Business Context and Reporting Period
This Form 8-K filing by Kinder Morgan, Inc. (dated February 16, 2012, reporting events from February 10, 2012) details the entry into material definitive agreements to finance the proposed acquisition of El Paso Corporation. The filing outlines the restructuring of existing credit facilities and the establishment of new acquisition debt to fund the cash consideration and related expenses for the merger.
Key Financial Metrics and Debt Structure
The filing establishes significant new debt obligations and modifies existing facilities. Specific revenue, profit, or cash flow metrics for the reporting period are not provided in this document.
- Amended and Restated Credit Facility: An amendment to the existing $1.0 billion revolving credit facility, increased by a $750 million incremental joinder, totaling $1.75 billion in commitments.
- Acquisition Credit Facility: A new facility comprising a $6.8 billion 364-day facility and a $5.0 billion 3-year term loan facility, totaling $11.8 billion.
- Interest Rates:
- Revolving and 364-day loans: LIBOR + 2.50% to 4.25% or Base Rate + 1.50% to 3.25% (based on debt rating).
- 3-year term loans: LIBOR + 3.00% to 4.75% or Base Rate + 2.00% to 3.75% (based on debt rating).
- Fees: Ticking fees of 0.25% to 0.50% per annum on outstanding commitments until closing. Duration fees on the 364-day facility range from 0.50% to 1.75% depending on the timing of repayment.
- Collateral: Obligations are secured by liens on assets and pledges of capital stock of Kinder Morgan's restricted subsidiaries and, upon closing, 100% of El Paso's capital stock.
Material Changes and Covenants
The primary material change is the creation of the "Financing Documentation" to support the El Paso acquisition. Key structural changes include:
- Financial Maintenance Covenant: Commencing with the fourth full fiscal quarter following the closing date, Kinder Morgan must maintain a maximum leverage ratio of 6.00 to 1.0.
- Mandatory Prepayments: The company must apply 100% of net cash proceeds from debt issuances, equity issuances, and asset sales to prepay the Acquisition Credit Facility.
- Amortization: The 3-year term loan requires repayments of $500 million at 18, 24, and 30 months post-closing, with the remainder due at the third anniversary.
- Expiration: The final termination date for the availability of the Acquisition Credit Facility is June 30, 2012, extendable to December 31, 2012, subject to fees.
Outlook, Risks, and Contingencies
The effectiveness of the new credit facilities is contingent upon the consummation of the El Paso acquisition. The filing highlights several risks and conditions:
- Conditions Precedent: Lenders' obligations are subject to the accuracy of representations, the termination of El Paso's existing credit facility, and the absence of defaults under material indebtedness.
- Forward-Looking Risks: Risks include the ability to obtain regulatory and shareholder approvals, financing availability, integration challenges, and market conditions affecting energy prices and credit markets.
- Events of Default: Include non-payment, breach of covenants, cross-defaults, change in control, bankruptcy, and failure to consummate the acquisition.
Investor Verification Checklist
- Verify the status of the El Paso Corporation merger approval from shareholders and regulators.
- Confirm the final debt rating of Kinder Morgan to determine the specific interest rate margins applicable to the new facilities.
- Review the definitive Information Statement/Proxy Statement filed on Form S-4 for detailed transaction terms.
- Monitor the June 30, 2012 "Outside Date" for the availability of the Acquisition Credit Facility.
- Assess the impact of the 6.00 to 1.0 leverage ratio covenant on future capital flexibility post-closing.