DBRS Confirms Ratings of Kinder Morgan, Inc. and Kinder Morgan Energy Partners, L.P. at BBB (low), Stable

DBRS Limited (DBRS) has today confirmed the Issuer Rating and 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 ratings reflect the Company’s relatively stable cash flows generated from its well-diversified portfolio of contracted and fee-based energy infrastructure assets. KMI’s ratings are constrained by its leverage, substantial growth-capital needs and exposure to commodity price and volume risks in its oil-production-related business. Approximately 66% of KMI’s cash flow is underpinned by take-or-pay contracts, 25% is exposed to volume risk and 9% is exposed to commodity price risk, the latter of which is covered under an active hedging program.

KMI’s growth-capital expenditures (capex) are expected to be approximately $11.7 billion over the next five years and are mainly for pipelines, terminals and storage facilities, including approximately $3.2 billion for 2017. The Company placed approximately $1.8 billion of projects in service in 2016. Approximately $5.4 billion of the project backlog is earmarked for the Trans Mountain Expansion Project, which will ship 890,000 barrels per day of Canadian crude from Alberta to the west coast of British Columbia. The Company priced an initial public offering recently to raise funding for the project and expects construction to begin in Q3 2017. KMI cut its dividends by 75% for 2016 and intends to maintain dividends at current levels of $0.50 per share for 2017, using the excess cash flow to fund its growth projects. The Company is expected to provide guidance on its future dividend policy later in the year.

KMI’s financial profile improved slightly, with a DBRS-adjusted debt-to-capital ratio of 53.3% and a cash flow-to-adjusted total debt ratio of 12.2% for the last 12 months ended March 31, 2017. The Company finances a major portion of its capex and dividends from internally generated cash flow. DBRS expects KMI’s credit metrics to gradually improve in the medium term as the Company’s capital projects come into service and generate incremental cash flow. The Company’s liquidity remains reasonable, with nearly $5.0 billion available under its revolving credit facility as at Q1 2017. KMI’s ratings could come under pressure if commodity prices weaken on a sustained basis from current levels, adversely affecting cash flow and causing leverage to rise. Ratings could be positively affected should the Company maintain its cash flow-to-debt ratio above 12.5% and debt-to-capital below 55.0%, while improving its business risk profile, on a sustained basis.

KMI and KMP are both rated BBB (low) with a Stable trend 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 the other party to the agreement.

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 principal methodologies are Rating Companies in the Pipeline and Diversified Energy Industry and DBRS Criteria: Guarantees and Other Forms of Support, which can be found on dbrs.com under Methodologies.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.