Enable acquisition - and intends to reduce debt further in 2023." - Source "Consistent debt reduction throughout 20 alongside solid EBITDA growth has allowed ET to improve reported leverage from 5.6x at year-end 2020 to 4.2x at September 30, 2022, including Moody's standard debt adjustments. You can Google Moody's comments about Energy Transfer and you will see that Moody's stated on Dec 15th, 2022 that ET's "steady deleveraging and strong cash flow generation drive a positive outlook." If you don't accept this as accurate, then let the recent past speak for itself and consider for yourself what logic suggests will happen next. I am told, believe it or not, that "KW walks away from deals when Tom Long says no." Mutual respect and cooperation amongst the top mgmt team at Energy Transfer really is taking place. "KW is free to pursue deals and then present the ideas to Tom and Marshall, but if one of the CEOs objects to the risks and or the implications of such a deal brought to them by the chairman, then Kelcy drops the idea and walks away." The Energy Transfer story has become one of teamwork. If you ask mgmt directly, they will tell you every man and woman working at Energy Transfer is determined to see the balance sheet deleverage further. KW now sees his primary role as the visionary leader and deal pursuer while Tom and Marshall handle the daily details and enforce the discipline necessary to reach and maintain the company's established goals. The king replaced himself with his best knights so he could spend more time evaluating the landscape and pursuing the big picture with other industry titans. The truth is, KW gave up managing day-to-day operations and gave up responsibility for establishing balance sheet priorities. We believe such skepticism, however, has failed to understand the wisdom demonstrated by the change in mgmt. Some/many skeptics no doubt viewed this change in management structure as being merely cosmetic as Kelcy Warren still remained the chairman of ET and he no doubt intended to continue to lead the company. The one-man show quickly became a three-man team. Tom Long and Marshall McCrea were promoted to CO-CEOs. Then the Covid-19 disaster struck, volume prospects dimmed, investors panicked, the dividend was slashed, and Kelcy gave up his role as CEO. Yet the story is now changing for the better as ET continues to strengthen its balance sheet, continues to grow its distribution and soon receives credit agency upgrades.Įnergy Transfer used to maintain a Debt/EBITDA ratio well over 5.0 and, try as he might, Kelcy Warren just couldn't seem to bring the leverage lower while also pursuing the projects and acquisitions that he deemed to be attractive. The results were painful and many potential investors were driven away. As chairman and CEO for many years, Kelcy Warren worked hard to grow the company but, in so doing, he traumatized his limited partners with his efforts to build DAPL and ME2X while he brought controversy and drama with his ill-fated takeover attempt of Williams Companies, Inc. This is certainly understandable given Energy Transfer's long history of relying upon too much leverage while engaging in too many controversial projects and acquisition efforts. Most high-yield investors are well aware of the fact that Energy Transfer ( NYSE: ET) is currently distributing $1.22/yr to its limited partners, and many such investors no doubt also understand that Energy Transfer is currently generating far more excess cash flow than is needed to operate and maintain its assets.įewer high-yield investors, however, truly understand just how quickly the Energy Transfer story is changing and improving for the better.
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