Kinder's accounting is not in question, never has been, at least not be any entity that matters, such as the SEC. Perhaps you are referring to not understanding the calculation of Distributable Cash Flow, which is a non GAAP value? DCF is a metric they use internally, not a SEC mandated metric. And perhaps you should fully understand it if you are going to invest in KMI, or many of the other midstream companies that are set-up as pass thru entities (MLP or LLC).
As for Rich's recklessness, yes, he layered on too much debt. And I too prefer a company that is under leveraged vs one that is overleveraged. Of course, hopefully you were astute enough to know that this was/is the business model and has been since Rich Kinder and Bill Morgan bought the GP to the then fledgling ENP from Enron. It is in essence, the same model used by most of the industry, as well as many other capital intensive industries such as telecom, rail, cable television.
The other issue is that the market was overpaying for cash generating assets, a function of low interest rates, massive waves of baby boomers retiring and seeking income sources etc.
As for the debt ratio, I prefer to use Debt/Ebitda, which is a common metric in the industry (also others as well). The banks are really the ones calling the shots on what is acceptable, if you desire to have investment grade credit rating. There are very few IG midstream players and Kinder Morgan happens to be one of them. Hanging on by the skin of their teeth, but still IG. Note Kinder bonds trading quite well.
Of course, it is a bit silly of you to claim Kinder has a "character defect". In light of the massive collapse in oil, a continued collapse in natural gas, general locking up of the capital markets, it necessitated a changing of plans. It is simply amazing how quick people are to blame others for their stock losses.
Remember Rich Kinder owns 230+ million shares. He "suffered" a bit too as well. Yes, I get that he is still bringing in $115 million a year in dividends but he has seen several billion in capital. .
I also agree that he doesn't plan to significantly delever the company, but rather utilize surplus DCF to grow Ebitda, which in turn will lower the debt/ebitda multiple. The decrease in the backlog though might result in some modest retiring of near term maturities.
Kinder's undoing was, post roll-up, relying so heavily on debt rather than equity. In hindsight, they should have utilized 100% equity to help lower leverage. The commodity plunge was the nail in the coffin.
I do however believe the roll-up was necessary. The IDRs will drag down any MLP eventually. Having everything in one entity makes sense.
I also believe that when commodity markets settle down and return to the "new normal", the whole sector, KMI included, will see an uplift.
As for his broken promise of 10% dividend growth. Yes, he missed on that. I do believe he intended to do so if the capital markets had cooperated, but they didn't and left him little choice but to change direction.
$8 is possible, but if you look at the company on an enterprise value divided by ebitda, that is ridiculously low, especially when you consider that a good portion of their business is refined products and long haul natural gas. The commodity sensitive assets like CO2 (thinkg SACROC, Yates, Katz etc as well as gathering) are responsible for the decline from 7.7 to 7 billion in ebitda.
I'd be curious in seeing you analysis on $8 (sub 9x ev/ebitda) on a bottom of the cycle ebitda number.
I don't think Kinder needs a massive upturn in energy prices.
The decline in the backlog facilitates plenty of surplus cash to manage maturities, acquisitions, buybacks etc. It will take 3+ years to get the leverage under control.
I'd rather buy at $14 than $40.
You forgot to include Linn changing their strategy, abandoning 5 year forward hedging and of course, the Ellis bonehead move of turning Linn into a hybrid trying to blend aggressive growth in production with the operation of mature, low risk, stable cash generating production meant to provide steady cash flow to pay distributions.
We called this an error years ago. It was evident that Linn was in danger 3-4 years as high priced legacy natural gas hedges rolled off the books and were replaced with much lower hedges, compressing margins and necessitating gobbling up any asset they could to plug the holes. Meanwhile, Ellis decided he would spice things up, charging blindly into "hot" plays like the Granite Wash and Hogshooter and "hoping" every well would be a monster (insert favorite joke about ex ante returns here!).
And in the end, a kid barely old enough to shave, who spent more time on ice skates than in business school may have predicted their demise for wrong reasons, it was his calls on the accounting of the puts that ultimately caused Linn management to arrogantly abandon their time tested strategy of protecting margins vi hedging and in turn hastened their demise.
The hubris of Ellis and the Rockov was appalling. Throwing caution to the wind, running the company balance sheet as wildly as they ran their own personal finances.
We'll be watching anxiously to see who ends up with the nice Hugoton assets, piecemealed together and of real value in the future with the lower LOE and excellent midstream connectivity. A real gem to be had at pennies on the dollar.
Yes, I assume since Dorchester Hugoton days!
I think it is quite attractive at these prices. No debt, so no worries of going under, though it is clear as drilling activity declines, they are going to suffer a drop in new income streams.
I recently added some SBR and am watching BSM.
Poor poor Norrishappy, still blaming our incompetent President for Linn's problems.
I take great satisfaction in reminding him of our many discussions where I pointed out Linn's constantly falling DCF and their desperate attempts to shore it up by gobbling up assets, many of which were only marginally accretive.
I'll stick around until they file Ch. 11 :)
I wonder who is going to gobble up that nice collection of Hugoton assets.
I bought back a portion of my holdings today at $22.40. I sold my MWE the day after the announcement, think it was at $69 could have been a little lower. Only good move I made in 2015! :(
Market is overreacting to lowering of growth rate. I'll take a boring near 10% yield growing at 12% next year. I think post 2016 we can expect mid single digit growth (say 6%). A far cry from the promises a few months ago but the world has changed. The compliment of NGL systems that MWE has with the refined products network of MPLX makes for a somewhat odd but counter cyclical pairing. MPLX can better finance the growth.
I will add more if it goes lower, and in this jittery market, it may plunge further.