Fitch Ratings expects the acquisition of Hiland Partners by Kinder Morgan Inc. (KMI; IDR: 'BBB-'/Stable Outlook) to be credit neutral. The transaction, valued at $3 billion including the assumption of roughly $1 billion of Hiland debt, provides KMI with increased access to quality assets and a good platform for growth in the Bakken shale region.
Fitch expects the transaction to be slightly accretive to distributable cash flow in 2015 and 2016 and to be permanently financed with a focus on managing KMI's leverage (Debt/EBITDA) metric within its stated 5x to 5.5x target range.
The Hiland assets consist of gathering and processing, and oil transportation operations, primarily within the Bakken production region with limited commodity price exposure. Roughly 86% of Hiland's 2015 gross margin is fee-based, providing some comfort around EBITDA stability even with currently weak commodity prices. Given the current price weakness the Bakken shale could see near-term demand for gathering and processing services and volumes weaken; however, the Hiland assets are in fairly productive areas of the Bakken play and should provide a good platform for growth longer term should oil prices move back towards Fitch's $75/barrel base case expectations.
Fitch does not believe KMI's 2015 base case credit metrics will change materially as a result of the Hiland transaction. Fitch continues to expect that Debt/EBITDA in the near term will be slightly above 5.5x as several large-scale construction projects move forward, but metrics are expected to be below 6x and are expected to improve to the target range as projects are completed. Failure to manage leverage within 5x to 5.5x on a sustainable basis could lead to a negative rating action.