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Kinder Morgan to use $2B in proceeds from Trans Mountain sale to repay debt

The board of Kinder Morgan Canada Ltd. voted to give back its net proceeds from the sale of the Trans Mountain oil pipeline system and expansion project to shareholders, with the return of capital to holders of restricted shares estimated at about C$1.2 billion.

The C$4.5 billion Trans Mountain sale closed Aug. 31. The return of capital is equivalent to about C$11.40 per restricted voting share, for which the company plans to cut stated capital of restricted voting shares by C$1.45 billion, subject to shareholder approval.

Kinder Morgan Canada's parent Kinder Morgan Inc. said it will vote its shares in favor of the shareholder distribution plan, which will result in a distribution of about $2 billion to the Houston-based midstream giant. It plans to use the capital to reduce debt. By the end of the year, Kinder Morgan Inc.'s net debt-to-adjusted EBITDA ratio is expected to be about 4.6x.

The Canadian unit's board also approved a reverse stock split of its restricted voting shares and special voting shares, in which three shares would be consolidated into one share. Shareholders are set to vote on both proposals during a special meeting in the fourth quarter.

If shareholders consent to both proposals, the payment date for the return of capital is scheduled for Jan. 3, to be followed by the reverse stock split. It would also result in Kinder Morgan Canada paying an annual dividend of 65 Canadian cents, or 16.25 Canadian cents on a quarterly basis, for each post-reverse stock split share.

Without the earnings from Trans Mountain, Kinder Morgan Canada's remaining assets in the pipelines and terminals segments would yield an adjusted EBITDA of about C$50 million in the fourth quarter, or the first full quarter after the sale, according to Kinder Morgan Canada CFO Dax Sanders.

Kinder Morgan Inc. holds about 70% of Kinder Morgan Canada's voting shares, and the proposals require 66.67% of voting shares for them to be approved.

Executive team update

Kinder Morgan Canada named John Schlosser as the company's new president, and Adam Forman as vice president and secretary. Schlosser, who was previously the president of Kinder Morgan Canada's terminals division, will retain his position as president of terminals at Kinder Morgan Inc. Forman also serves as vice president, deputy general counsel and secretary at Kinder Morgan Inc.

Schlosser and Forman are replacing Ian Anderson and Scott Stoness, respectively. Anderson and Stoness would continue in their roles at Trans Mountain under the new ownership structure.