Lots and Lots of Action in the Kinders (KMP, KMI, KMR)

Today looks to be a busy one for the Kinder Morgan family of companies. Kinder Morgan Energy Partners L.P. (NYSE: KMP) has announced that it will acquire the Tennessee Gas Pipeline and other assets from Kinder Morgan Inc. (NYSE: KMI), and Kinder Morgan Management LLC (NYSE: KMR) will issue 8.8 million shares at a price to be determined.

First, KMP will pay KMI $6.22 billion for a 100% interest in the Tennessee Gas Pipeline and a 50% interest in the El Paso Natural Gas Pipeline. The deal includes about $2.36 billion in debt from the two pipelines. The sale is known as a “drop down” and replaces assets that KMP was required to divest in order to complete its acquisition of El Paso Corp. The financing works like this:

KMP plans to fund 10 percent of the transaction value, net of debt assumed, with KMP units that will be issued to KMI at closing valued at approximately $387 million. The remaining value is expected to be funded with borrowings under a new $2.0 billion credit facility, and equity and debt issuances. Any issuances of equity or debt post closing of this transaction, as well as proceeds from the assets to be divested that were noted above, will be used to repay the credit facility. KMI intends to use the proceeds from the drop-down sales to reduce debt.

Second, KMR plans to issue 8.8 million shares at price still to be determined and will use the proceeds to purchase “a corresponding number of i-units” from KMP, which will use the proceeds to of the i-unit sale to KMR to pay a portion of KMP’s $6.22 billion acquisition. KMR’s shares currently trade at around $74 a share, which would yield gross proceeds of about $650 million.

Shares of KMR are trading down about 2.6% this morning, while shares of KMP are down about 0.5% and shares of KMI are up about 0.5%, but volumes are quite light.

Paul Ausick