We like to think that when we deposit a dollar at the bank, it goes into a big vault and we can pull out that same dollar at any time. But that¿s not how the U.S. banking system works. Banks take that money and invest it to make money themselves, so cash gets spread around. This, naturally, leads to a big risk: What happens if those investments go sour? Well, you¿d be out of luck. You can¿t get your dollar back.

The Federal Reserve doesn¿t like that scenario, so it prohibits banks from putting all the cash it has on deposit on the line. In fact, the Fed forces banks to keep a portion of their assets at the Federal Reserve itself, to make sure that some of your assets won¿t get squandered if the bank¿s bets go south. These are called ¿reserves,¿ (hence, Federal Reserve. Got it? Good), and usually amount to 10% of the total cash kept in checking accounts.

These reserves are never exactly 10%, and banks like to keep a little extra in reserve ¿ not, as you might think, to make you more comfortable that they¿re in good financial shape, but rather so they can take that excess and lend it to other banks and make money off it. (They¿re banks, they can¿t help themselves.) The rate at which they make these loans is called the Federal Funds rate, which is set by the Federal Reserve¿s Federal Open Market Committee.

When you hear people chattering about how the Fed cut or hiked interest rates, this is what they¿re talking about: the interest rate banks can charge for lending money from their reserves. This begs the question: If these are essentially loans between banks, why is the Fed Funds rate so important for the rest of the economy?

Well, simply put, because loans make the financial world go round. Bank A lends Bank B $10,000 at a Fed Funds rate of 5%. Bank B then lends out $10,000 to a small business at 7%. The small business then takes that money and expands the business and hires new workers. Now someone is employed, Bank B has made interest off the loan, and Bank A is the richer for making it all happen. It¿s perhaps overly simplistic, but you get the idea. When you want the economy to thrive, you make lending cheaper.

Of course, sometimes you don¿t want the economy to thrive. In fact, you might want it to cool down, mostly to avoid money flooding the system and causing inflation. In that case, the Fed raises interest rates, making it difficult to lend or borrow.

Home / Markets / Industries / Energy

Tuesday, June 03, 2008

Fitch Rates Kinder Morgan Energy Partner's Notes 'BBB'

Email this Story | Respond to Editor | Print

Comtex

NEW YORK, Jun 03, 2008 (BUSINESS WIRE) ----Fitch Ratings has assigned 'BBB' ratings to Kinder Morgan Energy Partners, L.P. (KMP) $375 million 5.95% senior notes due 2018 $325 million 6.95% senior notes due 2038. KMP's Issuer Default Rating (IDR) is 'BBB'. The Rating Outlook is Stable. Notes proceeds will be used to repay short-term debt and for general corporate purposes.

KMP's 'BBB' rating and Stable Outlook reflect the following characteristics:

--Significant scale and scope of operations;

--Geographic and functional diversity of assets;

--A favorable track record in acquiring, expanding and operating energy assets;

--Predictable earnings and cash flow generated from natural gas and refined products pipeline and bulk and liquids terminal operations;

--A financial and operating profile expected to remain consistent with its current rating.

Other considerations include the company's relationship with Knight Inc., owner of its general partner interest (rated 'BB+', Outlook Stable, by Fitch), KMP's exposure to changes in commodity prices and volumes for its CO2 business segment, the economic effect from potential adverse regulatory rulings on its Pacific products pipelines, exposure to interest rates on its variable rate debt, and the company's aggressive expansion spending program.

KMP's growth plans include several large-scale construction and development projects with capital expenditures, including its pro rata capital expenditures of its 51%-owned Rockies Express Pipeline (REX) and 50%-owned Midcontinent Express Pipeline (MEP), expected to total over $3 billion in 2008. Fitch expects the growth initiatives to place temporary pressure on credit measures as incremental cash flows lag investment expenditures. In addition, increasing 3rd party construction costs and permitting delays have affected several ongoing pipeline projects, including REX which has seen its estimated cost to completion go from $4.4 billion to $5 billion. On balance, however, Fitch does not view KMP's growth unfavorably given the strong contractual support underpinning its major projects and the company's positive track record in developing and operating energy infrastructure assets.

Fitch expects KMP's debt-to-EBITDA, assuming the 51% proportional consolidation of REX's debt currently guaranteed by KMP, to approximate 4 times (x) in 2008. However, KMP's leverage ratios would strengthen should REX refinance its debt through project-specific financing that is non-recourse to its owners as is currently contemplated.

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.

SOURCE: Fitch Ratings

Fitch
   Ratings, New York Ralph Pellecchia, 212-908-0586 Peter Molica, 212-908-0288 or Media Relations: Brian Bertsch, 212-908-0549

Copyright Business Wire 2008 ********************************************************************** As of Friday,
   05-30-2008 23:59, the latest Comtex SmarTrend� Alert, an automated pattern recognition system, indicated an UPTREND on 04-16-2008
   for KMP @ $57.32. For more information on SmarTrend, contact your market data provider or go to www.mysmartrend.com SmarTrend
   is a registered trademark of Comtex News Network, Inc. Copyright � 2004-2008 Comtex News Network, Inc. All rights reserved.