Palmetto Pipeline sponsor earns good credit rating, expands in Savannah

By David Pendered

Kinder Morgan, Inc., the company that wants to build the Palmetto Pipeline project along the Savannah River and Georgia coast, has received a positive credit report from Moody’s Investors Service.

Kinder Morgan map, national

Kinder Morgan, Inc., the company that wants to build the Palmetto Pipeline along the Georgia coast, is expanding in Savannah as it grows its distribution network nationwide. Credit: kindermorgan.com

Moody’s reaffirmed KMI’s credit rating at Baa3. About $44 billion of debt is affected. The rating confers a rank of medium-grade and subject to moderate credit risk. The outlook is stable, according to a rating action released Monday.

Kinder Morgan intends to issue $1.6 billion of mandatorily convertible preferred shares, which Moody’s views as equity.

Meanwhile, Kinder Morgan has been expanding its footprint in Georgia in a project that’s not received much attention – a planned liquefied natural gas facility near Savannah.

Elba Island, located in the Savannah River a few miles east of Savannah, is home to a large LNG facility where KMI and Shell had partnered to build an additional LNG facility.

The first LNG facility on Elba Island was built in 1978 by a subsidiary of a company KMI acquired in November 2014. The LNG terminal covers 140 acres of the 840 acres on the private island.

KMI owned 51 percent of the joint venture with Shell and agreed in July to purchase the 49 percent owned by Shell, according to a KMI statement issued in July. Terms were not released.

Construction on the LNG facility was slated to begin as early as the fourth quarter of 2015, depending on regulatory approvals, KMI said in the July statement. The facility is to produce 2.5 million tons a year of LNG for export. That’s equivalent to about 350,000 million cubic feet per day of natural gas.

Although the Palmetto Pipeline project has fallen from widespread public discussion, that situation is likely to change soon.

Palmetto Project map

The proposed Palmetto Pipeline would provide a pipeline from a fuel trunk line in South Carolina through North Augusta, S.C., Savannah, Brunswick, and Jacksonville, Fla. File/Credit: Kinder Morgan

As soon as Nov. 13, KMI could be in Fulton County Superior Court, arguing its case for a judge to overturn a ruling by the Georgia Department of Transportation. GDOT refused in May to grant KMI a certificate of public need, which the company will need if it is to be able to condemn any of the 400 or so parcels of land it needs to bury the pipeline.

Fulton County Superior Court Judge Kimberly M. Esmond Adams issued a ruling in August that set the first hearing on the case on Nov. 13, or, “as soon as practicable thereafter.”

Meanwhile, in South Carolina, the state attorney general issued an opinion in July stating that KMI does not have the power to condemn land for the purpose of installing the Palmetto Pipeline.

If the pipe were to carry natural gas, the company could condemn property. But a petroleum pipeline doesn’t have the same legal standing as a gas pipeline, according to the opinion.

Here are highlights from Moody’s rating action:

  • “Kinder Morgan’s issuance of mandatorily convertible preferred shares will help the company achieve their year-end 2015 target leverage of 5.6X,” Terry Marshall, Moody’s senior vice president, said in a statement. “However, by mid-2016, after our standard adjustments, Moody’s expects leverage will be close to 6X as the company debt funds growth capex, with additional equity issuance not expected until mid-2016.”
  • “KMI’s Baa3 rating reflects its significant scale, high quality assets, and fee-based cash flows, tempered by its high leverage and payout of approximately 90 percent of internally generated cash flow to shareholders.
  • “KMI’s liquidity is adequate. Through the third quarter of 2016 Moody’s expects the company will have nearly $11 billion of cash from operations and liquidity resources to fund about the same amount of dividends, capital expenditures and debt maturities. The company will have about $5 billion of cash from operations, together with pro-forma cash of $1.7 billion and an essentially unused credit facility of $4 billion (expires 2019).”

 

David Pendered, Managing Editor, is an Atlanta journalist with more than 30 years experience reporting on the region’s urban affairs, from Atlanta City Hall to the state Capitol. Since 2008, he has written for print and digital publications, and advised on media and governmental affairs. Previously, he spent more than 26 years with The Atlanta Journal-Constitution and won awards for his coverage of schools and urban development. David graduated from North Carolina State University and was a Western Knight Center Fellow. David was born in Pennsylvania, grew up in North Carolina and is married to a fifth-generation Atlantan.

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