INTERNAL USE ONLY DO NOT DISTRIBUTE IN PART OR IN WHOLE Corporate Credit > U.S. Investment Grade Energy Transfer Partners Updated: November 2, 2015 Trade Idea: Buy Energy Transfer Partners10-year bonds Investment Rationale: - Our view on ETP is based on the recent acquisitions to improve the business risk profile and the additional cash flow will eventually help improve the credit metrics. This WMB transaction further enhances the overall business mix of the company and adds considerable size, scale and diversification. In addition, ETE has completed several large acquisitions over the past few years and has always managed to maintain the IG ratings at the MLP. Therefore, we think the company's statement that this transaction will have no ratings impact on the MLPs has credibility. - ETE (GP of ETP) officially announced that is reached an agreement to acquire WMB (GP of WPZ) for $37.7 billion, which includes the assumption of debt. The WMB units will be purchased by a newly created C-corporation called Energy Transfer Corp, LP. (ETC). The cash portion of the purchase price will be financed with new debt issued by ETC. The transaction will make the combined entity the fifth largest energy company (by enterprise value), behind ExxonMobil, PetroChina, Shell and Chevron. - From a relative value perspective, ETP bonds appear to be quoted about 30 bps wider on the news. However, most MLPs are quoted about 20 bps wider, so the ETP bonds are only marginally wider. This widening could be the results of the technical overhang of a $6.0 billion debt offering by ETC that is pushing the complex slightly wider. We see no fundamental credit reason for the spread widening and we believe ETP bonds should tighten as technicals improve after the ETE debt deal is done. In addition, we expect ETP spreads to tighten as it becomes part of a larger, more diversified company. In addition, although the corporate structure has become a bit more complicated, we think anno