Approximately $44 billion of rated debt affected
Toronto, December 01, 2015 -- Moody's Investors Service (Moody's) changed Kinder Morgan Inc.'s
(KMI) outlook to negative from stable. Moody's affirmed KMI's
Baa3 senior unsecured and Prime-3 commercial paper ratings.
A complete list of Moody's rating actions is below.
On November 30, KMI announced an agreement to increase its ownership
in Natural Gas Pipeline Company of America LLC (NGPL, Caa2 negative)
to 50% from 20% for approximately $136 million.
Brookfield Infrastructure Partners L.P. (BI, unrated)
will own the remaining 50%. Proportionate consolidation
of NGPL's debt will add about $1.5 billion to KMI's
consolidated debt. NGPL's trailing twelve month September
30, 2015 EBITDA was $273 million (gross).
"The negative outlook reflects Kinder Morgan's increased business
risk profile and additional pressure on its already high leverage that
will result from its agreement to increase ownership in NGPL, a
distressed company," said Terry Marshall, Moody's Senior
Vice-President. "NGPL is facing potential default
on its pending interest payments, suggesting that KMI will need
to provide cash injections, which will likely be debt funded initially."
Outlook Actions:
..Issuer: Colorado Interstate Gas Company
....Outlook, Changed To Negative From
Stable
..Issuer: Copano Energy, LLC
....Outlook, Changed To Negative From
Stable
..Issuer: El Paso CGP Company
....Outlook, Changed To Negative From
Stable
..Issuer: El Paso Energy Capital Trust I
....Outlook, Changed To Negative From
Stable
..Issuer: El Paso Natural Gas Company
....Outlook, Changed To Negative From
Stable
..Issuer: El Paso Pipeline Partners Operating Company
....Outlook, Changed To Negative From
Stable
..Issuer: El Paso Tennessee Pipeline Co.
....Outlook, Changed To Negative From
Stable
..Issuer: Hiland Partners, LP
....Outlook, Changed To Negative From
Stable
..Issuer: K N Capital Trust I
....Outlook, Changed To Negative From
Stable
..Issuer: K N Capital Trust III
....Outlook, Changed To Negative From
Stable
..Issuer: Kinder Morgan Energy Partners, L.P.
....Outlook, Changed To Negative From
Stable
..Issuer: Kinder Morgan Finance Company, LLC
....Outlook, Changed To Negative From
Stable
..Issuer: Kinder Morgan G.P.,
Inc.
....Outlook, Changed To Negative From
Stable
..Issuer: Kinder Morgan Inc.
....Outlook, Changed To Negative From
Stable
..Issuer: Southern Natural Gas Company
....Outlook, Changed To Negative From
Stable
..Issuer: Tennessee Gas Pipeline Company
....Outlook, Changed To Negative From
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)Baa3
....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 (Local Currency)
Nov 20, 2017, 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: Southern Natural Gas Company
....Senior Unsecured Regular Bond/Debenture,
Affirmed Baa3
..Issuer: Tennessee Gas Pipeline Company
....Senior Unsecured Regular Bond/Debenture,
Affirmed Baa3
RATINGS RATIONALE
NGPL's capital structure is untenable, with debt to EBITDA
currently above 10x and insufficient liquidity to fully fund pending interest
payments and term loan amortization totaling $115 million (gross).
Moody's expects that KMI is likely to initially debt fund its share
of the needed support, and will need to provide additional support
as part of any restructuring of NGPL's capital structure and its
approximate $3 billion of debt. Proportionate consolidation
of NGPL along with Moody's standard adjustments will increase KMI's
leverage to around 5.9x on a December 31, 2015 pro forma
basis.
KMI's Baa3 rating reflects its significant scale, high quality assets,
and fee-based cash flows, tempered by its high leverage and
payout of approximately 90% of internally generated cash flow to
shareholders. Moody's forecasted debt to EBITDA for KMI of around
5.9x (6x on a proportionate consolidation basis) in mid-2016
is high for an investment grade company. (Moody's calculation
of adjusted debt to EBITDA increases Kinder Morgan's measurement of net
debt to EBITDA by about 0.2x. Adding the proportionate consolidation
of NGPL and Moody's other adjustments increases KMI's measurement
by about 0.3x). KMI's year-end leverage focus
means leverage (including Moody's standard adjustments) may be above 5.8x
for much of the year, and KMI crucially relies on ongoing equity
and debt capital markets access to meet that target. Currently
weak capital markets have increased the cost of access. KMI benefits
from relatively stable cash flow generated by a combination of long term
contracts and regulated returns from energy infrastructure assets.
We estimate that about 10% of the company's operating cash flow
is subject to short-term market volatility, primarily related
to oil production tied to the CO2 business segment, which we expect
to remain weak through 2016 due to low commodity prices.
We expect leverage to remain high throughout 2016 as the company plans
to distribute most of its roughly $5 billion of operating cash
flow to shareholders. KMI is reliant on both equity and debt markets
to fund growth capital expenditures, which will likely exceed $4
billion next year, which in turn supports the company's distributable
cash flow growth expectations of 6% to10%. Master
Limited Partnerships (MLPs) and MLP-like companies such as KMI
require high growth to satisfy their shareholder bases and maintain strong
stock valuations. As shareholder value weakens, due to lower
anticipated growth and general contagion from weak oil and natural gas
markets, the cost of equity (and debt) increases, making it
more difficult for affected companies to raise the equity needed to keep
their leverage within acceptable levels for their rating.
As part of the November 2014 re-organization of KMI, a cross-guarantee
was executed by 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 adequate. Through the third quarter of 2016
Moody's expects the company will have nearly $11 billion of cash
from operations and liquidity resources to fund about the same amount
of dividends, capital expenditures and debt maturities. The
company will have about $5 billion of cash from operations,
together with pro-forma cash of $1.7 billion and
an essentially unused credit facility of $4 billion (expires 2019).
We expect dividends in the mid-$4 billion range, capital
expenditures around $4.5 billion, and debt maturities
in the fourth quarter of 2015 and first quarter of 2016 totaling $2.4
billion. We also expect KMI to be in compliance with its sole financial
covenant (consolidated total debt to consolidated EBITDA not greater than
6.5x).
The negative outlook could be restored to stable if KMI appears likely
to have consistent Moody's adjusted debt to EBITDA of 5.8x
or below.
The ratings could be downgraded if it appears that Moody's adjusted
debt to EBITDA will not be consistently 5.8x or below, distribution
coverage appears likely to fall below 1x, business risk increases
or if the company undertakes an acquisition that increases leverage or
does other debt financed activities where the company is highly reliant
on equity markets to bring down leverage. The rating could be upgraded
if Moody's adjusted debt to EBITDA appears to be sustainable below 5.0x.
Kinder Morgan Inc. is the largest midstream energy company in the
North America. Kinder Morgan Inc. operates 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 Credit Policy 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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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 changes Kinder Morgan's outlook to negative
