The management-led buyout of Kinder Morgan Inc. (KMI) has closed, the company said Wednesday. Trading of KMI's common stock on the New York Stock Exchange will be suspended and KMI will take steps to delist the shares from the exchange.

The deal was led by CEO Richard D. Kinder. Additional investors include other senior members of KMI management, co-founder Bill Morgan, board members Fayez Sarofim and Mike Morgan and affiliates of Goldman Sachs Capital Partners, American International Group, Inc. and certain affiliates (principally AIG Financial Products and AIG Highstar Capital), The Carlyle Group and Riverstone Holdings LLC.

Under the terms of the merger agreement, following the closing of the merger, KMI stockholders (other than Knight Holdco LLC, Knight Acquisition Co., subsidiaries of KMI, stockholders who have perfected their appraisal rights under Kansas law and stockholders defined in the KMI merger proxy statement as Rollover Investors) will receive $107.50 in cash, without interest, for each share of KMI common stock held. This represents a premium of approximately 27% over $84.41, the closing price of KMI stock on Friday, May 26, 2006, the last trading day before the investor group made its proposal to take the company private.

Stockholders who possess stock certificates will receive instructions and a letter of transmittal from Computershare, the paying agent, concerning how and where to forward their certificates for payment. For shares held in "street name" by a broker, bank or other nominee, stockholders do not need to take any action to have shares converted to cash, as this will be done by the broker, bank or other nominee.

The deal was announced one year ago (see Daily GPI, May 31, 2006). Kinder will continue as CEO and chairman and has said he will reinvest all of his 24 million shares in the company.

Last week Standard & Poor's Ratings Services (S&P) assigned its "BB-" bank loan rating and "3" recovery rating to KMI's $7.3 billion credit facilities based upon preliminary terms and conditions. The recovery rating of 3 reflects the expectation of "meaningful" (50-80%) recovery of principal in the event of payment default, S&P said.

"The ratings on KMI reflect the significant debt leverage that is being taken on in a management-led buyout of the company's public shareholders," S&P analyst Todd Shipman said. "An aggressive plan to delever, which has already been largely implemented...helps to maintain credit quality in the face of the considerable risk inherent in the transaction."

In January S&P lowered its long-term corporate credit rating on KMI to "BB-" from "BBB." At the same time S&P withdrew its "A-2" short-term corporate credit and commercial paper ratings on the company. KMI's ratings were removed from CreditWatch. They had been placed on CreditWatch following the announcement of the management-led buyout.

"The significant increase in debt that KMI will issue at closing to fund the buyout will drop the credit profile well into the speculative grade area," Shipman said in January. "The MLP [master limited partnership, Kinder Morgan Energy Partners] is also affected by the transaction due to its close ties with KMI, but management will be taking steps to insulate the partnership and preserve its investment-grade rating and the 'A-2' commercial paper rating."

Last week Standard & Poor's said MEMC Electronic Materials Inc., which makes wafers for the semiconductor industry, would replace KMI in the S&P 500 index.

In April KMI completed the sale of its U.S. natural gas retail distribution and related operations to GE Energy Financial Services and Alinda Investments LLC for $710 million plus working capital (see Daily GPI, Aug. 15, 2006). The operations serve more than 260,000 residential, commercial, agricultural and industrial customers in Colorado, Nebraska, Wyoming and Hermosillo, Mexico through more than 11,900 miles of transmission and distribution pipelines, underground storage fields and related facilities.

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