Feb 21 - Fitch Ratings has assigned a 'BBB' rating to Kinder Morgan Energy
Partners, L.P.'s (KMP) $1 billion of 10-year and 30-year notes. The
Rating Outlook is Stable. Note proceeds will be used to repay commercial paper
and for general corporate purposes, potentially including for acquisitions.
Kinder Morgan, Inc. (KMI; IDR 'BB+', Outlook Stable by Fitch) is the owner of
the 2% general partner and approximately 10% limited partner interests in KMP.
KMI acquired El Paso Corporation (EP) in a $38 billion transaction that closed
on May 24, 2012.
KEY RATING DRIVERS
KMP remains an active acquirer. On Aug. 1, 2012, Tennessee Gas Pipeline Co.
(TGP) and 50% El Paso Natural Gas Co. (EPNG) were dropped down to KMP from KMI
in a transaction valued at $6.22 billion, including about $1.8 billion in
assumed debt at TGP and $560 million in proportional debt at EPNG. The remaining
50% interests in EPNG and EL Paso Midstream Investment Co. that KMP doesn't
already own are expected to be dropped down to KMP in the coming months. On Jan.
29, 2013, KMP announced an agreement to purchase Copano Energy, L.L.C. (CPNO)
for a total purchase price of approximately $5 billion, including assumed debt.
The transaction will be a 100% unit for unit transaction and is expected to
close in the third quarter of 2013. CPNO is a midstream natural gas company with
operations primarily located in Texas, Oklahoma, and Wyoming. KMI has agreed to
forego a portion of its incentive distributions related to the transactions.
KMP's rating and Stable Outlook reflect the significant and growing scale and
scope of operations; geographic and functional diversity of assets; successful
track record in acquiring, expanding, financing and operating energy operations;
predictable earnings and cash flow generated from natural gas and refined
products pipelines; and expectations for stable credit metrics in 2013 with
adjusted Debt to EBITDA to approximate 4.0 times (x) or below for the year.
Moreover, recent and pending acquisitions are funded in a credit-neutral manor.
TGP and EPNG generate stable cash flows and, along with CPNO midstream
operations, will be good fits with KMP's MLP structure.
Other considerations and credit concerns include KMP's relationship with KMI,
exposure to interest rates on approximately $6.2 billion of variable rate debt,
modestly negative effects in weak economies on asset utilization, aggressive
expansion spending, and exposure to changes in NGL and oil prices and volumes
for its CO2 and midstream business segments.
Liquidity Is Adequate: KMP has a $2.2 billion unsecured revolving credit
facility that matures in July 2016. KMP issues 'F2' rated commercial paper under
a $2.2 billion CP program backstopped by its revolver. At Dec. 31, 2012, KMP had
$518 million of cash and $1.359 billion of borrowing capacity. CP borrowings
were $1.374 billion at Feb. 19, 2013. Net proceeds of approximately $335 million
from common unit financing launched today will be used to reduce debt. The
revolver has a maximum debt to EBITDA ratio of 5.0 to 1.0; no greater than 5.5
to 1.0 during an acquisition period. KMP is also party to a reserve-based
hedging facility for purposes of hedging crude oil that does not require the
posting of margin.
Positive: Future developments that may, individually or collectively, lead to
positive rating action include:
--A lessening of consolidated business risk as the company acquires and expands
pipeline and fixed-fee businesses; and
--A material improvement in credit metrics with sustained leverage at 3.5x or
Negative: Future developments that may, individually or collectively, lead to a
negative rating action include:
--Increasing leverage to support organic growth and acquisitions;
--Weakening operating performance; and
--Sustained debt/EBITDA above approximately 4.25x.