News Column

Fitch Affirms Kinder Morgan Energy Partners and Kinder Morgan Inc.; Outlook Stable

May 16, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the Issuer Default Rating (IDR) and debt ratings for Kinder Morgan Energy Partners, L.P. (KMP) at 'BBB' and the IDRs for Kinder Morgan, Inc. (KMI) and El Paso LLC (EP, formerly El Paso Corporation) at 'BB+'. The Rating Outlook for KMP, KMI and EP is Stable. EP is a wholly-owned subsidiary of KMI and its debt is cross-guaranteed by KMI.

A complete list of ratings for KMI and EP follows at the end of this release. Approximately $17.1 billion KMP long term debt, $4.1 billion of KMI long term debt and $3.8 billion EP debt is affected by today's rating action.

KMI is the owner of the general partner (GP) and approximately 10% limited partner (LP) interests in Kinder Morgan Energy Partners, L.P. KMP. Through its ownership of EP, KMI is the owner of the GP and approximately 41% LP interests in El Paso Pipeline Partners L.P. [El Paso Pipeline Partners Operating Company (EPBO), IDR 'BBB-', Rating Outlook Stable by Fitch]. In addition, KMI has a 20% interest in NGPL PipeCo LLC (NGPL, IDR 'B-'; Rating Outlook Negative).

KEY RATING DRIVERS

KMP

Rating Rationale: 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 Fitch's expectation for stable credit metrics in 2014 with adjusted Debt to EBITDA to approximate 4.0x or below for the year. Moreover, recent large acquisitions have been funded in a credit-neutral manner. KMP raised $2.3 billion in new equity in 2013, excluding equity issued as part of its unit for unit purchase of Copano Energy L.L.C. (CPNO). Recent dropdown acquisitions, Tennessee Gas Pipeline Co. (TGP, IDR 'BBB', Rating Outlook Stable)) and El Paso Natural Gas Co. (EPNG, IDR 'BBB', Rating Outlook Stable) generate stable cash flows and, along with CPNO's midstream operations, have been good fits with KMP's master limited partnership (MLP) structure. Approximately 80% of KMP's cash flows are expected to be generated under long term fee-based or similar arrangements.

Other considerations and credit concerns include KMI's control over KMP; exposure to interest rates on approximately $5.7 billion of variable rate debt; modestly negative effects of a weak U.S. economy on asset utilization; regulatory challenges and potential refunds relating to KMP's Pacific products pipelines; aggressive expansion spending; and exposure to changes in NGL and oil prices and volumes for its CO2 and midstream business segments. The financial impact of commodity price volatility is minimized through hedges which, at the beginning of 2014, had been applied to approximately 71% of the company's expected 2014 net oil production of approximately 38 thousand barrels per day.

KMI

Rating Rationale: KMI's and EP's ratings and Stable Outlook reflect significant scale of its consolidated operations, the quality and diversity of assets held by its operating MLPs, and the favorable implications of recent and prospective asset dropdowns on KMI's leverage metrics. KMI is now the fourth largest energy company in the U.S. with a consolidated enterprise value of approximately $105 billion. KMI's May 2012, acquisition of EP has resulted in reduced consolidated business risk given the cash flow stability associated with EP's interstate pipelines.

On May 2, 2014, KMI completed the drop down to EPB of a 50% interest in Ruby Pipeline Holding Company, L.L.C. (Ruby; IDR 'BBB-'; Rating Outlook Stable), a 50% interest in Gulf LNG Holdings Group, LLC (Gulf LNG) and a 47.5% interest in Young Gas Storage. The acquisition was valued at approximately $2 billion, including the assumption of $1.012 billion of debt. The consideration included $874.8 million of cash and $97.2 million of EPB common units. KMI used the cash to pay down its Term Loan.

Given KMI's consolidated business risk, Fitch believes that appropriate leverage for a 'BB+' rating as measured by the total standalone debt of KMI and EP to cash from operations should be 3.5x or below. In the agency's base case forecast, Fitch believes KMI will be able to attain this metric on a pro forma basis in 2014, with standalone parent company leverage having the potential to drop below 3.0x in the future with the benefit of the dropdown of its interest in Citrus Corp. and related debt repayment.

Other considerations and concerns for KMI's ratings include the structural subordination of its cash flows to debt repayment at its operating MLPs, aggressive capital spending at the MLPs, and exposure to changes in NGL and oil prices and volume risk for KMP's CO2 and midstream business segments. Also considered are board authorized repurchases of up to $950 million of warrants or common stock of KMI through programs instituted beginning in 2012. Approximately $45 million remains outstanding under the authorizations. Unless future equity repurchases significantly exceed the current authorized amounts, KMI's leverage metrics should remain appropriate for its 'BB+' rating.

Liquidity is adequate: KMP has a $2.7 billion revolving credit facility that matures May 1, 2018. It was increased in size from $2.2 billion and extended on May 1, 2013, to compensate for the acquisition of CPNO and the termination of its $700 million revolver. There were no borrowings under the facility at March 31, 2014. As of March 31, 2014, the amount available under the facility was reduced by $621 million consisting of $419 million of CP borrowings and $202 million of letters of credit. Borrowing capacity under the revolver was $2,079 million. KMP had cash of $347 million at March 31, 2014. KMP is also party to a reserve-based hedging facility with J. Aron & Company/Goldman Sachs for purposes of hedging crude oil. KMP is not required to post margin. The facility has no fixed maturity.

On May 6, 2014, KMI entered into a credit agreement extending its credit facilities in the aggregate principal amount of $2.4 billion consisting of a $650 million Term Loan due May 6, 2017 and a $1.75 billion revolving credit facility due May 6, 2019. Based on provisions of the credit facilities, effective the signing of the agreement, all collateral securing the credit facilities and the company's outstanding notes and debentures falls away. At May 6, 2014, $550 million was outstanding under the revolver. The credit agreement has one financial covenant. Debt to EBITDA cannot exceed 4.75x; no greater than 5.5x during an acquisition period.

RATING SENSITIVITIES

KMP

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 below.

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.

KMI

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;

--A rating upgrade to KMP; and

--A material improvement in credit metrics with sustained standalone parent leverage below 2.0x.

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:

--Increasing leverage at KMI's operating affiliates to support organic growth and acquisitions;

--A rating downgrade to KMP; and

--A weakening of credit metrics with sustained standalone parent leverage above 4.0x.

Fitch affirms the following ratings with a Stable Outlook:

Kinder Morgan Energy Partners, L.P.

--IDR at 'BBB';

--Unsecured debt at 'BBB'

--Short-term IDR at 'F2';

--Commercial paper at 'F2'.

Kinder Morgan, Inc.

--IDR 'BB+';

--Unsecured notes and debentures at 'BB+';

--Unsecured revolving credit facility at 'BB+';

--Term loan facility at 'BB+'.

Kinder Morgan Finance Company, LLC

--Unsecured notes at 'BB+'.

KN Capital Trust I

--Trust preferred at 'BB-'.

KN Capital Trust III

--Trust preferred at 'BB-'.

El Paso LLC

--IDR 'BB+";

--Senior unsecured notes and debentures at 'BB+'.

El Paso Energy Capital Trust I

--Trust convertible preferred securities at 'BB-'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Non-Traditional MLP Assets' May 6, 2014;

--'Corporate Rating Methodology, Including Parent and Subsidiary Linkage' Aug. 5, 2013;

--'Rating Pipelines, Midstream, and MLPs - Sector Credit Factors' Jan. 13, 2014;

--'2014 Outlook: Natural Gas Pipelines' Dec. 10, 2013;

--'2014 Outlook: Midstream Services' Dec. 10, 2013;

--'2014 Outlook: Crude Oil and Refined Products Pipelines' Dec. 19, 2013;

--'NGL Pipelines: Northeast Surplus Drives New Projects, Dec. 20, 2013;

--'Credit Considerations for the GP/LP Relationship' Nov. 6, 2013;

--'Tax Event Risk and MLPs: Assessing a Change in Tax Law Status for MLPs' April 18, 2013.

Applicable Criteria and Related Research:

Non-Traditional MLP Assets (Changing Mix, Changing Risk)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=747370

Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Rating Pipelines, Midstream and MLPs - Sector Credit Factors

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=722082

2014 Outlook: Natural Gas Pipelines

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724977

2014 Outlook: Midstream Services

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=726064

2014 Outlook: Crude Oil and Refined Products Pipelines

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=726461

NGL Pipelines: Northeast Surplus Drives New Projects

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=727520

Credit Considerations for the GP/LP Relationship

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=721999

Tax Event Risk and MLPs: Assessing a Change in Tax Status for MLPs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=705496

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=830545

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE 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 OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR 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 WEBSITE.



Fitch Ratings

Primary Analyst

Ralph Pellecchia

Senior Director

+1-212-908-0586

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst

Peter Molica

Director

+1-212-908-0288

or

Committee Chairperson

Mark C. Sadeghian, CFA

Senior Director

+1-312-368-2090

or

Media Relations

Brian Bertsch, +1-212-908-0549

brian.bertsch@fitchratings.com


Source: Fitch Ratings


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