IPAA Private Capital Conference

1
Kayne Anderson Capital Advisors

• IPAA Private Capital Conference
• January 18, 2007

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Who is Kayne Anderson?

• Kayne Anderson is an LA-based investment firm
  with a 22 year track record
• Kayne Anderson manages 6.7 billion in assets
• 55 employees in Los Angeles and Houston
• 30 investment professionals
• Strong focus in the energy sector
• 80 of assets are in upstream and midstream
  companies
• 5.4 billion invested in public and private
  securities of energy companies

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Strong Energy Focus

• Energy private equity
• First fund raised in 1998
• Raised four funds totaling 1.9 billion
• Headquartered in Houston 8 professionals
• Focus on equity investments in private and public
  upstream companies
• Midstream energy investments
• Largest player in MLP space
• 3.2 billion held through 3 publicly traded
  closed end funds
• 500 million of midstream assets held in private
  funds
• Represents over 5 of total sector float
• Completed 23 PIPE transactions for over 1.1
  billion

4
Public Funds

• Kayne Anderson MLP Investment Company (NYSE KYN)
• IPO in September 2004
• Raised approximately 830 million in IPO
• Raised over 475 million in subsequent debt and
  equity offerings
• Currently manage 1.9 billion in assets
• 100 MLP focus
• High concentration of PIPE transactions
• Kayne Anderson Total Return Fund (NYSE KYE)
• IPO in June 2005
• Raised approximately 800 million in IPO
• Currently manage 1.1 billion
• Broader energy income focus
• MLPs
• Canadian trusts
• Marine transportation
• Term B debt for EP companies

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Public Funds (Contd)

• Kayne Anderson Energy Development Company (NYSE
  KED)
• IPO in September 2006
• Raised 250 million in IPO
• Structured as a business development company or
  BDC
• Focus on private midstream energy companies
• Target portfolio
• 60 private midstream companies
• 30 public midstream companies (MLPs)
• 10 term B loans
• Preferred structure for private companies is
  private MLP
• Will invest in other mezzanine structures as
  appropriate

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Private MLPs

• Strategic rationale
• Relatively few options are available to finance
  private midstream companies
• Return expectations of private equity are very
  high
• Typically require ceding control
• Liquidity requirements over some fixed period of
  time
• Target companies
• Not yet of the size to go public
• Additional requirements of a public company are
  unattractive
• Experiencing rapid growth that public markets
  wouldnt fully monetize

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Private MLPs

• Benefits
• Valuation at or near public company valuations
• Yield is 150 to 200 bps above public company
  comps
• Depending on business, yield is 8.5 9.5
• Disproportionate share of upside
• Deferred Partnership Units
• Incentive Distribution Rights or High Splits
• No public reporting requirements
• No Sarbanes-Oxley
• Non-controlling interest
• May have one board seat or observation rights
• Permanent vehicle with no liquidity requirements
• KED is a permanent capital fund

8
Private MLP Millennium Midstream Partners

• Millennium was formed in December of 2002 by John
  OShea and Kevin Coxon
• Gas gathering, treating and processing assets in
  Texas, Louisiana and Gulf of Mexico
• Not yet large enough to access public markets
• Formed a private MLP with Kayne Anderson as lead
  investor
• Kayne Anderson invested 47.5 million for a 39
  limited partnership interest
• Co-investors included Tortoise Capital and Wells
  Fargo
• Capitalization was consistent with a public MLP
• Approximately 60 of LP interests are common
  units owned by new investors
• Approximately 40 of LP interests are
  subordinated units retained by management and
  other existing equity
• 2 general partner interest is retained by
  management
• 35 million term loan and 25 million revolver
  (10 million drawn)

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Private MLP Millennium Midstream Partners
(Contd)

• New capital used to
• Repay existing debt
• Provide cash dividend to shareholders
• Conservative leverage position provides capital
  for future growth
• Pro forma Debt / EBITDA ratio of 3.2x based on
  run rate
• Pro forma Debt / EBITDA ratio of 2.4x based on
  2007E
• Attractive valuation metrics
• Total Enterprise Value / Run Rate EBITDA 12.0x
• Total Enterprise Value / Projected EBITDA 9.0x

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Private MLP Millennium Midstream Partners
(Contd)

• Significant upside retained by management
• Approximately 1.5 million Deferred Participation
  Units were issued to management
• Conversion into subordinated units upon liquidity
  event (IPO or sale)
• Value converted based on outside investors
  appreciation
• Substantial majority of IDRs (high splits) upon
  an IPO
• Provides GP the right to up to 50 of marginal
  cash flows
• Upside potential can be substantial
• Assumptions
• EBITDA increases to 25 million in 2008
• IPO yield of 7.5
• Valuation of managements partnership interests
  and DPUs increases by over 25 million, or 48

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Other Targeted Investments

• Joint Venture MLPs
• Target public and private EP companies with
  midstream assets
• Form private MLP to hold midstream assets
• GP is wholly owned subsidiary of an EP company,
  which operates and controls the assets
• Disproportionate share of upside is retained by
  the sponsor company
• Traditional high splits retained by sponsor
• Gives 50 of cash flows to GP above certain
  levels
• Benefits of a Joint Venture MLP
• Valuation substantially higher than valuation of
  EP assets
• Avoids public company filing and disclosure
  requirements
• Transaction provides capital to grow core EP
  business
• Joint Venture can be self financing to grow
  midstream assets
• Disproportionate upside

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Conclusion

• Private MLP can offer an attractive vehicle for
  monetize and asset or creating a vehicle for
  growth
• Can be used as a pre-IPO financing or in a
  permanent vehicle that is never designed to go
  public
• Valuation near public company multiples
• Disproportionate upside while retaining control
  of company
• Structure more suited to relatively low risk of
  midstream assets

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Contact Information

• Jim Baker
• Managing Director
• [phone]
• jbaker_at_kaynecapital.com
• Jody Meraz
• Associate
• [phone]
• jmeraz_at_kaynecapital.com

Kevin McCarthy President and CEO (713)
655-7357 kmccarthy_at_kaynecapital.com Ron
Logan Managing Director [phone] rlogan_at_kayn
ecapital.com Ryan Scott Associate (713)
655-0122 rscott_at_kaynecapital.com