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

DBRS Limited (DBRS) confirmed the Issuer Rating and Senior Notes and Debentures rating of Kinder Morgan, Inc. (KMI or the Company) at BBB (low). DBRS 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. DBRS has rated both KMI and KMP at BBB (low) with a Stable trend based on a consolidated analysis 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.

KMI’s assets are competitively positioned to connect major North American resource basins to demand centers and export markets. KMI’s ratings reflect the Company’s relatively stable cash flows generated from its well-diversified portfolio of contracted and fee-based midstream energy infrastructure assets. However, KMI’s substantial growth-capital needs, increased dividend commitment, a $2 billion share buyback program and exposure to commodity price and volume risks in its oil-production-related business constrain its credit profile. The Company’s growth capital expenditures are budgeted to be $11.8 billion in the next five years, mainly for pipelines, terminals and storage facilities. In Q1 2018, the Company raised dividends on common shares by 60% from $0.50 a share to $0.80 a share.

DBRS notes that the recent Federal Energy Regulatory Commission (FERC) actions and notice of proposed rulemaking, to flow through the benefit of lower corporate taxes through pipeline tariffs, is not expected to materially impact KMI’s earnings as, in addition to a simplified corporate structure, nearly 70% of the Company’s tariffs are based on either negotiated or discounted rate arrangements.

KMI continues to fund its capex and dividends from its internally generated cash flow and accesses the debt markets only for refinancing maturing debt. KMI’s growth capex, excluding Kinder Morgan Canada (KML), is expected to be $2.3 billion in 2018 ($707 million spent at Q1 2018). KMI expects 2018 distributable cash flow to be $4.6 billion, which is adequate to cover its growth capital and dividend payment needs. DBRS views the Company as having adequate liquidity with $4.4 billion available under its $5.0 billion revolving credit facility at Q1 2018 to complete its planned capital program.

KMI’s leverage has improved slightly, largely resulting from debt repayment from the proceeds of the Kinder Morgan Canada (KML) IPO and the Elba joint venture in 2017. 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. 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. KMI’s ratings could be positively affected should the Company maintain its cash flow-to-debt ratio above 12.5% and debt-to-capital ratio below 55.0%, on a sustained basis, while executing on its capital projects and improving its business risk profile.

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.