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S&P upgrades Kinder Morgan on Trans Mountain sale, self-funding commitment

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S&P upgrades Kinder Morgan on Trans Mountain sale, self-funding commitment

S&P Global Ratings upgraded Kinder Morgan Inc.'s corporate credit rating, citing the gas pipeline giant's decision to use the $2 billion of proceeds from the sale of a beleaguered Canadian project for debt repayment.

The agency on Jan. 7 elevated Kinder Morgan's issuer rating from BBB- to BBB two notches above junk — with a stable outlook to reflect the company's "continued focus on strengthening its balance sheet and management's self-funding strategy," underpinned by cash received from subsidiary Kinder Morgan Canada Ltd.'s sale of the C$7.4 billion Trans Mountain Expansion to the Canadian government in 2018 amid court challenges and intergovernmental disputes.

Kinder Morgan is one of several midstream companies that have pivoted toward keeping more cash on hand in order to avoid high public equity costs.

S&P Global Ratings analysts estimated that Kinder Morgan's 2019 adjusted-debt-to-EBITDA ratio will be about 5x as it maintains a laser focus on natural gas transportation projects such as the 1.98-Bcf/d Gulf Coast Express pipeline from the Waha Hub and other Permian Basin points in West Texas to the Agua Dulce hub near the Gulf Coast, as well as the 2-Bcf/d Permian Highway pipeline from Katy, Texas, to Texas Gulf Coast markets.

"We expect that [Kinder Morgan's] attention will continue to be focused on natural gas transportation projects and other projects with similar risk profiles, such as [Elba Island LNG], rather than its higher-risk gathering and processing and enhanced oil recovery businesses," they wrote in a Jan. 7 note to clients.

The company could face a downgrade if its leverage ratio approaches 5.5x or if it unable to self-fund most of its capital growth, the analysts said.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global Inc. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here.