Moody’s forecasts post-restructuring Kinder Morgan debt rating

HOUSTON — Kinder Morgan’s restructuring after a $44 billion buyout of its family companies will leave the new company just above an investment-grade debt rating, Moody’s Investors Service said.

Before the merger, two companies in the Houston-based Kinder Morgan family carried junk ratings while one was designated investment grade. The new pipeline company will be rated Baa3, one step into Moody’s Investor Services’ investment-grade ratings tier, on the strength of its large holdings and reliable cash flows.

However, the new Kinder Morgan would be positioned near the bottom of the Baa3 rating due to its aggressive dividend policy that limits financial flexibility, and its plans to retain relatively steep leverage compared to others in the sector, Moody’s reported.

Kinder Morgan’s debt received Moody’s marks comparable to those of industry peers Oneok and The Williams Cos. and placed below  TransCanada Corp. and Enterprise Products Partners. The Kinder Morgan rating affects $34 billion in debt, said Stuart Miller, senior credit officer at Moody’s.

Moody’s issued a preliminary statement on Aug. 11 saying it expected the consolidated Kinder Morgan to end up at an investment grade. It issued its full report on Monday. The designation is subject to review as the merger is completed, the rating agency said.

The investment-grade rating makes it easier for a company to access capital. In an Aug. 10 press release announcing the $44 billion mega-merger Kinder Morgan said it expected to receive an investment-grade designation.

In the merger, Kinder Morgan Inc. acquired Kinder Morgan Energy Partners LP, Kinder Morgan Management LLC and El Paso Pipeline Partners LP.

The Big Deal: Kinder Morgan to unite a house divided in $44 billion deal

Moody’s had previously rated El Paso Pipeline Partners at Ba1 and Kinder Morgan Inc. at Ba2, respectively one and two notches  below the Baa3 rating assigned the new combined company. Kinder Morgan Energy Partners was previously rated Baa2, one notch above where Moody’s is placing the combined entity.

The restructuring will create a much simpler structure with just one publicly traded entity, Miller said.

“What Kinder will have at the end of the day is a simplified structure and one company stock that they can use to make acquisitions with,” Miller said.