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Kinder Morgan - Poster Boy For Bubble Finance
Submitted by David Stockman via Contra Corner blog,
The graph below belongs in the “what were they thinking category”.
After Tuesday’s dividend massacre, it’s plain as day that Kinder Morgan (KMI) wasn’t the greatest thing since slice bread after all. That is, a “growth” business paying rich dividends out of rock solid profit margins and flourishing cash flow.
In fact, it was just a momo stock on a borrowing spree.
During the 27 quarters since the beginning of 2009, the consolidated entities which comprise KMI generated $20.8 billion of operating cash flow, but spent $24.3 billion on CapEx and acquisitions.
So the “growth” side of the house ended-up in the red by $3.5 billion. Presumably that’s because it was “investing” for long haul value gains.
But wait. It also had to finance those juicy dividends, and there was a reassuring answer for that, too. The payout was held to be ultra safe owing to KMI’s business model as strictly a toll gate operator in the oil and gas midstream, harvesting risk-free fees from gathering systems, transportation pipelines and gas processing plants.
Accordingly, even when its stock price was riding high north of $40 per share, the yield was 5%. So over the last 27 quarters KMI paid out $17.3 billion in dividends from cash it didn’t have.
It borrowed the difference, of course, swelling its net debt load from $14 billion at the end of 2009 to $44 billion at present. And that’s exactly the modus operandi of our entire present regime of Bubble Finance.
Kinder Morgan is the poster boy.
Yes, you can chalk this off to another “lesson learned” in the Wall Street casino. After all, some definable group of investors and speculators thought they owned $98 billion of market cap a few months ago, and now their accounts are suddenly $60 billion lighter—–including about $7 billion of bottled air that evaporated from the net worth of its founder and indefatigable promoter, Richard Kinder.
But in the alternative, perhaps its time to recognize that healthy, properly functioning free markets do not make egregious $60 billion “mistakes” such as this one over and over. What surely led to the insane peak valuation of KMI is the relentless scramble for yield that has been triggered by 84 months of ZIRP and endless coddling of the stock market by the Fed and other central banks.
The fact is, during the last 31 quarter (i.e. since Q1 2008) KMI has posted the grand total of $900 million in cumulative net income. This means that at its peak April valuation it was trading a 100X the totality of what it had earned during nearly an entire decade; and that during that period it paid out 17 times more in dividends than it earned.
That’s right. The Wall Street gamblers and punters had followed the pied piper of Houston right out of Enron, and into an even greater bubble predicated on the same old scam.
Indeed, KMI is a pipeline company just like Enron. It’s original building block, Enron Liquids Pipeline, was purchased by Richard Kinder and his partner for $40 million back in the late 1990s.
Yet it had no more chance of being worth $100 billion than Enron had of being worth $60 billion before its implosion. It didn’t even have the razz mataz of a fiber optics trading business or a franchise to bring power and light to impoverished villages of India.
The apologists are want to argue, of course, that net income doesn’t mean anything when it comes to valuation. Perhaps we should therefore dispense with the several billions spent annually by the SEC, DOJ and sundry state attorneys general hauling business executives to court and jail for violating GAAP.
On the other hand, there is a reason why GAAP accounting statements require that asset write-offs, goodwill impairments, restructuring charges and stock option costs be charged to net income. At one point or another every one of these charges involved the waste of cash or other corporate assets.
They are not merely “non-recurring” expenses. They always and everywhere generate a recurring loss of value because these charges reflect a business mistake or the impact of Mr. Market’s penchant for “creative destruction”.
Even then, clamber on board with the LBO boys and consider the LTM results for KMI on a so-called cash flow basis. During the year ended September, it posted $5.89 billion of EBITDA and spent $3.9 billion on CapEx and $1 billion on acquisitions. So its free cash flow was a round $1 billion.
Let’s see. At its April stock market peak, Kinder Morgan’s total unlevered enterprise value (TEV) was $140 billion. So the casino was valuing the company at 24X EBITDA, 70X EBITDA less CapEx and 140X free cash flow!
If you have another pipeline company in Houston, I’ve got some swampland in Florida that I will swap for it.
If not, at least believe this. Two decades of Wall Street coddling by the Fed and 84 months of free carry trade money means that the casino is riddled with momo plays and debt-fueled scams like Kinder Morgan.
Now would be an excellent time to get out of harm’s way - as any sensible KMI shareholder would have done long before Bloody Tuesday.
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Is there any 'good' news out there?
Yeah...the days start getting longer in 10 days.
Yep, just plucked my neighobr's pussy cat, hair after hair.
"Accordingly, even when its stock price was riding high north of $40 per share, the yield was 5%. So over the last 27 quarters KMI paid out $17.3 billion in dividends from cash it didn’t have."
Wasn't there a nicer way of saying that?
Yeah. Land-rapists like KM are on the wane. For now.
Too bad humans aren't... for now.
It'd be nice if our critical mass were something wonderful, and conforming, like a diamond. I suspect it'll be more like lightning. Unique and terminal. Equally beautiful.
You can start solving that problem with yourself
In hindsight, Kinder Morgan's 2013 purchase of American Petroleum Tankers should have set off an alarm on Wall Street. APT's owners were Blackstone and Cerberus, hedge funds looking for fast money. Kinder Morgan had no business buying oil tankers. Is General Motors buying Harley Davidson? Kinder Morgan bought an asset it didn't need to help out those two hedge funds. Insider dealing paid with borrowed money. Next stop for Kinder Morgan - liquidation.
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wikipedia: On December 23, 2013, Kinder Morgan announced that, through its Kinder Morgan Energy partner subsidiary (ticker KMP on NYSE), it would acquire the US oil tanker operator American Petroleum Tankers (APT) and its affiliated company SCT (State Class Tankers) from the US private equity investment firms Blackstone Group and Cerberus Capital management. APT operates a fleet of five US flagged MR 50,000 tons - 330,000 barrels - oil tankers and has four other similar tankers on order from the General Dynamics shipbuilding company NASSCO in California. This acquisition appears to be the first case whereby a pipeline operator will also be able to offer marine transportation.
If this stinker goes BK, the larger creditors need to team up and try to find a way to claw back some divvies. There is probably plenty of video, audio, and written documentation of the officers et al blowing sunshine all over the place about what a great going concern their business model is/was. Maybe someone can find fraud and crack this thing open. If that happens, look out.
The creditors deserve to get reamed. It's not like they didn't know KMI was using the loans to fund dividends.
I doubt that very many of the bond investors, especially the retail investors, ever put it together that KMI was using the cash to fund the dividends. If the official word from KMI was that the money was to fund capital projects, why would they look any farther?
If this goes to BK, we'll find out who is holding that paper.
you forgot to mention that their Board of Directors and CEO are a bunch of lying scumbags who screwed a ton of retirees out of promised dividends from now proven to be bullshit tax savings
I'd love to see what the entire board of directors, CEO, president, CFO and other executives managed to pay themselves up to this date. I have a sneaky suspicion they're a lot smarter than most think.
Enron all over again, but of course that is the FED and Wall Street - one giant Ponzi to rule them all.
This is just another reason why .gov is so adamant about taking guns away from all the sheep.
The wolves don't like armed sheep.
I will admit to being taken in by this goldilocks story. I thought Rich Kinder was the good guy that emerged from Enron. I watched his growth over the decades with admiration thinking what a great businessman he must be. But it's all borrowed money?! Even the dividends?! Apparently I will not live long enough to understand how these guys keep getting away with billions. Damn!
My cousin retired from KMI a couple of years ago. I hope his retirement is not on the line.
Move all retirement funds to in IRA
But, but…the purpose of the Federal Reserve is precisely what Kinder Morgan represents—enriching Wall Street, Banking and Oligarch criminals by stealing from the American People. Naturally they bribe the political parasites to "look the other way" and to pretend to not notice the Federal Reserve's true role in America.
The Enron and Kinder Morgan and IBM criminals, like Carly Fiorina at Lucent and Hewlett-Packard, keep "getting away with it" because the system was designed to let them "get away with" their massive crimes. It's not like the Injustice Department is going to do anything about them. The system allows them to strip mine what were productive, honest parts of American industry for their own personal benefit. Carly Fiorina destroyed Lucent and Hewlett-Packard for her own personal gain as CEO and then has the unmitigated to run for President of the United States of America! She belongs in prison along with A lot of other Crony Capitalist Corporate criminals.
THIS article/posting is absolutely GENIUS writing and should be read/closely/appreciated by everyone
whomever wrote it .. i am very, very, very impressed
r
here is my site
https://enronnext101.wordpress.com/
it would have to still exist to be on any line
Interesting article! https://www.google.com/search?q=Kinder+Morgan&npsic=0&rflfq=1&rlha=0&tbm...
Look at that map & see how many unemployed will be affected soon...
N Sufficients Funds UNIVERSTY have a abortion kinder surprise!
jp morganthaler need more pipe lies.