On Saturday October 31 we posted ""Kinder Morgan Could Fall Another 20% or More" (KMI)".
I'm going to re-post our introduction to that piece after the jump. You'll see why in a few seconds
Here's today's link, from FT Alphaville:
Kinder Morgan’s flirtation with junk status
One to watch in the next few weeks — Kinder Morgan, as the energy company approaches junk status:
A few quick things to note.
As Bloomberg’s Joe Carroll pointed out this week, billionaire (and former Enron-er) Rich Kinder owned about 11 per cent of Kinder Morgan when he stepped down as chief exec in June this year. That stake was worth about $10bn back then. It’s now worth at least $5bn less.
So what’s going on here?
MLPs have been in the doldrums for a while. Interest-rate tightening doesn’t sit well with structures designed to turn up-front capital burdens into capital release programmes, permitting continued growth and capex spending, in exchange for long-term cashflows to unit-holding investors.
But Kinder Morgan cunningly changed its structure when it acquired itself in August 2014.
As a whole, the deal was widely applauded by the market.
But things didn’t sit all that well with one analyst. Hedgeye’s Kevin Kaiser, who has been warning investors about the company’s inherent complexity and poor capital structure — including its incentive to underspend on maintenance — for a good few years now. He has also questioned the logic of valuing the company based upon its dividend/distribution capability alone.
In a note on Tuesday, Kaiser questioned the logic of Kinder Morgan’s decision to acquire an additional 30 per cent equity interest in highly indebted Natural Gas Pipeline Company of America (NGPL) for $136m cash, taking its total equity interest in the pipeline to 50 per cent.One line that stands out in the above, "As a whole, the deal was widely applauded by the market.", is pretty funny if you've followed this profitable little saga. Re-reading her posts from around the time of the partnership rollups, Ms. Kaminska actually seemed to take all the shenanigans as a personal affront.
As he commented, it’s a mysterious deal because the entity isn’t obviously cash-flow positive:...MORE
She was definitely not applauding.
Here the intro to "...Fall another 20%" with the links:
If you are a shareholder you may have heard the nonsense from management "We are insulated from commodity prices" and"our revenue is fee-based" blah blah. Taint so.And yes, using that Oct. 30 close of $27.35, the stock has blown past the 20% mark and gotten deep into "or more" territory, off 29.58% in those five weeks.
And just to show I'm no hater-come-lately...
On August 11, 2014 we relayed the news of the roll-up of the partnerships into the corp. with the note, "more to come", and boy was there.
On August 12 FT Alphaville's David Keohane directed our attention to Bloomberg's Matt Levine and "Pipeline Giant Reverse-Engineers Itself $12 Billion" which we linked to in the less politely titled "Kinder Morgan Creates Money Out of Thin Air"
That same day Alphaville's Izabella Kaminska was even more blunt with "On the art of creating value from nothing". which we linked to in "Asking the Right Question About the Kinder Morgan Deal: Why Now? (KMI)"
Mr. Levine went on to other rides in the parc d'attractions of high finance but Ms. Kaminska came back on the 18th with "Kinder Morgan, MLPs and the sell case" which we combined with the Barron's piece "Tax Breaks -- For Whom?", the Feb. 2014 Barron's piece "Kinder Morgan: Trouble in the Pipelines?" and KMI's response to the earlier Barron's piece into the linkwrap "The "Kinder Morgan Is a House of Cards" Theory and the Pros and Cons of Going Short (KMI)".
Good times.
The stock bounced around $41 the week the roll-up was announced and closed yesterday at $27.35 up 15 cents and up another nickel in after-hours trading.
For what it's worth it appears all the pair trade jockeying (short common/buy new issue prf.) with the new financing (link below) has been accomplished and the wee beasties should trade on fear/greed and fundamentals once again....
Probably time for a bounce.
