Fitch Affirms Kinder Morgan Energy Partners at 'BBB+'; Outlook Stable.

NEW YORK -- Fitch Ratings has affirmed Kinder Morgan Energy Partners, L.P.'s (KMP) 'BBB+' senior unsecured debt and Issuer Default Rating (IDR). In addition, KMP's short-term debt rating relating to its commercial paper program is affirmed at 'F2'. The Rating Outlook remains Stable.

In total approximately $5.2 billion of outstanding debt is affected. Fitch's rating action follows a comprehensive review of KMP's operations and considers the company's recently announced commitment to proceed with the construction and financing of the $4 billion joint venture Rockies Express Pipeline project.

KMP's ratings and Stable Rating Outlook reflect the following characteristics: significant scale and scope of operations; geographic and functional diversity of assets; a favorable track record in acquiring, financing, growing, and operating master limited partnership (MLP) assets; predictable earnings and cash flow generated from pipeline and terminal operations; and, assuming anticipated growth, financial and operating profiles which are expected to remain consistent with its current rating. Also considered in Fitch's rating analysis is KMP's financial exposure to fluctuations to commodity prices and interest rates, the economic impact from potential adverse regulatory rulings on its Pacific products pipelines, and the company's aggressive expansion spending strategy. Fitch has also considered KMP's ongoing relationship with Kinder Morgan, Inc. (KMI).

KMP's quantitative credit measures have generally been maintained over the past several years at levels consistent with its 'BBB+' rating. For the year ended Dec. 31, 2005, EBITDA-to-interest was 6.3 times (x) and debt-to-EBITDA was 3.2x. However, it should be noted that expanded CO2 operations have produced higher financial returns than pipeline and terminal facilities and have been an increasing contributor to earnings and cash flow but with higher associated risk. Capital expenditures, particularly relating to expansion of natural gas pipeline projects, are expected to be material over the next few years, and total sustaining and expansion capital expenditures could approach $1.75 billion in 2006. The company has recently announced its commitment to proceed with the $4 billion Rockies Express Pipeline project in a joint venture with an affiliate, Sempra Energy, and will build as sole owner the $500 million Kinder Morgan Louisiana Pipeline. As a result of the expansions, credit measures should weaken moderately until the projects begin to generate cash flows.

In addition, acquisition spending, which is highly discretionary, could also be material and significantly influence results. Based on past practices, it is likely that KMP will finance its growth with a reasonable balance of debt and equity units. The company has stated that it plans to finance its portion of the Rockies Express Pipeline with 50% equity and the remainder with non-recourse debt. A five-year, $1.6 billion bank credit facility should provide adequate liquidity for ongoing operations, and the amount of scheduled debt maturities over the next five years is relatively small. We anticipate that a separate lending facility at the Rockies Express level would be established to provide short-term financing. At Dec. 31, 2005, KMP had outstanding $539 million of commercial paper and $599 million letters of credit supported by the facility.

Going forward, Fitch expects KMP to continue to generate credit measures that will fall in a range consistent with its rating even if faced with less favorable business conditions. To reflect the potential impact of adverse operating conditions on projected results, Fitch performed sensitivity analysis which considered the occurrence of certain negative trends and events. Since approximately one-half of KMP's debt is floating rate, the company has benefited from a low interest rate environment. Fitch considered the impact of higher rates on interest expense. Furthermore, the future financial performance of the CO2 segment will be materially affected by the volumes of oil produced and, to a lesser degree, the price of oil sold. KMP has been aggressive in using financial hedges to limit but not entirely eliminate its commodity price exposure. Also, unexpected short-falls in oil production from its SACROC field during 2005 demonstrate the difficulty of hitting production targets.

Fitch considered the effect of weakening operating conditions for the CO2 segment on its distributable cash flow. In its analysis Fitch also factored in the effect of potential future refunds and rate reductions to shippers on KMP's Federal Energy Regulatory Commission-regulated SFPP refined petroleum pipelines. Given the scale and diversity of KMP's operations, the cumulative effect of the above-referenced negative factors should not materially impair its credit quality.

KMP is the nation's largest MLP. Kinder Morgan, Inc., rated 'BBB' by Fitch with a Negative Rating Outlook, owns the general partner of, and has a significant limited partnership interest in KMP. KMP's business focuses on providing fee-based energy services, generally avoiding or limiting commodity price risk. Primary areas of business include transporting and storing of refined petroleum products; transporting, storing, and selling of natural gas; producing, transporting, and selling of carbon dioxide (CO2) for use in, and selling crude oil from, enhanced oil recovery operations; and transloading, storing, and delivering a variety of bulk, petroleum, and petrochemical products at terminal facilities in the United States.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.