Debt

We classify our debt based on the contractual maturity dates of the underlying debt instruments. We defer costs associated with debt issuance over the applicable term. These costs are then amortized as interest expense in our accompanying consolidated statements of income. The following provides detail on the principal amount of our outstanding debt, which excludes debt fair value adjustments (which includes discounts and premiums), as of June 30, 2013 and December 31, 2012 (in millions):



	June 30, 2013			December 31, 2012
Kinder Morgan Energy Partners, L.P. borrowings:
Senior notes, 3.45% through 9.00%, due 2013 through 2043(a)	$	14,350		$	13,350
Commercial paper borrowings(b)	1,369			621
Credit facility due May 1, 2018(c)	—			—
Subsidiary borrowings (as obligor):
Tennessee Gas Pipeline Company, L.L.C. - Notes, 7.00% through 8.375%, due 2016 through 2037(d)	1,790			1,790
El Paso Natural Gas Company, L.L.C. - Notes, 5.95% through 8.625%, due 2017 through 2032(e)	1,115			1,115
Copano Energy, L.L.C. - Notes, 7.125%, due April 1, 2021(f)	510			—
Other miscellaneous subsidiary debt	103			186
Total long-term debt	19,237			17,062
Less: Current portion of debt(g)	(1,899		)	(1,155		)
Total long-term debt, less current portion of debt(h)	$	17,338		$	15,907

__________

(a)

All of our fixed rate senior notes provide that we may redeem the notes at any time at a price equal to 100% of the principal amount of the notes plus accrued interest to the redemption date plus a make-whole premium. On February 28, 2013, we completed a public offering of $1 billion in principal amount of senior notes in two separate series, consisting of $600 million of 3.50% notes due September 1, 2023 and $400 million of 5.00% notes due March 1, 2043. We received net proceeds of $991 million, and used the proceeds to pay a portion of the purchase price for our March 2013 drop-down transaction and to reduce the borrowings under our commercial paper program.

(b)

In May 2013, in association with the increase in capacity negotiated for our senior unsecured revolving bank credit facility (discussed below), we increased our commercial paper program by $500 million to provide for the issuance of up to $2.7 billion. Our senior unsecured revolving credit facility supports our commercial paper program, and borrowings under our commercial paper program reduce the borrowings allowed under our credit facility. As of June 30, 2013 and December 31, 2012, the average interest rates on our outstanding commercial paper borrowings were 0.33% and 0.45%, respectively. The borrowings under our commercial paper program were used principally to finance the acquisitions and capital expansions we made during the first half of 2013 and during 2012, and in the near term, we expect that our short-term liquidity and financing needs will be met primarily through borrowings made under our commercial paper program.


(c)	See “—Credit Facility” below.


(d)	Consists of six separate series of fixed-rate unsecured senior notes that we assumed as part of the August 2012 drop-down transaction.


(e)	Consists of four separate series of fixed-rate unsecured senior notes that we assumed as part of the August 2012 and March 2013 drop-down transactions.

(f)

Consists of a single series of fixed-rate unsecured senior notes that we guaranteed as part of our May 1, 2013 Copano acquisition. The notes consist of an aggregate principal amount of $510 million with a fixed annual stated interest rate of 7.125%. The notes mature in full on April 1, 2021, and interest is payable semiannually on April 1 and October 1 of each year. As part of our purchase price, we valued the debt equal to $589 million as of May 1, 2013, representing the present value of amounts to be paid determined using an approximate interest rate of 4.79%.


(g)	As of June 30, 2013 and December 31, 2012, includes commercial paper borrowings of $1,369 million and $621 million, respectively.

(h)

Excludes debt fair value adjustments. As of June 30, 2013 and December 31, 2012, our “Debt fair value adjustments” increased our debt balances by $1,417 million and $1,698 million, respectively. In addition to all unamortized debt discount/premium amounts and purchase accounting on our debt balances, our debt fair value adjustments also include (i) amounts associated with the offsetting entry for hedged debt; and (ii) any unamortized portion of proceeds received from the early termination of interest rate swap agreements. For further information about our debt fair value adjustments, see Note 5 “Risk Management—Fair Value of Derivative Contracts.”

Credit Facility

On May 1, 2013, we replaced our previous $2.2 billion three-year, senior unsecured revolving bank credit facility that was due July 1, 2016, with a new $2.7 billion five-year, senior unsecured revolving credit facility expiring May 1, 2018. Borrowings under the credit facility can be used for general partnership purposes and as a backup for our commercial paper program. We had no borrowings under the credit facility as of June 30, 2013. The credit facility’s financial covenants are substantially similar to those in our previous facility, and as of June 30, 2013, we were in compliance with all required financial covenants. The new facility provides that the margin we will pay with respect to borrowings and the facility fee we will pay on the total commitment will vary based on our senior debt credit rating. Interest on the credit facility accrues at our option at a floating rate equal to either:


▪	the administrative agent’s base rate, plus a margin, which varies depending upon the credit rating of our long-term senior unsecured debt (the administrative agent’s base rate is a rate equal to the greatest of (i) the Federal Funds Rate, plus 0.5%; (ii) the Prime Rate; or (iii) LIBOR for a one-month eurodollar loan, plus 1%); or


▪	LIBOR for a one-month eurodollar loan, plus a margin, which varies depending upon the credit rating of our long-term senior unsecured debt.

In addition, we had, as of June 30, 2013, $1,127 million of borrowing capacity available under our credit facility. The amount available for borrowing under our credit facility was reduced by a combined amount of $1,573 million, consisting of $1,369 million of commercial paper borrowings and $204 million of letters of credit, consisting of (i) a $100 million letter of credit that supports certain proceedings with the California Public Utilities Commission involving refined products tariff charges on the intrastate common carrier operations of our Pacific operations’ pipelines in the state of California; (ii) a combined $85 million in three letters of credit that support tax-exempt bonds; and (iii) a combined $19 million in other letters of credit supporting other obligations of us and our subsidiaries.

2013 Debt Retirements

In February 2013, prior to the close of the March 2013 drop down transaction, we and KMI each contributed $45 million to Kinder Morgan Altamont LLC to allow it to repay the outstanding $90 million borrowings under its revolving bank credit facility and following this repayment, Kinder Morgan Altamont LLC had no outstanding debt. In May 2013, we terminated the credit facility.

In addition to the senior notes we guaranteed as part of our May 1, 2013 Copano acquisition, the following Copano debt amounts were also outstanding upon acquisition: (i) $404 million of outstanding borrowings under Copano’s revolving bank credit facility due June 10, 2016; and (ii) $249 million aggregate principal amount of Copano’s 7.75% unsecured senior notes due June 1, 2018. On May 1, 2013, immediately following our acquisition, we repaid the outstanding $404 million of borrowings under Copano’s revolving bank credit facility, and we terminated the credit facility at the time of such repayment. On June 1, 2013, we paid $259 million (based on a price of 103.875% of the principal amount) to fully redeem and retire the 7.75% series of senior notes in accordance with the terms and conditions of the indenture governing the notes. As part of our May 1, 2013 purchase price, we valued the 7.75% senior notes equal to the $259 million redemption value. We utilized borrowings under our commercial paper program for both of these debt retirements.