Business Context and Reporting Period
Company: Kinder Morgan, Inc. (KMI)
Filing Type: Form 8-K (Current Report)
Date of Report: September 19, 2014
Event: Entry into Material Definitive Agreements (Bridge Facility and Revolving Credit Facility) to finance the proposed acquisitions of Kinder Morgan Management, LLC (KMR), Kinder Morgan Energy Partners, L.P. (KMP), and El Paso Pipeline Partners, L.P. (EPB).
Key Financial Metrics and Facility Terms
This filing details the terms of new credit facilities rather than historical operating results. Key financial terms include:
- Bridge Facility: Up to $5.0 billion term loan maturing 364 days after closing.
- Interest Rate: LIBOR + 1.250% to 1.750% (or Base Rate + 0.250% to 0.750%), with margins increasing by 0.25% every 90 days loans remain outstanding.
- Fees: Ticking fee (0.15% to 0.30%); Duration fee (0.50% at 90 days, 0.75% at 180 days, 1.00% at 270 days).
- Use of Proceeds: Cash consideration for Proposed Transactions, transaction costs, and refinancing existing debt.
- Revolving Credit Facility: Up to $4.0 billion (expandable to $5.0 billion) maturing five years after closing. Includes a $750.0 million letter of credit sublimit.
- Interest Rate: LIBOR + 1.125% to 2.000% (or Base Rate + 0.125% to 1.000%).
- Use of Proceeds: Working capital, general corporate purposes, and replacing prior credit facilities.
- Financial Covenants: Maximum Consolidated Net Indebtedness to Consolidated EBITDA ratio of 6.50:1.00 (Bridge Facility). The Revolving Facility allows 6.50:1.00 through Dec 31, 2017; 6.25:1.00 through Dec 31, 2018; and 6.00:1.00 thereafter.
Material Changes and Strategic Actions
The filing represents a significant restructuring of KMI's capital structure to facilitate the "Proposed Transactions" (acquisitions of KMR, KMP, and EPB). Key changes include:
- Debt Replacement: The new Revolving Credit Facility will replace KMI's existing credit agreement, the KMP Credit Agreement, and the EPB Credit Agreement.
- Guaranty Structure: Subsidiaries KMR, KMP, and EPB will guarantee KMI's obligations under both new facilities.
- Prepayment Requirements: Borrowings under the Bridge Facility must be repaid using proceeds from new debt, equity issuances (excluding transaction-related stock), or asset sales exceeding specific thresholds ($25.0 million per asset, $200.0 million aggregate).
Guidance, Risks, and Contingencies
Contingencies: Lender obligations to fund are subject to the consummation of the Proposed Transactions substantially concurrently with borrowing. Financial covenants do not apply until these conditions are satisfied.
Risks and Restrictions:
- Covenants: Restrictions on incurring additional debt, granting liens, making fundamental changes, and engaging in affiliate transactions.
- Dividends and Repurchases: Restricted if an event of default exists or would occur.
- Events of Default: Include non-payment, covenant non-compliance, bankruptcy, insolvency, and change of control.
- Forward-Looking Risks: Risks include regulatory approval, shareholder approval, realization of synergies, credit rating changes, and market conditions.
Investor Verification Checklist
- Verify the status of the "Proposed Transactions" (acquisitions of KMR, KMP, and EPB) as funding is contingent on their consummation.
- Review the upcoming Form S-4 registration statement and proxy statements for detailed transaction terms and shareholder voting requirements.
- Monitor KMI's credit rating, as interest margins and ticking fees are directly tied to the senior unsecured credit rating.
- Assess the impact of the 6.50:1.00 debt-to-EBITDA covenant on future capital flexibility and dividend sustainability.
- Confirm the timeline for refinancing the Bridge Facility, which matures within 364 days of closing.