Morningstar DBRS Confirms Kinder Morgan, Inc.’s Issuer Rating at BBB, Stable

DBRS Limited (Morningstar DBRS) confirmed Kinder Morgan, Inc.’s (KMI or the Company) Issuer Rating at BBB with a Stable trend.

KEY CREDIT RATING CONSIDERATIONS
A majority of KMI's natural gas pipelines and terminal assets are covered by a mix of medium- to long-term take-or-pay contracts or minimum-volume commitments with no volume or commodity risk. However, KMI is exposed to volume risk in its refined products transportation and gathering and processing activity. The Company's oil production and operations in its carbon dioxide segment entail commodity price risk.

KMI's operating performance in 2023 was in line with Morningstar DBRS' expectations. Strong performance across its business segments, along with higher commodity prices, resulted in higher earnings and cash flow compared with 2022. Morningstar DBRS expects the Company's primarily natural gas-focused transmission and storage assets to benefit from expected growth in liquefied natural gas exports because of focus on energy security. Despite low base-case commodity price assumptions, Morningstar DBRS expects KMI to generate higher earnings and cash flows as a result of its STX Midstream (STX) acquisition's full-year results (the acquisition closed in December 2023). Capital expenditures (capex) and dividends were self-funded in 2023, and the Company's STX acquisition for $1.82 billion was funded through cash and short-term borrowings. Despite that, the Company was within its leverage target range of net debt-to-adjusted EBITDA of 3.5 times (x) to 4.5x (YE2023: 4.2x).

KMI's 2024 growth capex are primarily focused on low-carbon opportunities in the pipelines and terminals segments, capacity expansions, and other energy transition initiatives. While higher interest rates have increased debt servicing costs for the Company, Morningstar DBRS expects the Company to maintain its leverage ratio within its target and expects key credit metrics to remain supportive of the credit rating. Morningstar DBRS considers the Company’s liquidity to be adequate. KMI's credit rating is based on a consolidated approach as, substantially, all of the Company’s wholly owned domestic subsidiaries are parties to an irrevocable and unconditional cross-guarantee agreement.

CREDIT RATING DRIVERS
A positive credit rating action could be considered should KMI consistently maintain its lease-adjusted cash flow-to-debt ratio around 17.5% and should its leverage ratio trend toward the lower end of its target range while pursuing a conservative funding strategy. Although unlikely, the credit rating could be downgraded because of adverse regulatory changes; a rise in counterparty, volume, and commodity risks; and weakened credit metrics to a level that is inconsistent with the Company's BBB credit rating.

EARNINGS OUTLOOK
EBITDA for 2024 is expected to be 8% higher compared with 2023 based on KMI's 2024 budget guidance. The expected EBITDA growth is mainly attributable to the full-year impact of the Company’s STX acquisition, which closed in December 2023, and related synergies combined with other expansion projects completed in 2023.

FINANCIAL OUTLOOK
Morningstar DBRS expects the Company to manage its balance sheet prudently and maintain credit metrics consistent with the current credit rating. Morningstar DBRS believes that the Company will fund its discretionary capex and dividend outlay from its cash flows and maintain its leverage in its target range of 3.5x to 4.5x.

CREDIT RATING RATIONALE
The credit rating is underpinned by KMI's relatively stable cash flow generated from well-diversified, fee-based energy transportation and storage assets. KMI's assets are difficult to replicate and connect major resource basins to demand centres and export markets. The Stable trend reflects Morningstar DBRS' expectation that the Company will continue to maintain a prudent financial policy and fund its capex and shareholder distributions through its cash flows, thus maintaining its leverage ratio well within its revised target range of 3.5x to 4.5x (previously 4.5x).

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) at https://dbrs.morningstar.com/research/427030.

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of BRA Factors
In the analysis of KMI, the BRA factors were considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of KMI, the following FRA factors listed in the Pipeline and Midstream Energy Industry are considered more important, Cash flow-to-debt and EBIT Interest Coverage.

(C) Weighting of the BRA and the FRA
In the analysis of KMI, the BRA carries greater weight than the FRA.

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

Morningstar DBRS applied the following principal methodology:
-- Global Methodology for Rating Companies in the Pipeline and Midstream Energy Industry (April 15, 2024), https://dbrs.morningstar.com/research/431181

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (April 15, 2024), https://dbrs.morningstar.com/research/431186, which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following criteria has also been applied:
Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024) https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria:-approach-to-environmental,-social,-and-governance-risk-factors-in-credit-ratings

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

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@morningstar.com.

The credit rating was not initiated at the request of the rated entity.

The rated entity or its related entities did not participate in the credit rating process for this credit rating action.

Morningstar DBRS did not have access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is an unsolicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

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

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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