Kinder Morgan Energy Partners, L.P.
) plans to acquire stakes of Tennessee Gas Pipeline (TGP) as well
as El Paso Natural Gas (EPNG) from its parent company
Kinder Morgan Inc.
). This is part of Kinder Morgan Inc.'s acquisition of El Paso
Corp. that entails the divestiture of three U.S. natural gas
KINDER MORGAN (KMI): Free Stock Analysis Report
KINDER MORG ENG (KMP): Free Stock Analysis
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Per the deal, the partnership will receive 100% of TGP and 50% of
EPNG for a total consideration of $6.22 billion. The transaction
amount includes an assumed debt of about $1.8 billion at TGP and
about $560 million of proportional debt at EPNG.
In May, KMI completed the acquisition of El Paso Corporation for a
total $38 billion, including the $17 billion outstanding debt of El
Paso and its subsidiaries. The acquisition created the largest
natural gas pipeline system in North America, providing a boost to
KMI's standing as a major midstream operator in the U.S.
In conjunction with this acquisition, KMI was entitled to sell
these assets to KMP to replace cash flow from certain assets that
KMP has sold as part of an agreement with the Federal Trade
The latest deal − which is expected to close this month − will
generate substantial stable cash flow to KMP and its unitholders
for the future. The partnership intends to fund 10% of the
transaction value through units to KMI − valued at $387 million.
The remaining value will likely be financed through borrowings
under a new $2.0 billion credit facility and equity or debt
The to-be-acquired properties include the 13,900 mile TGP pipeline
system that has a capacity of about 7.5 billion cubic feet (Bcf)
per day. The line ships natural gas from Louisiana, the Gulf of
Mexico and south Texas to the northeastern U.S., including the
metropolitan areas of New York City and Boston.
EPNG is 10,200 miles long with a design capacity of about 5.6 Bcf
per day. This line transports natural gas from the San Juan,
Permian and Anadarko basins to California, other western states,
Texas and northern Mexico. Together, the pipelines possess more
than 200 Bcf of natural gas storage capacity.
For the long term, we maintain our Neutral recommendation for KMP
and Underperform recommendation for KMI.