KMI is more akin to a utility and Buffet invests in those too, via Midamerican, so he must found it worthwhile to invest in this field, even though Midamerican does not meet the Buffet criteria.
You are correct that KMI has interest rate risk, because sharply rising interest rates would put pressure on KMI bottom line (as well as on the LP's that KMI depends on). That is alleviated by the fact that KMI has mostly financed their debt with long maturities and quite a bit of their debt coming due has fairly high interest rates (it was issued many years ago, when interest rates were way higher), so rolling over the debt will result in lower expenses in the near term.
The bigger issue is the debt cost for new projects - if that were to rise sharply, the project economics couldbe adversely affected. One should remember though, that KMI came through the 2008-2009 creditcrunch unscathed (unlike some other MLP's), so it seeks like they are doing a decent job financing their operations.
Also, there is an intrinsic hedge build into KMI business models, that higher interest rates very likely go along with higher inflation. A lot of KMI's regulated pipes have fees indexed to inflation + a small premium (~2%), so the income side will compensate for the higher debt costs. |
