Kinder Morgan Energy Partners LP (KMP) is acquiring 100% of Tennessee Gas Pipeline (TGP) and a 50% interest in El Paso Natural Gas (EPNG) pipeline from Kinder Morgan Inc. (KMI) for $6.22 billion.

The deal includes about $1.8 billion in assumed debt at TGP and $560 million of proportional debt at EPNG. KMP said previously that KMI would offer to sell (drop down) the assets to KMP to more than replace cash flow from certain assets KMP is divesting pursuant to an agreement KMI reached with the Federal Trade Commission in order to complete its $38 billion acquisition of El Paso Corp. (see Daily GPI, April 20, May 25). The deal is expected to close this month and be effective Aug. 1.

KMP expects to complete the divestiture process during the third quarter. It is anticipated that the combination of the divestitures and the dropdowns will be "slightly" accretive to KMP's distributable cash flow in 2012 and "nicely" accretive thereafter.

"TGP serves the Northeast and has access to the growing Marcellus and Utica shale plays, while EPNG serves much of the West, including southern California, Arizona and northern Mexico," said Kinder Morgan CEO Richard Kinder. "A number of expansion projects are already under way on both of these pipeline systems, and we are pursuing additional opportunities."

KMP is purchasing the assets at about eight times 2012 earnings before interest, taxes, depreciation and amortization (EBITDA)and said it expects that the purchase price will be an even lower multiple of 2013 EBITDA, given the full-year benefit of cost savings and expansion projects. KMP plans to fund 10% of the transaction value, net of debt assumed, with KMP units that will be issued to KMI at closing valued at $387 million. The remaining value is expected to be funded with borrowings under a new $2 billion credit facility, and equity and debt issuances.

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