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Kinder Morgan Energy Partners Message Board

  • enronbuddy enronbuddy Aug 16, 2012 9:59 PM Flag

    Are LP OWNERS LIABLE if KMP defaults??

    So I am genuinely asking here. KMP issues a lot of debt to achieve it's 50/50 structure....but it never seems to pay anything off...they just keep rolling the debt. In fact...since they distribute every last bit of cash flow is not clear that they actually have the capability to ever retire debt. There will come a time when these pipelines will reach the end of their life....yet will still have debt outstanding on them roughly half of their purchase value. So then what? I no longer have a pipeline generating cash flow to cover the debt....if I can't roll it...this scheme goes to hell in a handbasket in short order. In a C-corp...there obviously is no recourse for creditors beyond the equity. Is the same true for the MLP structure. In the event of a bankruptcy...can creditors clawback past distributions from limited partners? Couldn't they make the argument that perhaps you should have planned on paying off the debt related to a specific pipeline during its operational life and that by failing to do so....distributions related to that specific pipeline were improper? Even if there is no possibility for clawbacks...any comments on when/how KMP would ever reduce it's debt load...given it's commitments to distributing cash

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    • The big NG pipelines extending north and north east from Texas, Oklahoma and the Gulf Coast were built during WWII or shortly thereafter. They are still in use. There's no reason to believe that the interstate lines actually have a determinable life span. Repairs and replacements of sections are ongoing.

      Gathering lines have a life tied to the lives of the production fields. They are smaller diameter pipes that are known to have somewhat determinable lifespans.

      Its "distributable" cash flow that is paid out. Other portions of cash flow are retained to handle necessary financial committments.

      The "limited" in limited partner means something. Good luck hauling tens of thousands of unitholder int court. there are probably some circumstances where linited unitholders could be liable. Illegal activity would seem to be a condition allowing clawback.

      • 2 Replies to epholder
      • The limited partners are limited by the extent of their investment. So the unitholders would be responsible for returning their capital, but nothing more. So yes, clawbacks are possible.

        Sentiment: Hold

      • Limited partners are just that. Limited to the extent of their investment in the partnership, i.e. what they paid for their stock. The GP is liable for losses in the partnership, not the LP's. Below is an excerpt from Wikipedia defining a limited partnership.

        Limited liability

        Like shareholders in a corporation, LPs have limited liability, meaning they are only liable on debts incurred by the firm to the extent of their registered investment and have no management authority. The GPs pay the LPs a return on their investment (similar to a dividend), the nature and extent of which is usually defined in the partnership agreement. General Partners thus carry more liability, and in cases of financial loss, the GPs will be liable.