EX-99.(C)(6) 2 a06-19974_4ex99dc6.htm EX-99.(C)(6)








 

Searchable text section of graphics shown above

 


 

Knight Updated Preliminary Model Outputs

 

 

May 13, 2006

 


 

I. Status Quo Financials

 

2


 

Status Quo – Knight, Inc.

Income Statement and Cash Flow Data

 

US$ in millions, except per share data

 

 

 

2007E

 

2008E

 

2009E

 

2010E

 

Income Statement

 

 

 

 

 

 

 

 

 

Segment EBITDA

 

 

 

 

 

 

 

 

 

NGPL

 

$

626

 

$

647

 

$

670

 

$

696

 

Terasen Gas

 

331

 

337

 

343

 

350

 

KM Canada

 

—

 

—

 

—

 

—

 

Retail

 

80

 

82

 

85

 

88

 

Power

 

24

 

24

 

24

 

24

 

G&A

 

(75

)

(80

)

(85

)

(90

)

EBITDA (ex Equity Income)

 

985

 

1,009

 

1,036

 

1,067

 

Equity Income - Non-KMP and KMR

 

32

 

32

 

38

 

38

 

Equity Income - KMP and KMR

 

859

 

1,150

 

1,332

 

1,468

 

Minority Interest

 

(86

)

(115

)

(132

)

(147

)

EBITDA

 

$

1,790

 

$

2,076

 

$

2,274

 

$

2,427

 

Depreciation and Amortization

 

218

 

223

 

227

 

232

 

EBIT

 

1,572

 

1,853

 

2,047

 

2,195

 

 

 

 

 

 

 

 

 

 

 

Net Interest Expense

 

(434

)

(454

)

(457

)

(456

)

Other Income/(Expense)

 

0

 

0

 

0

 

0

 

EBT

 

1,138

 

1,400

 

1,591

 

1,739

 

 

 

 

 

 

 

 

 

 

 

Book Tax Expense

 

(399

)

(506

)

(582

)

(642

)

 

 

 

 

 

 

 

 

 

 

Net Income

 

739

 

894

 

1,009

 

1,097

 

Average Shares Outstanding

 

134

 

132

 

132

 

131

 

EPS

 

$

5.51

 

$

6.76

 

$

7.65

 

$

8.36

 

 

 

 

 

 

 

 

 

 

 

Dividend Per Share

 

$

3.85

 

$

4.25

 

$

4.70

 

$

5.20

 

 

 

 

 

 

 

 

 

 

 

“Back of the Envelope” Free Cash Flow Per Share

 

 

 

 

 

 

 

 

 

Net Income

 

$

739

 

$

894

 

$

1,009

 

$

1,097

 

D&A

 

218

 

223

 

227

 

232

 

Deferred Tax Expense

 

(110

)

69

 

70

 

70

 

Maintenance CAPEX

 

(242

)

(242

)

(242

)

(242

)

“Back of the Envelope” Free Cash Flow

 

605

 

943

 

1,064

 

1,157

 

 

 

 

 

 

 

 

 

 

 

Dividends

 

516

 

562

 

620

 

682

 

Cash Flow Available After Dividend

 

89

 

382

 

444

 

474

 

Free Cash Flow Per Share

 

$

4.52

 

$

7.14

 

$

8.07

 

$

8.81

 

 

3


 

Knight Status Quo Value Creation

Sensitivity Analysis

 

US$ in dollars

 

Present Value of Pro Forma 2009 Combined Share Price

 

 

 

Forward P/E Multiple

 

Discount Rate

 

15.0 x

 

16.0 x

 

17.0 x

 

18.0 x

 

19.0 x

 

 

 

 

 

 

 

 

 

 

 

 

 

10.0

%

$

104.77

 

$

111.05

 

$

117.33

 

$

123.61

 

$

129.89

 

12.0

%

99.44

 

105.39

 

111.34

 

117.29

 

123.24

 

14.0

%

94.47

 

100.11

 

105.76

 

111.40

 

117.04

 

16.0

%

89.83

 

95.19

 

100.55

 

105.90

 

111.26

 

18.0

%

85.50

 

90.59

 

95.68

 

100.77

 

105.86

 

 

Premium to Current Price of $87.90

 

 

 

Forward P/E Multiple

 

Discount Rate

 

15.0 x

 

16.0 x

 

17.0 x

 

18.0 x

 

19.0 x

 

 

 

 

 

 

 

 

 

 

 

 

 

10.0

%

19.2

%

26.3

%

33.5

%

40.6

%

47.8

%

12.0

%

13.1

%

19.9

%

26.7

%

33.4

%

40.2

%

14.0

%

7.5

%

13.9

%

20.3

%

26.7

%

33.2

%

16.0

%

2.2

%

8.3

%

14.4

%

20.5

%

26.6

%

18.0

%

-2.7

%

3.1

%

8.9

%

14.6

%

20.4

%

 

Note: Includes dividends received.

 

 

4


 

II. Restructuring Case

 

5


 

Illustrative Knight, Inc. Restructuring Assumptions

 

US$ in millions

 

Assumptions

 

Transaction Risks

 

 

 

 

 

•  Knight, Inc. receives $1,600 in proceeds from asset sales

 

•    Achieving value in asset divestitures

 

•  $750: 100% of Trans Mountain sold to Knight Partners

 

 

 

•  $720: 100% of Retail

 

•    Share price assumption for repurchases

 

•  $175: 100% of Power

 

 

 

•  $225: 75% of Corridor – additional $377 of debt removed from the

 

•    Multiple contraction for Knight, Inc.

 

balance sheet

 

 

 

•  $270 in tax leakage

 

•    Trading value of NGPLCo

 

•  $36: 75% of Corridor sold

 

 

 

•  $(33): 100% of Power sold

 

•    Taxes

 

•  $135: 100% of Retail sold

 

 

 

•  $131: 100% of Trans Mountain dropped down to Knight Partners

 

•    Interest rates

 

•  Knight, Inc existing debt of $5,744 (excluding Terasen Gas and Corridor

 

 

 

debt) refinanced at 110%

 

•    Oil prices

 

•  Proceeds from assets sales and NGPLCo IPO used to fund tender

 

 

 

•  NGPLCo raises $2,179 in unsecured debt at 6.5%

 

•    MLP yield

 

•  GPCo raises $1,500 of unsecured debt at 6.5%

 

 

 

•  Knight, Inc. contributes 100% of NGPL and 100% of Terasen Gas to

 

•    Project overruns or delays

 

Knight NGPLCo

 

 

 

•  20% IPO of NGPLCo at 9.0x LTM EBITDA fully distributed multiple

 

•    Regulatory challenges or changes

 

•  10% IPO discount

 

 

 

•  5% gross spread

 

•    On-going or new litigation exposure

 

•  $20mm in legal and other transaction fees

 

 

 

•  Remaining 80% stake is spun-off to shareholders of Knight, Inc.

 

•    Continued complexity

 

•  Knight, Inc. effectively becomes Knight GPCo

 

 

 

•  $20mm annual G&A costs

 

 

 

•  Assumed to trade at a yield range of 3.5% to 5.0%

 

 

 

 

6


 

Knight NGPLCo

 

US$ in millions, except per share data

 

 

 

2007E

 

2008E

 

2009E

 

2010E

 

Knight NGPLCo - Income Statement

 

 

 

 

 

 

 

 

 

Segment EBITDA

 

 

 

 

 

 

 

 

 

NGPL

 

$

626

 

$

647

 

$

670

 

$

696

 

Terasen Gas

 

331

 

337

 

343

 

350

 

Equity Income - CustomerWorks / NGPL

 

10

 

10

 

10

 

10

 

Equity Income - Knight Canada

 

21

 

22

 

27

 

28

 

G&A

 

(54

)

(58

)

(63

)

(67

)

EBITDA

 

$

934

 

$

957

 

$

987

 

$

1,017

 

Depreciation and Amortization

 

(196

)

(201

)

(205

)

(209

)

EBIT

 

738

 

756

 

783

 

808

 

Interest Expense

 

(229

)

(223

)

(213

)

(203

)

Other Income/(Expense)

 

0

 

0

 

0

 

0

 

EBT

 

510

 

534

 

570

 

606

 

Book Tax Expense

 

(173

)

(182

)

(193

)

(206

)

Net Income

 

337

 

352

 

377

 

399

 

Average Shares Outstanding

 

134

 

134

 

134

 

134

 

EPS

 

$

2.51

 

$

2.63

 

$

2.81

 

$

2.98

 

 

 

 

 

 

 

 

 

 

 

LTM EBITDA Multiple (Fully Distributed)

 

9.0

x

9.0

x

9.0

x

9.0

x

Knight NGPLCo Share Price

 

$

46.82

 

$

49.34

 

$

52.56

 

$

55.86

 

Forward P/E

 

17.8

x

17.6

x

17.6

x

NA

 

Dividend Per Share (25% Payout Ratio)

 

$

0.63

 

$

0.66

 

$

0.70

 

$

0.74

 

Dividend Yield

 

1.3

%

1.3

%

1.3

%

1.3

%

 

 

 

2007E

 

2008E

 

2009E

 

2010E

 

Selected Cash Flow Data

 

 

 

 

 

 

 

 

 

Net Income

 

337

 

352

 

377

 

399

 

Equity Income

 

(10

)

(10

)

(10

)

(10

)

Cash from Equity Investments

 

10

 

10

 

10

 

10

 

D&A

 

196

 

201

 

205

 

209

 

Deferred Taxes

 

(48

)

25

 

23

 

22

 

Funds From Operations (FFO)

 

485

 

577

 

605

 

631

 

Change in Working Capital

 

(27

)

(27

)

(27

)

(27

)

Maintenance Capex

 

(215

)

(215

)

(215

)

(215

)

Growth Capex

 

(113

)

(113

)

(113

)

(113

)

Dividends

 

(84

)

(88

)

(94

)

(100

)

Cash Available for Debt Repayment

 

46

 

134

 

155

 

176

 

Debt Repayment

 

(46

)

(134

)

(155

)

(176

)

Debt Raised

 

2,179

 

—

 

—

 

—

 

 

 

 

2007E

 

2008E

 

2009E

 

2010E

 

Debt Summary

 

 

 

 

 

 

 

 

 

Unsecured Debt Outstanding at Beginning of Year

 

2,179

 

2,133

 

1,999

 

1,844

 

Additional Debt Issuance (Paydown)

 

(46

)

(134

)

(155

)

(176

)

Unsecured Debt Outstanding at End of Year

 

2,133

 

1,999

 

1,844

 

1,668

 

Interest Expense

 

(140

)

(134

)

(125

)

(114

)

 

 

 

 

 

 

 

 

 

 

Terasen Gas Debt

 

1,611

 

1,611

 

1,611

 

1,611

 

Interest Expense

 

(88

)

(88

)

(88

)

(88

)

 

 

 

 

 

 

 

 

 

 

Total Debt

 

3,744

 

3,610

 

3,454

 

3,279

 

 

 

 

2007E

 

2008E

 

2009E

 

2010E

 

Credit Metrics

 

 

 

 

 

 

 

 

 

Debt / LTM EBITDA

 

4.0

x

3.8

x

3.5

x

3.2

x

LTM EBITDA / Interest

 

4.1

 

4.3

 

4.6

 

5.0

 

FFO / Interest

 

3.1

 

3.6

 

3.8

 

4.1

 

FFO / Debt

 

13.0

%

16.0

%

17.5

%

19.2

%

 

7


Knight GPCo

 

US$ in millions, except per share data

 

 

 

2007E

 

2008E

 

2009E

 

2010E

 

Knight GPCo - Income Statement and Cash Flow

 

 

 

 

 

 

 

 

 

Knight Partners LP Distribution

 

109

 

130

 

146

 

156

 

Knight Partners GP Distribution

 

650

 

874

 

1,022

 

1,127

 

G&A

 

(20

)

(20

)

(20

)

(20

)

EBITDA

 

739

 

984

 

1,148

 

1,263

 

Existing Debt Interest Expense

 

(98

)

(98

)

(98

)

(98

)

EBT

 

641

 

886

 

1,051

 

1,165

 

Taxes

 

(244

)

(337

)

(399

)

(443

)

Net Income

 

397

 

549

 

651

 

722

 

Maintenance Capex

 

(4

)

(4

)

(4

)

(4

)

Growth Capex

 

(16

)

(46

)

(2

)

(6

)

Proceeds from Asset Sales

 

1,600

 

—

 

—

 

—

 

Asset Sales Debt Paydown

 

(1,455

)

—

 

—

 

—

 

Tender Premium

 

(145

)

—

 

—

 

—

 

Knight NGPLCo IPO Proceeds (Net of 10% Discount)

 

1,141

 

—

 

—

 

—

 

NGPLCo IPO Gross Spread (5%)

 

(57

)

—

 

—

 

—

 

Transaction Fees

 

(20

)

—

 

—

 

—

 

NGPLCo IPO Proceeds Debt Paydown

 

(967

)

—

 

—

 

—

 

Tender Premium

 

(97

)

—

 

—

 

—

 

Debt Raised at GPCo

 

1,500

 

—

 

—

 

—

 

Debt Raised at NGPLCo

 

2,179

 

—

 

—

 

—

 

Debt Tender

 

(3,323

)

—

 

—

 

—

 

Tender Premium

 

(332

)

 

 

 

 

 

 

Gross Spread on Debt Issuance

 

(24

)

—

 

—

 

—

 

Cash Available for Dividend

 

377

 

500

 

645

 

712

 

Dividend Paid

 

(377

)

(500

)

(645

)

(712

)

 

 

 

2007E

 

2008E

 

2009E

 

2010E

 

Debt Summary

 

 

 

 

 

 

 

 

 

Total Cash

 

—

 

—

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

Existing Debt Outstanding at Beginning of Year

 

7,732

 

1,500

 

1,500

 

1,500

 

Corridor Debt Removed

 

(377

)

—

 

—

 

—

 

Terasen Gas Debt Removed

 

(1,611

)

—

 

—

 

—

 

NGPLCo IPO Proceeds Debt Paydown

 

(967

)

—

 

—

 

—

 

Asset Sales Debt Paydown

 

(1,455

)

—

 

—

 

—

 

Debt Tender

 

(3,323

)

—

 

—

 

—

 

Debt Raised at GPCo

 

1,500

 

—

 

—

 

—

 

Debt Outstanding at End of Year

 

1,500

 

1,500

 

1,500

 

1,500

 

 

 

 

 

 

 

 

 

 

 

Shares Outstanding

 

134

 

134

 

134

 

134

 

Dividend / Share

 

2.82

 

3.73

 

4.82

 

5.32

 

Cash Flow Yield (Fully Distributed)

 

4.5

%

4.5

%

4.5

%

4.5

%

Knight GPCo Share Price

 

$

62.56

 

$

82.89

 

$

107.00

 

$

118.15

 

Knight NGPLCo Share Price (80%)

 

37.45

 

39.48

 

42.05

 

44.69

 

NGPLCo and GPCo Combined Value to Shareholders

 

$

100.02

 

$

122.37

 

$

149.05

 

$

162.84

 

Cumulative Dividends

 

3.44

 

7.83

 

13.35

 

19.41

 

Value at 1/1/2007 - 18% Discount Rate

 

87.68

 

93.51

 

98.84

 

94.00

 

 

8


Knight Restructuring Value Creation Analysis

 

US$ in dollars

 

Present Value of Pro Forma 2010 Combined Share Price(1)

 

NGPLCo LTM

 

GPCo Trading Yield

 

EBITDA Multiple

 

3.50%

 

4.00%

 

4.50%

 

5.00%

 

 

 

 

 

 

 

 

 

 

 

8.5

x

 

$ 109.49

 

 

$ 99.69

 

 

$ 92.08

 

 

$ 85.98

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9.0

 

 

111.41

 

 

101.62

 

 

94.00

 

 

87.91

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9.5

 

 

113.34

 

 

103.55

 

 

95.93

 

 

89.83

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.0

 

 

115.27

 

 

105.47

 

 

97.85

 

 

91.76

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.5

 

 

117.19

 

 

107.40

 

 

99.78

 

 

93.69

 

 

 

Premium to Current Price of $87.90(1)

 

NGPLCo LTM

 

GPCo Trading Yield

 

EBITDA Multiple

 

3.50%

 

4.00%

 

4.50%

 

5.00%

 

 

 

 

 

 

 

 

 

 

 

8.5

x

 

24.6

%

 

13.4

%

 

4.8

%

 

-2.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9.0

 

 

26.8

%

 

15.6

%

 

6.9

%

 

0.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9.5

 

 

28.9

%

 

17.8

%

 

9.1

%

 

2.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.0

 

 

31.1

%

 

20.0

%

 

11.3

%

 

4.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.5

 

 

33.3

%

 

22.2

%

 

13.5

%

 

6.6

%

 

 

Present Value of Pro Forma 2010 Combined Share Price(2)

 

 

 

GPCo Trading Yield

 

Discount Rate

 

3.50%

 

4.00%

 

4.50%

 

5.00%

 

 

 

 

 

 

 

 

 

 

 

12.0

%

 

$ 137.28

 

 

$ 125.21

 

 

$ 115.82

 

 

$ 108.31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14.0

%

 

127.89

 

 

116.65

 

 

107.91

 

 

100.91

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16.0

%

 

119.30

 

 

108.81

 

 

100.65

 

 

94.13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18.0

%

 

111.41

 

 

101.62

 

 

94.00

 

 

87.91

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20.0

%

 

104.17

 

 

95.01

 

 

87.89

 

 

82.19

 

 

 

Premium to Current Price of $87.90(2)

 

NGPLCo LTM

 

GPCo Trading Yield

 

EBITDA Multiple

 

3.50%

 

4.00%

 

4.50%

 

5.00%

 

 

 

 

 

 

 

 

 

 

 

12.0

%

 

56.2

%

 

42.4

%

 

31.8

%

 

23.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14.0

%

 

45.5

%

 

32.7

%

 

22.8

%

 

14.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16.0

%

 

35.7

%

 

23.8

%

 

14.5

%

 

7.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18.0

%

 

26.8

%

 

15.6

%

 

6.9

%

 

0.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20.0

%

 

18.5

%

 

8.1

%

 

0.0

%

 

-6.5

%

 

 

Note: includes dividends received.

(1) Assumes 18.0% discount rate.

(2) Assumes NGPLCo trades at 9.0x LTM EBITDA.

9