Fitch Places Kinder Morgan Inc., Kinder Morgan Energy Partners on Rating Watch Negative.

NEW YORK -- Fitch Ratings places the ratings of Kinder Morgan, Inc. (KMI, 'BBB' IDR) on Rating Watch Negative following its receipt of a proposed management-led buyout of the company (see complete rating list below). In a related action, Fitch also places the long-term debt ratings of Kinder Morgan Energy Partners, L.P. (KMP, 'BBB+' IDR) on Rating Watch Negative. KMP's 'F2' short-term ratings have been affirmed and are not on Rating Watch. KMI is the general partner of KMP, a master limited partnership (MLP). Approximately $10 billion in debt is affected.

At the announced acquisition price of $100 per share, the leveraged buy out (LBO) of KMI has a face value of approximately $22 billion, making it one of the largest LBOs on record. The price represents an approximate 18.5% premium to the market price. The management led buyout group also includes other prominent investors, GS Capital Partners, American International Group, and the Carlysle Group and Riverstone Holdings. KMI management will rollover their existing KMI equity interests valued at $2.8 billion into the new buyout company, while the other equity partners will contribute approximately $4.5 billion. With the debt component of the transaction totaling around $14.5 billion (including the assumption of $6.9 billion in debt), details, other than an opinion from Goldman Sachs Credit Partners that it is highly confident of its ability to raise the debt necessary to proceed with the closing of the transaction, have not been announced.

One of the concerns Fitch has with the transaction is the term and structure of the proposed debt and its related costs given the prospect for higher interest rates over the near to intermediate term time horizon. Concomitantly, higher interest may also detract from the appeal of MLPs affecting their equity prices and even underlying asset valuations of pipelines and midstream energy assets as MLPs have among the lowest cost of capital giving them an advantage in buying energy-related assets.

The buyout of KMI, closely follows its acquisition of Terasen, Inc. In addition to $2.15 billion of acquisition related debt, KMI had identified expansion projects that could require upwards of $1.5 billion to $2.5 billion in funding by 2010 and Fitch had become uncomfortable with KMI's leverage as reflected in its Negative Outlook which was assigned in August 2005. Fitch had some tolerance to leverage that it deemed temporary based on the high quality of KMI's underlying assets and investments which provided size, scale and diversification, as well as stable and predictable cash flows. While Fitch was looking for 'deleveraging' using proceeds from asset sales and growth in cash flow over the next couple of years, the buyout clearly delays that timeframe and in fact, creates substantially more leverage. Should the buyout occur, Fitch believes KMI's resultant financial profile will likely fall into the noninvestment grade categories based on its high leverage and resultant debt service burden.

The Rating Watch Negative listing for KMP reflects its affiliation with its sponsor and general partner, KMI. While there are no direct financial consequences to KMP from the KMI buyout, KMP will be an important source of cash flows to service KMI's debt (KMP represents approximately 40% of KMI's consolidated cash flows). KMI as the general partner, has managerial control and discretion over KMP's business affairs including its investments and distribution polices (please see 'Master Limited Partnerships: Evaluating Sponsor Leverage' published on Oct. 5, 2005 available on Fitch's website at www.fitchratings.com). At the same time, KMP is already facing a large capital expenditure cycle with various organic projects including the majority interest in the $4 billion Rookies Express Pipeline. Since KMI has numerous investments outside of KMP, Fitch, to a large degree, views KMP as a standalone credit, and should Fitch take a rating action, it would likely be no more than one notch. Consequently, KMP's 'F2' short-term rating is affirmed.

As more details regarding the LBO financing plan become available, Fitch will update its Rating Watch on the Kinder entities. Meanwhile, the proposed buyout is subject to Board of Directors and shareholder approvals, and other requisite regulatory approvals.

Ratings Affirmed

Kinder Morgan Energy Partners, L.P.

-- Short-term commercial paper 'F2'.

Ratings Listed on Rating Watch Negative

Kinder Morgan, Inc.

-- Issuer Default Rating (IDR) 'BBB';

-- Notes, debentures, and debt shelf registration 'BBB';

-- Capital trust securities (KN Capital Trust) 'BBB-';

-- Short-term commercial paper 'F2'.

Kinder Morgan Energy Partners, L.P.

-- Issuer Default Rating (IDR) 'BBB+';

-- Senior unsecured debt 'BBB+'.

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.