DBRS Upgrades Ratings of Kinder Morgan, Inc. to BBB with Stable Trends

DBRS Limited (DBRS) upgraded the Issuer Rating and Senior Notes and Debentures rating of Kinder Morgan, Inc. (KMI or the Company) to BBB from BBB (low). DBRS concurrently upgraded the Medium-Term Notes & Unsecured Debentures rating of KMI’s wholly owned subsidiary, Kinder Morgan Energy Partners, L.P. (KMP), to BBB. All trends are Stable. KMI and KMP have the same rating because of the cross-guarantee agreement between the entities whereby each party to the agreement has unconditionally guaranteed, jointly and severally, the payment of specified indebtedness of the other party to the agreement.

DBRS notes that since 2015, KMI has demonstrated its commitment to live within its means by funding its capex and dividends from internally generated cash flow and access the debt markets only for refinancing maturing debt. The Company has successfully deleveraged its balance sheet while executing on its significant capital program, increasing dividends and buying back shares. KMI has repaid approximately $8.0 billion of debt since 2015 through a combination of free cash flow (surplus operating cash flow after capex and dividends) and asset sales. The Company’s key credit metrics have improved, supporting the upgrade in ratings.

In addition to having a simplified corporate structure, KMI’s credit profile benefits from relatively stable cash flows generated from its well-diversified portfolio of contracted and fee-based energy infrastructure assets. Liquified natural gas exports and the power and industrial sectors continue to drive end-user natural gas demand growth in North America. The Company’s assets are competitively positioned and connect major resource basins to demand centres and export markets.

The Company has a $6.1 billion capex program over the next two to three years largely for contracted natural gas pipelines and terminals projects. KMI intends to fund the vast majority of its 2019 capex of $3.8 billion ($554 million spent as at Q1 2019) with internally generated cash flows without accessing the equity markets. DBRS views the Company as having adequate liquidity, with $4.3 billion available under its $4.5 billion credit facilities at Q1 2019. The proceeds from the $1.2 billion initial public offering of Kinder Morgan Canada Limited (KML; 70% owned by KMI and rated Pfd-3 with a Stable trend by DBRS) in 2017 and the $1.9 billion net distribution from KML from the sale of the Trans Mountain Asset Group, including the Trans Mountain Pipeline Expansion Project, to the Government of Canada (rated AAA with a Stable trend by DBRS) for $4.5 billion in 2018, were largely used to repay debt at KMI.

DBRS expects KMI’s credit metrics to continue to gradually improve in the medium term as the Company’s capital projects come into service and generate incremental cash flow. DBRS notes that KMI’s ratings could come under pressure if the Company’s operating cash flow is inadequate to fund capex and dividend commitments, necessitating issuance of incremental debt, resulting in weaker credit metrics from current levels and/or exposure to commodity and volume risk rises. Ratings could be positively affected should KMI improve its credit profile by generating a major portion of its operating cash flow from medium- to long-term take-or-pay contracts with investment-grade counterparties while maintaining its conservative funding strategy.

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

The principal methodologies are Rating Companies in the Pipeline and Diversified Energy Industry (November 2018), DBRS Criteria: Guarantees and Other Forms of Explicit Support (January 2019), DBRS Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (November 2018) and DBRS Criteria: Rating Corporate Holding Companies and Their Subsidiaries (November 2018), which can be found on dbrs.com under Methodologies & Criteria.

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 under Related Documents or by contacting us at info@dbrs.com.

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

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

This is an unsolicited credit rating.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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