Kinder Morgan Energy Partners, an energy pipeline holding company with roughly USD2.7 billion in revenue last year, has entered several interest-rate swaps on the back of two bond offerings. The company used the swaps to convert the entire USD625 million it sold through a five and a 31-year bond into synthetic floating-rate obligations, according to an official in the treasury department in Houston.
In the swap, the company receives the 5.35% coupon on the five-year USD250 million bond and pays an average of 140 basis points over three-month LIBOR. Kinder Morgan also pays on average 192bps over three-month LIBOR and receives the 31-year 7.3% coupon, according to the official. She said Kinder Morgan has a strict policy to maintain an even balance between fixed-rate and floating-rate debt. As the bond deal was used to pay down floating-rate commercial paper, the company converted it to a floater to maintain that even mix.
"We want half of our interest expense to be fixed and half to be floating, so we swapped it back to take on the floating, said the official. She noted that the company issued the bonds to take advantage of low rates and lock in long-term floating-rate funding. The counterparties for the swaps were selected from among Kinder Morgan's core relationship banks.
Moody's Investors Service rates the pipeline company Baa1 and Standard & Poor's rates it BBB plus.