Enron spin-off plans record $22bn management buyout

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Credit rating agencies have expressed alarm at the $22bn (£12bn) private equity takeover of the gas pipelines business Kinder Morgan, one of the biggest leveraged buyouts since the battle over RJR Nabisco, which spawned the book Barbarians at the Gate two decades ago.

Private equity backers including Goldman Sachs and the Carlyle Group are promising to loan the company up to $14bn of debt, and both Standard & Poor's and Fitch said they expect to rate that debt as junk.

And in another echo of the private equity boom of the Eighties, Goldman Sachs issued a "highly confident" letter, an investment tool not seen for many years. These letters state that a bank is confident of getting debt finance together in time to complete the deal, and were used to allow corporate raiders to launch leveraged buyouts without the debt component of their financing package fully in place.

Kinder Morgan is one of the biggest North American energy transportation and distribution companies. Its founder, Richard Kinder, and his backers made their proposal to take the company private over the weekend.

Mr Kinder was previously a senior executive at Enron before it collapsed into scandal. After failing to get the chief executive's job at Enron, he formed Kinder Morgan through a buyout of $40m of Enron assets in 1996.

The RJR Nabisco deal retains its crown as the biggest private equity takeover in history. Kohlberg Kravis Roberts paid $25bn for the conglomerate in 1988, and assumed $5.5bn in debt as part of the transaction. Private equity is once again flush with cash, as institutional investors chase the superior returns that have been on offer in recent years. Private equity firms have been able to buy companies on the public markets and repay much of their investment using debt raised at low interest rates, but there are growing fears that rising interest rates could dampen returns from here.

In a credit analysis on the Kinder Morgan deal, Fitch said: "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."