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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: bruwin who wrote (53672)	4/2/2014 9:44:05 PM
From: Spekulatius	Read Replies (1) \| Respond to of 78704

bruwin, you are right about the interest cost being substantial. In 2013, operating income was ~4B$, while interest cost was 1.675B$ or roughly 42%. What is important to remember is that KMI (consolidated) has ~34B$ of debt (25B$ of that with the limited partners EPB and KMP) and pays. 1.675$ in interest or less than 5%. This is way less than EPB's, KMR or KMP's distribution yield or KMI pretax earnings yield. KMI would loose substantial earnings power, if they would issue equity of whatever flavor instead if debt. KMI goal is to issue as little equity in terms of LP partner units as necessary to sustain investment grade bond ratings, and no equity of KMI whatsoever. This way, the GP KMI can grow cash flow without capital outlay whatsoever. As E_K_S pointed out, KMI had to issue KMI units to get the EP merger done, because EP's management asked for it, knowing very well, that the GP is where the money is made. However, all the ongoing organic Capex expansions are paid for with a combination of LP units and debt. KMI get's the "free" ride in terms of IDR cash flows.