Fitch Rates Kinder Morgan Energy Partners' Notes 'BBB'; Outlook Stable

NEW YORK--()--Fitch Ratings rates Kinder Morgan Energy Partners, L.P.'s (KMP) proposed $1.75 billion senior unsecured notes 'BBB'. The Rating Outlook is Stable. Net proceeds from the offering will be used to repay commercial paper and for general corporate purposes, which may include the purchase of additional membership units in subsidiary Copano Energy L.L.C. (CPNO) and the subsequent redemption or repurchase by CPNO of a portion of its outstanding 7.125% senior notes due 2021.

KEY RATING DRIVERS

Rating Rationale: KMP's rating and Stable Outlook reflect its significant and growing scale and scope of operations; geographic and functional diversity of assets; successful track record in acquiring, expanding, financing and operating energy operations; predictable earnings and cash flow generated from natural gas and refined products pipelines; and Fitch's expectation for stable credit metrics in 2013, including adjusted Debt to EBITDA of approximately 4.0 times (x) or below for the year. Moreover, recent acquisitions have been funded in a credit-neutral manner. Tennessee Gas Pipeline Co. (TGP) and El Paso Natural Gas Co. (EPNG) generate stable cash flows and, along with CPNO's midstream operations, are good fits with KMP's master limited partnership (MLP) structure. Approximately 80% of cash flows are expected to be generated under long term fee-based or similar arrangements.

KMP Remains an Active Acquirer: On Aug. 1, 2012, TGP and 50% of EPNG were dropped down to KMP from Kinder Morgan, Inc. (KMI) in a transaction valued at $6.22 billion, including about $1.8 billion in assumed debt at TGP and $560 million in proportional debt at EPNG. The remaining 50% interests in EPNG and El Paso Midstream Investment Co. that KMP didn't own were dropped down to KMP on March 1, 2013. On May 1, 2013, KMP completed its purchase of CPNO for a total purchase price of approximately $5 billion, including assumed debt. The transaction was a 100% unit for unit transaction. CPNO is a midstream natural gas company with operations primarily located in Texas, Oklahoma, and Wyoming. KMI has agreed to forego a portion of its incentive distributions related to the transactions. Future large-scale dropdowns will likely include 50% of Ruby Pipeline LLC and 50% of Citrus Corp. which owns Florida Gas Transmission. However, KMI has not determined to which MLP, KMP or El Paso Pipeline Partners, L.P., it may offer its remaining potential drop down assets.

Other considerations and credit concerns include KMI's control over KMP, exposure to interest rates on approximately $6 billion of variable rate debt, modestly negative effects of a weak U.S. economy on asset utilization, regulatory challenges and potential refunds relating to KMP's Pacific products pipelines, aggressive expansion spending, and exposure to changes in NGL and oil prices and volumes for its CO2 and midstream business segments. The financial impact of commodity price volatility is minimized through hedges which have been applied to approximately 80% of the company's expected 2013 net oil production of 37 thousand barrels per day.

Adequate Liquidity: KMP has a $2.7 billion unsecured revolving credit facility that matures in May 2018. The facility was increased in size from $2.2 billion and extended in term on May 1, 2013. KMP issues 'F2' rated commercial paper under a $2.7 billion CP program backstopped by its revolver. At June 30, 2013, KMP had $656 million of cash and $1.127 billion of borrowing capacity. CP borrowings were $1.369 billion at June 30, 2013. The revolver has a maximum debt to EBITDA ratio of 5.0x; no greater than 5.5x during an acquisition period. The bank revolver ratio of debt to EBITDA was 3.5x at Dec. 31, 2012. Future debt maturities are manageable, with $532 million debt maturing the current year, $501 million in 2014, and $300 million in 2015. KMP is also party to a reserve-based hedging facility for purposes of hedging crude oil that does not require the posting of margin.

Kinder Morgan, Inc. (KMI, IDR 'BB+' with a Stable Outlook by Fitch) is the owner of the 2% general partner and approximately 11% limited partner interests in KMP. KMI acquired El Paso Corporation (EP) in a $38 billion transaction that closed on May 24, 2012.

RATING SENSITIVITIES:

Positive: Future developments that may, individually or collectively, lead to positive rating action include:

--A lessening of consolidated business risk as the company acquires and expands pipeline and fixed-fee businesses; and

--A material improvement in credit metrics with sustained adjusted debt/EBITDA at 3.5x or below.

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:

--Increasing leverage to support organic growth and acquisitions;

--Weakening operating performance; and

--Sustained adjusted debt/EBITDA above approximately 4.25x.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology, Including Parent and Subsidiary Linkage' Aug. 18, 2012;

--'Short-Term Ratings Criteria for Non-Financial Corporates' April, 2, 2013;

--'Tax Event Risk and MLPs: Assessing a Change in Tax Law Status for MLPs' April 18, 2013;

--'Top Ten Comparisons of REITS and MLPs' April 16, 2013;

--'The Top Ten Differences Between MLP and Corporate Issuers' Feb. 19, 2013;

--'2013 Outlook: Natural Gas Pipelines and MLPs' Nov. 29, 2012;

--'2013 Outlook: Midstream Services and MLPs' Nov. 29, 2012;

--'2013 Outlook: Crude Oil and Refined Products Pipelines' Nov. 29, 2012;

--'Eagle Ford Shale Report - Economics Driving Growth' October 15, 2012;

--'Marcellus Shale Report: Midstream and Pipeline Sector Challenges and Opportunities' June 10, 2012;

--'Top Ten Questions Asked by Pipeline, Midstream, and MLP Investors' May 1, 2012;

--'Master Limited Partnerships 101' Nov. 1, 2011.

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Short-Term Ratings Criteria for Non-Financial Corporates

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685553

Tax Event Risk and MLPs: Assessing a Change in Tax Status for MLPs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=705496

Top 10 Comparisons of REITs and Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=707842

The Top Ten Differences Between MLP and Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=701812

2013 Outlook: Natural Gas Pipelines & MLPs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695939

2013 Outlook: Midstream Services and MLPs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695530

2013 Outlook: Crude Oil and Refined Products Pipelines

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696183

Eagle Ford Shale Report (Midstream and Pipeline Sector -- Economics Driving Growth)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=690640

Marcellus Shale Report: Midstream and Pipeline Sector -- Challenges/Opportunities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682755

Top Ten Questions Asked by Pipeline, Midstream and MLP Investors

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679549

Master Limited Partnerships 101

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=654538

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=798073

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Contacts

Fitch Ratings
Primary Analyst
Ralph Pellecchia
Senior Director
+1-212-908-0586
Fitch Ratings, Inc.
One State Street Plaza, New York, NY 1004
or
Secondary Analyst
Peter Molica
Director
+1-212-908-0288
or
Committee Chairperson
Mark C. Sadeghian, CFA
Senior Director
+1-312-368-2090
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
Email: brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Ralph Pellecchia
Senior Director
+1-212-908-0586
Fitch Ratings, Inc.
One State Street Plaza, New York, NY 1004
or
Secondary Analyst
Peter Molica
Director
+1-212-908-0288
or
Committee Chairperson
Mark C. Sadeghian, CFA
Senior Director
+1-312-368-2090
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
Email: brian.bertsch@fitchratings.com