Fitch Ratings expects the announced acquisition of a 30% interest of
Natural Gas Pipeline Company of America LLC (NGPL) to be neutral to
Kinder Morgan Inc. (KMI; 'BBB-'/Stable Outlook).
KMI announced yesterday that it and Brookfield Infrastructure Partners,
LP (BIP) would acquire the remaining 53% equity interest in NGPL not
already owned by them for a total purchase price of approximately $242
million. KMI will pay approximately $136 million and increase its
ownership interest from 20% to 50%, and BIP will pay approximately $106
million and increase its ownership from approximately 27% to 50%.
The deal is expected to close by the end of the year, subject to
customary closing conditions, including regulatory approval. KMI will
continue to operate NGPL and expects that the deal will be immediately
accretive to cash available to pay dividends.
Fitch believes the deal does not materially impact KMI's credit profile
in the near term. The multiple being paid for the increased interest in
NGPL is reasonable, with the transaction valuing the pipeline at roughly
10x 2016 EBITDA (inclusive of NGPL debt). Fitch does not expect its KMI
base case credit metrics to change materially as a result of the
transaction. Fitch continues to expect leverage at KMI on a consolidated
basis will be high, above KMI's targeted range of between 5.0x to 5.5x
debt/EBITDA, for the next several years as KMI works through a high
growth spending backlog. However, Fitch expects near-term leverage to be
below 6.0x (5.7x for 2016) and improve to the targeted range as projects
Fitch would expect KMI to be supportive of the pipeline and help fund
any growth capital needs provided it is not deleterious to its own
credit profile. Failure to manage leverage down to the targeted 5.0x to
5.5x on a sustained basis would likely lead to a negative ratings action.
The additional investment in highly leveraged NGPL does not resolve
concerns around NGPL's stressed balance sheet or challenged operating
environment. NGPL's operations remain under considerable stress, with
cash outflows expected to exceed inflows for 2015, and leverage
extremely elevated. There are signs that the financial impact of
compressed natural gas basis conditions on NGPL has waned. All of NGPL's
higher rate contracts have rolled over at this point and management does
not expect any material downside to revenue going forward.
NGPL expects significant organic growth in 2016 driven by firm transport
agreements for incremental volumes fed by the reversal of Rockies
Express pipeline as well as transportation contracts associated with the
Sabine Pass LNG facilities. Additionally, NGPL has some favorable growth
prospects with an expansion project into Chicago and a project to
provide pipeline capacity to Cheniere Energy Inc.'s Corpus Christi
terminal. However, NGPL is facing significant debt maturities in 2017
and continued uncertainty around plans to deal with NGPL's funding and
capital structure going forward.
Additional information is available at 'www.fitchratings.com'.
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DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
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AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
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RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
View source version on businesswire.com: http://www.businesswire.com/news/home/20151201006322/en/
Copyright Business Wire 2015
Source: Business Wire
(December 1, 2015 - 11:27 AM EST)
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