Bloomberg News

Barclays Loan to Kinder Morgan Boosts Ranking as M&A Adviser

October 17, 2011

(Updates with Goldman Sachs recusal in the 13th paragraph.)

Oct. 17 (Bloomberg) -- Barclays Plc, the world’s top adviser on oil and gas mergers during the past two years, is lending $11.5 billion to junk-rated Kinder Morgan Inc. to help maintain that lead.

The financing commitment will provide Kinder Morgan with the cash needed for a $21.1 billion purchase of El Paso Corp., the largest pipeline takeover in history, Kinder Morgan said in a statement yesterday. Barclays’s role on the deal also pushes the London-based bank up to sixth place from eighth among merger and acquisition advisers across all industries worldwide.

The financing from Barclays, whose investment-banking chief is oil and gas banker Hugh “Skip” McGee, is the biggest takeover loan for a non-investment grade company this year. Dealmaking has slowed in recent months after the S&P/LSTA Leveraged Loan 100 Index, which tracks the 100 largest dollar- denominated first-lien leveraged loans, fell 5.66 percent in August, the biggest monthly decline since November 2008.

Kinder Morgan’s current debt is at its Kinder Morgan Kansas subsidiary and currently rated BB by Standard & Poor’s, two steps below investment grade. Leveraged loans and high-yield bonds are ranked below Baa3 by Moody’s and less than BBB- by S&P, or anything below investment grade.

Lehman Bankers

Barclays acquired one of the biggest investment banks in the oil sector through its 2008 purchase of Lehman Brothers Holdings Inc.’s North American operations. Those who joined from Lehman included McGee and Carlos Fierro, who runs the global natural resources investment banking business, as well as a team in the oil and gas capital of Houston.

Barclays also advised BHP Billiton Ltd. on its $12.1 billion purchase of Petrohawk Energy Corp. this year, as well as on the $4.75 billion acquisition of shale-gas assets from Chesapeake Energy Corp.

In addition to Barclays, Evercore Partners Inc. also served as a financial adviser to Houston-based Kinder Morgan. Evercore founder Roger Altman worked on the deal, along with Robert Pacha, Raymond Strong, and Shaun Finnie, all of whom joined since 2009 to start the New York-based investment bank’s energy business.

Barclays and Evercore may earn as much as $60 million in advisory fees on the transaction, according to New York-based research firm Freeman Consulting. Barclays may also earn up to $92 million in fees for providing the $11.5 billion in financing, Freeman said.

Kinder Morgan Chief Executive Officer Richard Kinder kicked off the takeover talks in late August when he approached El Paso’s Douglas Foshee, said Kinder Morgan spokesman Joe Hollier. That disrupted a previous plan by El Paso, announced in May, to spin off its exploration and production assets to shareholders.

Goldman’s Role

Goldman Sachs Group Inc.’s Steve Daniel had been advising El Paso on the spinoff. For the talks with Kinder Morgan, El Paso instead turned to a Morgan Stanley team including Brian McCabe, Stephen Munger, and Jonathan Cox.

Morgan Stanley may earn as much as $80 million in fees for advising El Paso, according to Freeman.

Goldman Sachs’s private-equity arm was one of Richard Kinder’s co-investors when he took his company private in 2007. The firm remains one of the largest Kinder Morgan shareholders and has two representatives on the board.

Those directors, Ken Pontarelli and Henry Cornell, recused themselves from discussions of the El Paso offer, said Andrea Rachman, a Goldman Sachs spokeswoman.

Lawyers from Weil Gotshal & Manges LLP, including Thomas Roberts, and R. Jay Tabor, and Bracewell & Giuliani LLP are advising Kinder Morgan. Daniel Neff and David Katz are leading a Wachtell, Lipton, Rosen & Katz team counseling El Paso.

Goldman Sachs is the biggest adviser on mergers and acquisitions this year to date, followed by JPMorgan Chase & Co. and Morgan Stanley.

JPMorgan is providing the biggest U.S. deal financing this year, with its commitment to a $20 billion, one-year unsecured loan to help AT&T Inc. buy Deutsche Telekom AG’s T-Mobile USA unit in a $39 billion transaction announced in March.

--With assistance from Brett Foley in London. Editors: Jennifer Sondag, Faris Khan

To contact the reporter on this story: Zachary R. Mider in New York at zmider1@bloomberg.net

To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net


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