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It’s a stable ‘BBB’ for KMI

Published by
World Pipelines,


Fitch Ratings has affirmed its 'BBB-' Issuer Default Rating (IDR) and senior unsecured ratings on Kinder Morgan, Inc. (KMI) and its subsidiaries, following KMI's announcement of its change in dividend policy. KMI will cut its dividend to focus on retaining cash to help stabilise its balance sheet and fund what remains a robust capital spending backlog. Additionally, Fitch has affirmed its 'F3' short term IDR and commercial paper (CP) rating on KMI.

The rating outlook is stable

The affirmations are reflective of the change in dividend policy reducing the need for KMI to access what has been a rather unforgiving equity market. The dividend cut helps clear up the uncertainty surrounding KMI's ability to fund its large growth-spending backlog while maintaining its intent to lower leverage to the 5.0x - 5.5x range.

The dividend cut represents a new strategic direction for KMI, which has historically paid nearly all of its internally generated cash flow to its equity investors. The shift in financial policy will allow KMI to generate significant free cash flow to help fund growth capital spending. Fitch continues to expect near-term leverage at KMI on a consolidated basis to be high, with the company projecting 2016 5.5x net debt/EBITDA, which is largely in line with expectations.

Fitch believes the dividend cut will help mitigate the risks as to KMI's ability to raise external capital without further stressing its balance sheet. The increase in retained cash flow is expected to cover all of KMI's equity and most of its debt needs for the foreseeable future.

KMI ratings

KMI's ratings reflect its position as one of the largest and most important energy companies in the US, with significant positions in must-run assets that support national energy infrastructure. The ratings are supported by KMI's significant cash flow stability, driven by the high percentage of KMI's assets being either fee-based or hedged and Fitch's expectations that KMI's high percentage of fixed fee-generating assets will minimise earnings and cash flow volatility even as oil and gas prices continue to languish and hedges roll off.

Today's rating actions reflect Fitch's consolidated ratings approach to KMI and its various subsidiaries subject to the cross-guarantee agreements among and between the Kinder Morgan entities. The cross guarantees are joint and several, absolute and unconditional, between the entities, and any refinancing of maturing notes is expected be done primarily at the KMI level over time (excepting some pipeline debt which would remain at the pipelines for rate-making purposes but remain cross guaranteed).

Edited from source by Stephanie Roker

Read the article online at: https://www.worldpipelines.com/business-news/11122015/its-a-stable-bbb-for-kmi/

 

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