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Kinder, Brookfield Infrastructure Boosting NGPL Stake

Kinder Morgan Inc. (KMI) and Brookfield Infrastructure Partners LP have agreed to pay $242 million for the 53% equity interest in Natural Gas Pipeline Company of America LLC that they don't already own.

The deal is with Myria Holdings Inc. KMI will pay $136 million and increase its ownership interest from 20% to 50%. Brookfield Infrastructure will pay $106 million and increase its ownership from 27% to 50%. The transaction puts a total enterprise value of $3.4 billion, including debt, on NGPL.

The pipeline, which is operated by KMI, is one of the largest interstate systems in the country with 9,200 miles of pipeline, more than 1 million hp of compressor facilities and 288 Bcf of working gas storage.

"This partnership ensures that NGPL is positioned to take full advantage of future opportunities to provide natural gas transportation and storage services to its current and future customers," said KMI CEO Steve Kean.

The deal is expected to close later this year and is subject to customary conditions, including regulatory approval. KMI will continue to operate NGPL and expects that the transaction will be immediately accretive to cash available to pay dividends.

NGPL has binding agreements with four customers for incremental firm service on its Gulf Coast mainline system from the interconnection with Tallgrass Energy Partners LP’s Rockies Express Pipeline in Moultrie County, IL, to points north on NGPL's system. These commitments will support the first phase of the pipeline's Chicago Market Expansion, which would increase capacity by 238,000 Dth/d and provide service to markets near Chicago, according to KMI. Pending regulatory approval, the project is expected to be in service in November 2016. 

Standard & Poor's Ratings Services (S&P) said its ratings and outlooks on KMI and NGPL PipeCo LLC were unaffected by the deal.

"Although we note that the transaction may help alleviate some of the issuer's [NGPL PipeCo] more immediate liquidity concerns, we are not yet certain of the long-term strategic importance of NGPL to either of its sponsors, or whether the acquisition could result in operational or financial improvements that lead to a better standalone credit profile, and, consequently, rating," S&P said.

NGPL earnings have suffered due to changes in pricing dynamics over the past few years, S&P said, "...resulting in persistently weak financial measures and strained liquidity." The ratings agency noted a recent contract to supply natural gas to Cheniere Energy's Corpus Christi liquified natural gas facility [see Daily GPI, Sept. 10] and said that "should improve" earnings before interest, taxes, depreciation and amortization (EBITDA). S&P has a "CCC-" corporate credit rating and "negative" outlook on NGPL PipeCo.

Fitch Ratings said the transaction was credit neutral for KMI. It "...believes the deal does not materially impact KMI's credit profile in the near term. The multiple being paid for the increased interest in NGPL is reasonable, with the transaction valuing the pipeline at roughly 10x 2016 EBITDA (inclusive of NGPL debt). Fitch does not expect its KMI base case credit metrics to change materially as a result of the transaction."

NGPL’s mainlines from the Gulf Coast and the Midcontinent to Chicago in recent years have had to compete with increasing volumes of gas coming from the Marcellus and Utica shale plays.

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