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ArcLight Taking 25% Stake in NGPL for $830M
A fund controlled by ArcLight Capital Partners LLC has taken a minority stake in the largest natural gas pipeline serving the high-demand Chicago-area market, as well as liquefied natural gas (LNG) export terminals along the Gulf Coast.
Kinder Morgan Inc. (KMI) and Brookfield Infrastructure Partners LP on Tuesday said they agreed to sell a 25% interest in Natural Gas Pipeline Company of America LLC (NGPL) to the ArcLight fund for $830 million. The proceeds would be split between KMI and Brookfield.
“We believe this investment shows the value of natural gas infrastructure both today and in the decades to come,” said Kinder Morgan’s Tom Martin, president of Natural Gas Pipelines.
The value of the minority interest implies an enterprise value of around $5.2 billion for NGPL. Upon closing, KMI and Brookfield each would hold a 37.5% interest; KMI would continue to be the operator. Completion of the deal is set by the end of March.
KMI in December brought online the second phase of NGPL’s Gulf Coast Southbound expansion project ahead of schedule, which increased southbound capacity by around 300,000 Dth/d. The NGPL conduit serves Cheniere Energy Inc.’s Corpus Christi Liquefaction export facility in South Texas. The entire project is expected to be placed into service by the end of March.
In 2018, NGPL secured regulatory approval to begin service on the first phase of the Gulf Coast Southbound, which added 460,000 Dth/d of capacity on the Gulf Coast Mainline System.
NGPL has around 9,100 miles of pipeline, more than 1 million hp compression and 288 Bcf of working storage.
Tudor, Pickering, Holt & Co. (TPH) analysts said NGPL’s valuation represents a “sizeable premium” to recent comparable transactions, including TC Energy Corp.’s roll-up offer to TC Pipelines LP unitholders and Berkshire Hathaway Inc.’s acquisition of Dominion Energy’s transportation and storage assets. Analysts said the premium is likely attributable in part to the demand-oriented counterparty list and geographic position serving the Chicago market with north-south integration to Gulf Coast LNG facilities.
After paying down leverage-neutral debt of around $170 million, KMI would have $245 million remaining, according to TPH. The proceeds may be used to reduce debt further, but analysts noted that KMI has shown a willingness to repurchase shares.
RBC Capital Markets served NGPL as financial adviser for the transaction, with King and Spalding as the legal adviser. Barclays served as the financial adviser to ArcLight and has provided a committed debt financing to support the transaction. ArcLight’s legal adviser was Latham & Watkins LLP.
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