Fitch Affirms Kinder Morgan, Inc. and Subs at 'BBB-'; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the 'BBB-' Issuer Default Rating (IDR) and senior unsecured ratings on Kinder Morgan, Inc. (KMI) and its wholly owned subsidiaries, subject to the cross guarantee agreement between the companies. Additionally, Fitch has affirmed the 'F3' short-term IDR and commercial paper (CP) rating on KMI. A full list of rating actions follows at the end of this release.

The Rating Outlook is Stable.

The affirmation reflects KMI's position as one of the largest and most important energy companies in the U.S., with significant positions in must-run assets that support national energy infrastructure. The ratings are supported by KMI's significant cash flow stability, driven by the high percentage of KMI's assets being either fee-based or hedged and Fitch's expectations that KMI's high percentage of fixed fee-generating assets will minimize earnings and cash flow volatility.

Today's rating actions reflect Fitch's consolidated ratings approach to KMI and its various subsidiaries subject to the cross-guarantee agreements among and between the Kinder Morgan entities. The cross guarantees are joint and several, absolute and unconditional, between the entities. Any refinancing of maturing notes is expected to be done primarily at the KMI level over time (excepting some pipeline debt which would remain at the pipelines for rate-making purposes but remain cross guaranteed).

KEY RATING DRIVERS

Beneficial Size & Scale: KMI is currently one of the largest midstream infrastructure companies in the U.S. possessing a strong, diverse asset portfolio which spans multiple business lines and access and delivers to all of the major supply and demand areas for oil, natural gas and NGLs. This helps generate significant stable cash flow, which somewhat offsets concerns around high leverage. The midstream business remains one where size and scale are key differentiating credit factors, as they typically provide earnings and business line diversity, reduced single counterparty exposure, economies of scale, more favorable capital market access and the ability to offer customers optionality and a variety of services. All of these factors help provide cash flow stability, particularly, in times of commodity price distress.

Guarantees Warrant Consolidated Approach: The cross guarantees are absolute and unconditional between the entities and any refinancing of maturing notes is expected to be done at the KMI level over time (excepting some pipeline debt which would remain at the pipelines for rate-making purposes but remain cross guaranteed). The cross guarantees extend from and to every wholly owned significant EBITDA-generating rated issuing entity within the Kinder Morgan family. Fitch believes a consolidated ratings approach that equalizes the outstanding ratings at the ratings level for KMI remains appropriate.

Growing Cash Flows: Fitch expects KMI to generate between $4.3 and $4.5 billion in cash available for distributions (before dividends and growth capital expenditures) in 2016, which Fitch expects to grow significantly by 2019/2020 as growth projects are completed and begin operation. Over 90% of consolidated cash flows are currently fee-based or hedged, providing comfort around cash flow and earnings stability. Fitch continues to expect KMI to target a high percentage of fixed fee or hedged revenue consistent with current and historical practices.

High Leverage: Leverage at the consolidated entity is high with Fitch expecting 2016 leverage (debt/adjusted EBITDA) of roughly 5.3x to 5.5x. Leverage is expected to continue to improve in 2017 and 2018 as KMI works through its planned growth spending. Offsetting concerns around high leverage through the construction cycle is the strength of KMI's asset size, scale and cash flow profile, and cash retention from last year's cut to the dividend. Further meaningful reductions in leverage with debt/adjusted EBITDA between 4.5x and 5.0x on a sustained basis could lead to a positive ratings action.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for KMI include:

--Growth spending of $13 billion through 2020 with maintenance spending of roughly $550 to $650 million annually.

--Dividends consistent with current dividend rates. (KMI management has indicated they will provide guidance on a revised dividend policy in the latter part of 2017, but absent any information Fitch's forecast assumes the current dividend rate.)

--Assumed 2016 to 2019 hedges on CO2 business production consistent with management public guidance.

--Commodity price deck consistent with Fitch's published 2017 base case deck.

--Assumed 100% ownership of TransMountain project. (KMI management has announced its interest in pursuing a joint venture partner on this project.)

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to positive rating action include:

--A meaningful reduction in leverage, with debt/adjusted EBITDA between 4.5x and 5.0x on a sustained basis.

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

--A significant change in cash flow stability profile or current hedging practices. A move away from current significant majority of assets being fee based or hedged could lead to a negative ratings action.

--Leverage above 5.5x on a sustained basis.

LIQUIDITY

Liquidity Strong: KMI's liquidity is fairly strong, strengthened by last year's dividend cut. KMI's primary sources of liquidity are its $5 billion revolving credit facility, which supports its $4 billion CP program and cash from operations. KMI in January 2016 increased its revolver to $5 billion (from $4 billion) and ample availability remains, with roughly $4.8 billion available to KMI as of Sept. 30, 2016 net of outstanding letters of credit. KMI's maturities are manageable with roughly $2.54 billion maturing in 2017.

The sale of Southern Natural Gas (SNG) decreased 2017 maturities by $500 million as SNG's debt is now deconsolidated and expected to be refinanced at SNG, without any KMI involvement or recourse. KMI's remaining 2017 maturities will likely be refinanced at maturity. Fitch expects KMI will have the market access and cash/revolver availability to handle upcoming maturities as needed.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings with a Stable Outlook:

Kinder Morgan, Inc. (KMI)

--Long-term IDR at 'BBB-';

--Unsecured notes and debentures at 'BBB-';

--Unsecured revolving credit facility at 'BBB-';

--Short-term IDR at 'F3';

--Commercial paper at 'F3'.

Kinder Morgan Finance Company, LLC

--Unsecured notes at 'BBB-'.

KN Capital Trust I

--Trust preferred at 'BB'.

KN Capital Trust III

--Trust preferred at 'BB'.

El Paso Energy Capital Trust I

--Trust preferred at 'BB'.

Kinder Morgan Energy Partners, L.P. (KMP)

--IDR at 'BBB-';

--Unsecured debt at 'BBB-'.

Tennessee Gas Pipeline Company, LLC

--IDR at 'BBB-';

--Senior unsecured debt at 'BBB-'.

El Paso Natural Gas Company, LLC

--IDR at 'BBB-';

--Senior unsecured debt at 'BBB-'.

El Paso Pipeline Partners Operating Co., LLC

--IDR at 'BBB-';

--Senior unsecured debt at 'BBB-'.

Colorado Interstate Gas Company, LLC

--IDR at 'BBB-';

--Senior unsecured debt at 'BBB-'.

Summary of Financial Statement Adjustments - In October 2015 KMI issued $1.54 billion in mandatory convertible preferred stock with a mandatory conversion date of October 2018. As per Fitch's 'Treatment and Notching of Hybrids in Non-Financial Corporate and REIT Credit Analysis' sector specific Criteria, Fitch treats these securities as equity. Fitch typically adjusts midstream energy companies EBITDA to exclude equity in earnings of unconsolidated affiliates but include cash distributions from unconsolidated affiliates.

Additional information is available on www.fitchratings.com.

Applicable Criteria

Criteria for Rating Non-Financial Corporates (pub. 27 Sep 2016)

https://www.fitchratings.com/site/re/885629

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1016050

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1016050

Endorsement Policy

https://www.fitchratings.com/regulatory

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Source: Fitch Ratings

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