Why Did the Kinder Morgan Stock Price Fall in Early 2014?


Quick Answer

In early 2014, Kinder Morgan experienced challenges related to the company's access to credit and the potential need to restructure, explains Seeking Alpha. Analyst fears resulted in undervalued Kinder Morgan stock. Kinder Morgan later restructured to address the problem, notes The Motley Fool.

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Full Answer

Kinder Morgan was managed using a general partnership structure that sent significant portions of the company's cash flow to the partner, according to The Motley Fool. This process reduced networking capital significantly, and some analysts saw this reduction in cash as a potential risk to future investor distributions and corporate expansion. A credit rating agency called Credit Suisse recommended a merger and restructuring of Kinder Morgan Energy Partners with general partner Kinder Morgan Incorporated, states Seeking Alpha.

This merger reduced the complexity of Kinder Morgan and returned capital to necessary energy projects undertaken by Kinder Morgan Energy Partners, according to The Motley Fool. The cost of capital substantially improved for Kinder Morgan and the company became more attractive to many investors. While the old structure transferred significant dividends to investors, capital costs were higher because operating and expansion costs were financed using loans. Loans are typically more expensive than using existing cash reserves due to the cost of loan interest.

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