A unit of banking giant Morgan Stanley said Thursday it is taking full ownership in Southern Star Central Gas Pipeline, the primary natural gas transmission and natural gas storage facility provider for several of the biggest cities and power generation providers in Kansas, Missouri and Oklahoma.

The regulated system includes close to 6,000 miles of mainline and branch transmission pipelines, with 2.4 Bcf/d of mainline delivery capacity. In addition, the extensive storage network of eight underground storage fields contains total working capacity of 47 Bcf, with aggregate delivery capacity of 1.3 Bcf/d.

Morgan Stanley Infrastructure Partners (MSIP) in March 2010 had acquired a 40% economic stake with 50% governance rights in Southern Star. The latest transaction by MSIP, for an undisclosed amount to GE Energy Financial Services Inc., would give the $4 billion global infrastructure fund 100% of the common equity in Southern Star Central Corp., the parent company of the transmission company.

"Opportunities to invest in the U.S. natural gas pipeline sector are scarce," and the transaction gives MSIP "full ownership in another regulated core infrastructure asset," said MSIP's John Veech, who is head of Americas Investing. "We have worked closely with Southern Star's seasoned management team to initiate growth projects and implement a strategic capital expenditures program" and "look forward to further building the business and continuing to provide excellent service to customers."

Southern Star serves metropolitan areas in Missouri (Kansas City, St. Louis, Springfield, St. Joseph and Joplin); Kansas (Wichita, Kansas City, Topeka and Lawrence); and Oklahoma (Oklahoma City). Gas supplies are received from producing regions that include the Hugoton, Anadarko and Rocky Mountain basins. The system has 23 interconnections with other interstate and intrastate pipelines, allowing its customers to source from additional producing basins, including the San Juan and Permian basins.

In the past two years, Southern Star "has made significant capital expenditures, including extensive maintenance and pipeline integrity projects, and steps to enhance public safety," MSIP said. "In addition, a number of growth projects have been completed or are under way, including the Elk City Storage Field Expansion, which was placed into service in April 2011 and now provides an additional 4 Bcf of storage capacity to the system" (see Daily GPI, April 28, 2011).

Southern Star CEO Jerry Morris said MSIP had been "a very strong partner, and with their support and guidance we have strategically grown our capabilities and implemented critical operational improvements across the system. Our customers should expect further enhancements to service and flexibility."

In response to the purchase, Standard & Poor's Ratings Services (S&P) affirmed Southern Star's corporate credit ratings at "BBB-" to "reflect the company's 'excellent' business risk profile and 'aggressive' financial risk profile (as our criteria define the terms)..."

"In our view, the demand-pull nature of the pipeline is positive for credit quality and partially mitigates recontracting risk," said S&P credit analyst Nora Pickens.

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