Southern Star Central

Southern Star Central

Southern Star Central Corp. is a 6,000 mile interstate natural gas pipeline that provides transportation and storage services to customers in the mid-western United States. Highstar invested in Southern Star in November 2002 and sold the company in August 2005. Highstar had a 100% interest in Southern Star.

Highstar's Value-Add

Adding Value In A Regulated Investment:

In late 2002, Highstar purchased Central, a 6,000 mile natural gas pipeline and storage business in the midwest from The Williams Companies.

Like the Northern Star power plants, Central was managed on a shared services basis; in this case with four other Williams natural gas pipelines. This meant that Central would come with no dedicated senior management post closing. In addition, Central had no independent brand and marketing focus. Nevertheless, in the diligence process we determined we could recruit a number of talented managers from within the Williams organization to come work for us, many of them with a familiarity with the asset. For much of our ownership period the Highstar Team led all financial and strategic initiatives at Central, while evaluating and grooming our new management team for executive-level positions. We did this successfully, including promoting Jerry Morris to CEO.

Under Williams' prior ownership, Central incurred substantial capital expenditures which were not included in the company's rate base. We saw this as an opportunity to significantly grow EBITDA. Key to the success of this strategy would be the support of Central's state regulators and major local gas company customers when the Federal Energy Regulatory Commission ruled on our request. We were successful in this effort, which was built around a significant increase in customer service levels. We and company management spent significant time with Central's state regulators and customers through this process to earn their goodwill and support.

In May 2005 Central received approval from the FERC for a rate increase that resulted in an increase of 19% in EBITDA. Shortly thereafter Highstar sold its equity interest in Central to a partnership comprising a financial buyer and a major pension fund investor. We believe the returns were significantly driven by the increase in EBITDA stemming from our regulatory strategy. In addition, the financial buyers highly valued the management team we assembled and deployed.