Goodbye Kinder Morgan

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Includes: KMI, KMP, KMR
by: Kurt Wulff

Financial risk increases for sell-recommended Kinder Morgan Energy Partners (NYSE:KMP) and Kinder Morgan Management LLC (NYSE:KMR) when general partner Kinder Morgan Inc. (NYSE:KMI) possibly ceases to exist as a publicly traded equity within the next two months. Highly leveraged KMI takes on more debt to buy out public shareholders. In addition to high financial risk, KMP and KMI have high valuation risk considering that the general partner has a hidden equity interest of at least 43% that is disguised on the partnership balance sheet.

The ruse fools Bloomberg, for example, which presents KMP as a reasonably priced stock at around seven times EBITDA rather than as a high-priced stock at a double digit unlevered cash flow multiple. The partnership has ambitious projects that may require an accelerated pace of funding that may be difficult to achieve if investors and lenders scrutinize the partnership’s financial position more carefully. The artificial nature of the quarterly results reported on January 17 is further illustrated by the general partner supporting the otherwise disappointing financial performance of the partnership by paying about $20 million in bonuses to partnership employees.

KMI vs. KMP vs. KMR 1-yr chart:

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Tagged: , Oil & Gas Pipelines
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