DBRS Confirms Ratings of Kinder Morgan, Inc. and Kinder Morgan Energy Partners, L.P., Trends Stable

DBRS Limited (DBRS) has today confirmed the Issuer Rating as well as the Senior Notes and Debentures rating of Kinder Morgan, Inc. (KMI or the Company) at BBB (low). DBRS has concurrently confirmed the Medium-Term Notes & Unsecured Debentures rating of KMI’s wholly owned subsidiary, Kinder Morgan Energy Partners, L.P. (KMP) at BBB (low). All trends are Stable. The rating confirmations reflect KMI’s well-diversified fee-based energy infrastructure portfolio of oil, liquids, natural gas pipeline operations as well as its competitive position and scale. KMI’s ratings are constrained by its substantial growth capital needs and its exposure to commodity price and volume risk in its oil production-related CO2 business.

DBRS notes that KMI plans to stay within its means in the near term by funding dividends and capital expenditures (capex) from internally generated cash flow. In December 2015, the Company announced a 75% dividend cut to conserve cash and use its remaining operating cash flow of $3.6 billion to fund its 2016 capex. Further, in Q1 2016, KMI announced that it has scaled back its five-year capex program to $14.1 billion from $18.2 billion because of insufficient contractual commitments and permitting issues. KMI also reduced its 2016 capex budget by $1.3 billion to $2.9 billion by selecting projects that provide the highest and best returns and abandoning other projects. The Company does not intend to access equity markets for the next several years and will access debt markets only to refinance existing debt maturities.

KMI’s financial profile remains reasonable with a DBRS-adjusted debt-to-capital ratio of 55.6% at the last 12 months (LTM) ending March 31, 2016; however, cash flow-to-adjusted total debt of 11.1% continues to be weak. DBRS expects KMI’s credit metrics to remain stable in the near term as the Company finances its capex and dividends internally with operating cash flow without reliance on debt or equity markets. DBRS notes that, while an upgrade is unlikely in the near term, KMI’s ratings could come under pressure if commodity prices weaken from current levels and affect the Company’s earnings and cash flow on a sustained basis. Weaker cash flows could slow the execution of KMI’s sizable capex program in the next five years as the Company plans to fund the program entirely with internally generated cash flow. Scaling back on its capital projects could result in slower cash flow growth. Consequently, KMI may need to access debt markets to bridge any free cash flow deficits and fulfill its ongoing dividend and capex commitments. DBRS expects the Company to manage its balance sheet prudently and maintain credit metrics consistent with the current ratings.

The ratings of KMI and KMP are both at BBB (low), Stable, because of the cross-guarantee agreement between the entities whereby each party to the agreement unconditionally guarantees, jointly and severally, the payment of specified indebtedness of each other party to the agreement.

RATING DRIVERS
The present DBRS view on business risk and ratings assumes that KMI may maintain its present position in (1) regulatory/contractual arrangements; (2) diversification/product mix; (3) customer base/supply–demand (4) key financial metrics and (5) cross-guarantees in the near to medium term.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are Rating Companies in the Pipeline and Diversified Energy Industry and DBRS Criteria: Guarantees and Other Forms of Explicit Support, which can be found on our website under Methodologies.

This rating was not initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process. DBRS did not have access to the accounts and other relevant internal documents of the rated entity or its related entities.

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