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Kinder Morgan Energy Sells $1.25 Billion of Bonds for Buyout

Aug. 8 (Bloomberg) -- Kinder Morgan Energy Partners LP, the largest U.S. natural gas distributor, sold $1.25 billion of bonds to fund the acquisition of Tennessee Gas Pipeline Co. and a stake in El Paso Natural Gas Co., according to a regulatory filing.

Kinder Morgan Energy issued $625 million of 3.45 percent, 10.5-year debt to yield 185 basis points more than similar-maturity Treasuries and an additional $625 million in 5 percent, 30-year securities to yield 230 basis points more than benchmarks, according to data compiled by Bloomberg. The bonds may be rated Baa2, the second-lowest investment grade, by Moody’s Investors Service.

The company agreed to buy Tennessee Gas Pipeline and a 50 percent interest in El Paso Natural Gas from its parent company Kinder Morgan Inc. for about $6.2 billion Aug. 6. The partnership will use cash flow from the systems to make up for revenue it’s expected to lose after agreeing to sell about 7,200 miles (11,500 kilometers) of pipelines to gain regulatory approval for the El Paso deal.

The Houston-based energy company last sold a benchmark offering in March. The $1 billion of 3.95 percent bonds due in 2022 traded at 104.7 cents on the dollar to yield 3.4 percent yesterday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Citigroup Inc., Royal Bank of Scotland Group Plc and Wells Fargo & Co., managed the sale, Bloomberg data show.

To contact the reporter on this story: Matt Robinson in New York at Mrobinson55@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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