Fitch: Acquisition of NGPL credit neutral to Kinder Morgan

Fitch Ratings expects the announced acquisition of a 30% interest of Natural Gas Pipeline Co. of America LLC (NGPL) to be neutral to Kinder Morgan Inc. (KMI; 'BBB-'/Stable Outlook).

KMI announced Nov. 30 that it and Brookfield Infrastructure Partners LP (BIP) would acquire the remaining 53% equity interest in NGPL not already owned by them for a total purchase price of approximately $242 million. KMI will pay approximately $136 million and increase its ownership interest from 20% to 50%, and BIP will pay approximately $106 million and increase its ownership from approximately 27% to 50%.

The deal is expected to close by the end of the year, subject to customary closing conditions, including regulatory approval. KMI will continue to operate NGPL and expects that the deal will be immediately accretive to cash available to pay dividends.

Fitch believes the deal does not materially impact KMI's credit profile in the near term. The multiple being paid for the increased interest in NGPL is reasonable, with the transaction valuing the pipeline at roughly 10x 2016 EBITDA (inclusive of NGPL debt). Fitch does not expect its KMI base case credit metrics to change materially as a result of the transaction. Fitch continues to expect leverage at KMI on a consolidated basis will be high, above KMI's targeted range of between 5.0x to 5.5x debt/EBITDA, for the next several years as KMI works through a high growth spending backlog. However, Fitch expects near-term leverage to be below 6.0x (5.7x for 2016) and improve to the targeted range as projects are completed.

Fitch would expect KMI to be supportive of the pipeline and help fund any growth capital needs provided it is not deleterious to its own credit profile. Failure to manage leverage down to the targeted 5.0x to 5.5x on a sustained basis would likely lead to a negative ratings action.

The additional investment in highly leveraged NGPL does not resolve concerns around NGPL's stressed balance sheet or challenged operating environment. NGPL's operations remain under considerable stress, with cash outflows expected to exceed inflows for 2015, and leverage extremely elevated. There are signs that the financial impact of compressed natural gas basis conditions on NGPL has waned. All of NGPL's higher rate contracts have rolled over at this point and management does not expect any material downside to revenue going forward.

NGPL expects significant organic growth in 2016 driven by firm transport agreements for incremental volumes fed by the reversal of Rockies Express pipeline, as well as transportation contracts associated with the Sabine Pass LNG facilities. Additionally, NGPL has some favorable growth prospects with an expansion project into Chicago and a project to provide pipeline capacity to Cheniere Energy Inc.'s Corpus Christi terminal. However, NGPL is facing significant debt maturities in 2017 and continued uncertainty around plans to deal with NGPL's funding and capital structure going forward.

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