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KinderMorgan set for market return...
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FINCEN
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Joined: 08 Mar 2006
Posts: 1351

PostPosted: Wed Jan 26, 2011 11:04 pm    Post subject: KinderMorgan set for market return... Reply with quote

KinderMorgan's Richard Kinder is set to offload the mountain of debt he hid when he took 1/3rd of his master limited partnership private in 2007. Fitch has assigned a 'BB+ rating to Kinder's Kinder Morgan Finance Company as Kinder eyes a $600 million offering of seven-year senior notes. The proceeds will be used to pay down Kinder Morgan Finance's outstanding notes ($750 million at 5.35%) that came due on January 5th. It is worth noting Richard Kinder is the architect of the Enron stock shift and KinderMorgan was born out of a financial package he structured for himself that allowed him to purchase a specific set of Enron assets as he left the building. All of the key figures involved in the dealings at Enron were put in place by Richard Kinder and the only thing that saved us from witnessing a command performance of the Enron debacle was Kinder's ability to raise the financing needed to take that portion of his venture off the market.

"Before any well is drilled or pipeline is constructed, a group is assembled to create an economic model for the project to determine the economic feasibility." When the analyst of KinderMorgan looked closely at the manner in which the company had been constructed "the sirens started blaring." The basic problem was described as such.

The LP was putting up most of the capital, but the GP was getting half of the cash flow right off the top...That is a huge burden and our initial thought was it would be impossible for the LP to make a decent return on any investment subject to this burden...It 'is' almost impossible for the LP to make a profit on any new expansion project. For the LP to break even...cover overheard, the cost of capital and maintain the current dividend yield, any new expansion capital project needed...a 30%+ annual return." This only "possible for a pure oil company developing new fields, but it is unheard of for a pipeline/terminal company operating capital intensive CO2 floods in the Permian Basin...The GP could make a huge profit even if the LP was losing money. Rather than aligning the LP and GP's interests, this created a huge incentive for the GP to engage in projects the LP would be better off passing on."

To fully understand the brilliance and complexity of this scheme, one must first go back to 1996 when Kinder left Enron and started his own company using 'what was then' a relatively unknown Master Limited Partnership business structure. This was a key improvement upon the Enron scam he'd overseen previously. As the MLP trailblazer, Kinder enjoyed a blank slate to create the precedents and norms associated with the structure today. And so it is that he inserted the tools he would need to turn the rather benign tax advantage business structure into a massive investment scam. As it was under the MPL structure, Kinder was able to exploit all the tax benefits of a limited partnership while maintaining the liquidity of a publicly traded security.

The government taxed the partnership at the lower personal income level rather than at the higher corporate tax rate, and then again at the personal level when the LP paid dividends or capital gains. As it was structured Kinder's GP held a 2% interest in the partnership which ran the business while the LP held the remaining 98%. Here is the kicker. The income in the partnership is not shared equally as the GP with a 2% stake received Incentive Distributions Rights that provided them the right to claim 40% of distributable cash. Therefore the 98% GP was the publicly traded vehicle that Kinder took private using the cash he squired away as the primary owner of the LP. For years that was a major part of the allure of KinderMorgan, it paid huge dividends but few if any noticed those dividends went back to Richard Kinder. In fact there were a number of articles that praised Kinder as a progressive force in business and compared him favorably to his old team back at Enron. They ignored this connection in favor of trumping the $1 a year salary he paid himself. They ignored the Golden handshake that allowed Kinder to launch this scam to begin with along with the connections to the Brown family, the founders of Haliburton.

It thought this would be worth watching as the market seems poised to pick right up where it left off only this time what investors will be purchasing is the debt many of these MLP's, Hedge Funds and Private Equity firms have been allowed to hide. This promises to be cause of the next great collapse unless something is done. In essence rules, laws or whatever vehicles need to be implemented to prevent a repeat of the market collapse.
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FINCEN
Administrative Assassin


Joined: 08 Mar 2006
Posts: 1351

PostPosted: Sat Feb 05, 2011 1:22 pm    Post subject: KinderMorgan return of the 3 headed debt monster Reply with quote

Kinder Morgan Inc's., $2 billion IPO is set for February 11. It is interesting that C. Park Shaffer has been the designated mouthpiece as the debt heavy company prepares to raise funds to pay down some of their senior secured notes through market investors. It should be noted that Kinder Morgan's 1 year net income fell from $583.4 million during the first 9 months of 2009 to $133.4 million over the same time span in 2010. Market analysts are choosing to focus on the companies revenue which rose to $6.24 billion from $5.24 billion during the same time span. Presently the company lists 29 billion in assets against $11.7 billion in debt. A large portion of Kinder Morgan's debt were financed with variable rates which make them vulnerable to interest rate increases. With the inevitable rate hikes looming, it would seem as though Kinder Morgan is a bad bet for anyone not named Kinder.
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