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Rating Action:

Moody's affirms Kinder Morgan's Baa3 rating; outlook stable

12 Jul 2016

Approximately $42 billion of debt affected

Toronto, July 12, 2016 -- Moody's Investors Service (Moody's) affirmed Kinder Morgan Inc.'s (KMI) Baa3 senior unsecured and Prime-3 commercial paper ratings. A complete list of Moody's rating actions is below.

The affirmation follows the announcement on July 10 that KMI will sell a 50% equity interest in the Southern Natural Gas (SNG) pipeline system to The Southern Company (Baa2 stable). KMI will use the $1.47 billion sale proceeds to reduce debt. The transaction is subject to Hart-Scott-Rodino approval. If the transaction does not close, SNG will continue to be 100%-owned by KMI and covered by the KMI cross-guarantee structure.

"We affirmed Kinder Morgan's rating as the $1.5 billion reduction of the company's $43 billion of adjusted debt will have a small but positive impact on leverage, as they're selling half of Southern Natural Gas for 10.4X EBITDA, while Kinder itself is levered at 5.8X EBITDA as of the end of Q1 2016 according to our calculations" said Terry Marshall, Moody's Senior Vice-President.

Outlook Actions:

..Issuer: Colorado Interstate Gas Company

....Outlook, Remains Stable

..Issuer: Copano Energy, LLC

....Outlook, Remains Stable

..Issuer: El Paso CGP Company

....Outlook, Remains Stable

..Issuer: El Paso Energy Capital Trust I

....Outlook, Remains Stable

..Issuer: El Paso Natural Gas Company

....Outlook, Remains Stable

..Issuer: El Paso Pipeline Partners Operating Company

....Outlook, Remains Stable

..Issuer: El Paso Tennessee Pipeline Co.

....Outlook, Remains Stable

..Issuer: Hiland Partners, LP

....Outlook, Remains Stable

..Issuer: K N Capital Trust I

....Outlook, Remains Stable

..Issuer: K N Capital Trust III

....Outlook, Remains Stable

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

....Outlook, Remains Stable

..Issuer: Kinder Morgan Finance Company, LLC

....Outlook, Remains Stable

..Issuer: Kinder Morgan G.P., Inc.

....Outlook, Remains Stable

..Issuer: Kinder Morgan Inc.

....Outlook, Remains Stable

..Issuer: Tennessee Gas Pipeline Company

....Outlook, Remains Stable

Affirmations:

..Issuer: Colorado Interstate Gas Company

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: Copano Energy, LLC

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: El Paso CGP Company

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: El Paso Energy Capital Trust I

....Pref. Stock Preferred Stock, Affirmed Ba1

..Issuer: El Paso Holdco LLC

....Subordinate Conv./Exch. Bond/Debenture, Affirmed Ba1

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: El Paso Natural Gas Company

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: El Paso Pipeline Partners Operating Company

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: El Paso Tennessee Pipeline Co.

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: Hiland Partners, LP

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: K N Capital Trust I

....Pref. Stock Preferred Stock, Affirmed Ba1

..Issuer: K N Capital Trust III

....Pref. Stock Preferred Stock, Affirmed Ba1

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

....Multiple Seniority Shelf, Affirmed (P)Ba1

....Multiple Seniority Shelf, Affirmed (P)Baa3

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: Kinder Morgan Finance Company, LLC

....Senior Secured Regular Bond/Debenture, Affirmed Baa3

..Issuer: Kinder Morgan G.P., Inc.

....Pref. Stock Preferred Stock, Affirmed Ba2

..Issuer: Kinder Morgan Inc.

....Multiple Seniority Shelf,, Affirmed (P)Baa3

....Senior Unsecured Commercial Paper, Affirmed P-3

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: Kinder Morgan Kansas Inc.

....Junior Subordinated Regular Bond/Debenture, Affirmed Ba1

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: Sonat Inc.

....Senior Secured Regular Bond/Debenture, Affirmed Baa3

..Issuer: Tennessee Gas Pipeline Company

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

RATINGS RATIONALE

KMI's Baa3 rating reflects its significant scale, high quality assets, fee-based cash flows and strong dividend coverage, tempered by its high leverage. Our forecasted year-end 2017 debt to EBITDA for KMI of around 5.4x remains high for an investment grade company, but reflects our expectation of an improving trend in leverage following the company's significant dividend cut and a moderation of growth capex. KMI's dividend coverage has improved significantly to over 4x from a very tight 1x and it is not reliant on capital markets access to fund growth projects through 2017. KMI benefits from relatively stable cash flow generated from a combination of long term contracts and regulated returns from energy infrastructure assets. About two-thirds of cash flow is contributed by demand pull customers, which generally provide more stable cash flow than supply push customers. However, about 24% of cash flow is subject to a volume risk and about 9% of cash flow is subject to short term commodity price volatility, a majority of which is hedged. This primarily relates to oil production tied to the CO2 business segment, which we expect to remain weak through 2017 due to still low commodity prices.

As part of the November 2014 re-organization of KMI, a cross-guarantee was executed by KMI and most of its domestic, wholly-owned subsidiaries, leading to the Baa3 rating for all of the included entities. Four rated entities are not part of the cross-guarantee group. Three of these entities have issued preferred stock that is rated Ba1: El Paso Energy Capital Trust I, KN Capital Trust I, and KN Capital Trust III. The sole asset of each is subordinated debt of KMI, which was funded by the rated preferred stock, which is the principal liability of each entity. The preferred stock issued by these entities is rated one notch lower than KMI at Ba1, reflecting the credit quality of the subordinated payment obligation of KMI that supports the preferreds. The fourth non-cross guaranteed entity is Kinder Morgan GP Inc., which issued preferred stock that is rated Ba2. This entity has ownership interests that generate about $100 million of annual distributable cash flow and the preferreds have a preferential right to dividends over KMI's common shareholder. The preferreds are rated two notches below KMI's senior unsecured rating at Ba2.

KMI's liquidity is excellent. At March 31, 2016, KMI had $175 million of cash and approximately $4.1 billion of availability (after $900 million of drawings and $48 million of commercial paper borrowings) under its $5 billion revolving credit facility, which matures in 2019. We expect that the company will generate approximately $1.1 billion of free cash flow over the 15 month period from March 31, 2016 to June 30, 2017. Free cash flow and available liquidity will be sufficient to fund about $2.0 billion in debt maturities over the same period. We expect KMI to be in compliance with its sole financial covenant (consolidated total debt to consolidated EBITDA not greater than 6.5x).

The stable outlook reflects KMI's stable cash flow and leverage that we expect to improve through 2017.

The rating could be upgraded if Moody's adjusted debt to EBITDA appears to be sustainable around 5.0x and the company's dividend policy appears to enable the company continued funding of growth capex with a significant component of retained cash flow.

The ratings could be downgraded if it appears that Moody's adjusted debt to EBITDA will be sustained above 5.8x or business risk increases.

Kinder Morgan Inc. is the largest midstream energy company in the North America, operating product pipelines, natural gas pipelines, liquids and bulk terminals, and CO2, oil, and natural gas production and transportation assets. The company is headquartered in Houston, Texas.

The principal methodology used in these ratings was Global Midstream Energy published in December 2010. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Moody's has not provided advisory services but may have provided Ancillary or Other Permissible Service(s) to the rated entity, its related third parties and/or the party that requested the rating within the past two years (including during the most recently ended fiscal year). Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's credit rating agency in Canada" on the ratings disclosure page www.moodys.com/disclosures on our website for further information.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Terry Marshall
Senior Vice President
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
(416) 214-1635

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Moody's affirms Kinder Morgan's Baa3 rating; outlook stable
No Related Data.
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