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Rating Action:

MOODY'S REVIEWS KINDER MORGAN, INC. AND KINDER MORGAN ENERGY PARTNERS, L.P. FOR POSSIBLE DOWNGRADE

30 May 2006
MOODY'S REVIEWS KINDER MORGAN, INC. AND KINDER MORGAN ENERGY PARTNERS, L.P. FOR POSSIBLE DOWNGRADE

Over $15 Billion of Debt Placed Under Review

New York, May 30, 2006 -- Moody's Investors Service placed under review for possible downgrade the long- and short-term debt ratings of Kinder Morgan, Inc. (KMI, Baa2 senior unsecured) and Kinder Morgan Energy Partners, L.P. (KMP, Baa1 senior unsecured) and their supported obligations, including the Prime-2 commercial paper rating of Rockies Express Pipeline LLC and the Prime-1 commercial paper rating of Cortez Capital Corp. Moody's also placed under review for downgrade the ratings of KMI's new subsidiary Terasen Inc. (Baa2 senior unsecured), but affirmed with stable outlooks those of its subsidiaries Terasen Gas Inc. (A3 senior unsecured), Terasen Pipelines (Corridor) Inc. (A2 senior unsecured), and equity investments Express Pipeline Limited Partnership (Baa1 senior secured/Baa3 subordinated) and Express Pipeline LLC.

The review was prompted by KMI's announcement that its board of directors had received a proposal from a group of senior management and private equity investors of a leveraged buyout with an enterprise value estimated at $22 billion. The management group proposes to finance this transaction with $6.8 billion of new debt at KMI. The reviews of the debt of KMI and its affiliates reflect concerns of substantial debt being incurred in the transaction and the uncertainties surrounding its execution and financing. It is unknown how KMI may be restructured, what assets it will hold, and how it will ultimately be capitalized.

Considering the substantial amount of debt that KMI could incur, it is likely that KMI's debt ratings will fall into non-investment grade levels. Although KMP is not directly affected by KMI's leveraged buyout, it could be indirectly affected, though it is unlikely to fall below investment grade. The transaction would increase KMI's reliance on KMP to generate growing cash flows to help it serve the additional LBO-related debt. Furthermore, the management group proposes that KMI drop down its Trans Mountain Pipeline to KMP, subject to KMP's board approval. KMI and KMP have a common management, and we note that this transaction would mark a significant shift from its past financial policies for KMI.

Moody's notes that the proposal is not binding and that KMI's board could ultimately reject it. If the proposal is approved, it could be under terms different from what has been preliminarily proposed. The buyout group has yet to deliver a merger agreement to the board with its proposed terms. KMI's board has appointed a special committee of independent board members to evaluate such an agreement. The conclusion of Moody's rating review will depend on whether or not the board accepts this proposal and its final terms. The timing of the board's decision is uncertain, though its decision and, if it goes forward, the consummation of the transaction will likely occur by year end.

As currently proposed, the buyout of KMI's outstanding shares would cost $13.5 billion. Management members of the buyout group will roll over $2.8 billion of their KMI shares and private equity investors will invest $4.5 billion. The remainder of the buyout cost, including fees, will be financed with $6.8 billion of debt.

The commercial paper ratings of KMP's equity investments Rockies Express and Cortez are placed under review because of the potential for KMP's debt ratings being downgraded. KMP does not currently support Cortez's commercial paper obligations, but it could become obligated to do so after 12/31/06.

Terasen Inc.'s ratings are placed under review for downgrade in concert with KMI's, because KMI guarantees the acquisition debt raised to acquire Terasen Inc. Terasen Gas's ratings are affirmed because of the protections provided by the ring-fencing provisions in the British Columbia Utilities Commission's order approving the company's merger with KMI. Corridor and Express's ratings are on project finance obligations that are rated based on factors unaffected by Terasen's ownership.

On Review for Possible Downgrade:

..Issuer: Cortez Capital Corporation

....Commercial Paper, Placed on Review for Possible Downgrade, currently P-1

..Issuer: K N Capital Trust I

....Preferred Stock, Placed on Review for Possible Downgrade, currently Baa3

..Issuer: K N Capital Trust II

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)Baa3

..Issuer: K N Capital Trust III

....Preferred Stock, Placed on Review for Possible Downgrade, currently Baa3

..Issuer: Kinder Morgan Energy Partners, L.P.

....Senior Unsecured Bank Credit Facility, Placed on Review for Possible Downgrade, currently Baa1

....Senior Unsecured Commercial Paper, Placed on Review for Possible Downgrade, currently P-2

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Baa1

....Senior Unsecured Shelf, Placed on Review for Possible Downgrade, currently (P)Baa1

....Subordinated Shelf, Placed on Review for Possible Downgrade, currently (P)Baa2

..Issuer: Kinder Morgan Finance Company, ULC

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Baa2

..Issuer: Kinder Morgan, Inc.

....Junior Subordinated Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Baa3

....Senior Unsecured Bank Credit Facility, Placed on Review for Possible Downgrade, currently Baa2

....Senior Unsecured Commercial Paper, Placed on Review for Possible Downgrade, currently P-2

....Senior Unsecured Medium-Term Note Program, Placed on Review for Possible Downgrade, currently Baa2

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Baa2

....Senior Unsecured Shelf, Placed on Review for Possible Downgrade, currently (P)Baa2

....Subordinated Shelf, Placed on Review for Possible Downgrade, currently (P)Baa3

..Issuer: Rockies Express Pipeline LLC

....Senior Unsecured Commercial Paper, Placed on Review for Possible Downgrade, currently P-2

..Issuer: Terasen Inc.

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Baa2

....Senior Unsecured Shelf, Placed on Review for Possible Downgrade, currently (P)Baa2

....Subordinated Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Baa3

....Subordinated Shelf, Placed on Review for Possible Downgrade, currently (P)Baa3

Outlook Actions:

..Issuer: Cortez Capital Corporation

....Outlook, Changed To Rating Under Review From Stable

..Issuer: K N Capital Trust I

....Outlook, Changed To Rating Under Review From Stable

..Issuer: K N Capital Trust II

....Outlook, Changed To Rating Under Review From Stable

..Issuer: K N Capital Trust III

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Kinder Morgan Energy Partners, L.P.

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Kinder Morgan Finance Company, ULC

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Kinder Morgan, Inc.

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Rockies Express Pipeline LLC

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Terasen Inc.

....Outlook, Changed To Rating Under Review From Stable

Headquartered in Houston, Texas, Kinder Morgan, Inc. and Kinder Morgan Energy Partners, L.P. are midstream energy companies.

New York
John Diaz
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Mihoko Manabe
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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