El Paso Corp. said Friday it had completed a key element of its balance sheet “enhancement”, agreeing to sell $750 million of common stock at a net price of $42.50 per share through an underwritten public offering with J.P. Morgan Securities Inc. The sale price is a 5.6% discount to El Paso’s $45 closing stock price on Thursday (Dec. 20), with the underwriter retaining a 15% over-allotment option.

Claiming that the expeditious agreement proved El Paso’s ability to restructure its balance sheet “successfully and quickly,” CEO William A. Wise said, “timely implementation of this plan will allow us to gain market share during this time of industry uncertainty. We are now well on our way to achieving our goal of a 50% debt-to-total-capital ratio.” El Paso announced a four-step program to strengthen its capital structure, including selling assets, reducing capital spending, increasing equity and renegotiating certain debt covenants (see Daily GPI, Dec. 13).

El Paso’s latest move to bolster its balance sheet came as the ratings agencies, Moody’s Investors Service, Fitch and Standard & Poor’s all have cracked down on over-leveraged energy companies since the Enron debacle, downgrading some debt of Calpine and Mirant to junk status and issuing warnings on a number of others.

Analyst Curt Launer of Credit Suisse First Boston said removing the “equity issue overhang” was a positive move by El Paso, moving the company to a near-term “recovery price objective of $45-$50.” Credit Suisse also is maintaining a “strong buy” rating on the company, with a 12-month target price of $64. Credit Suisse also estimates that El Paso will show about $300 million in free cash flow before asset sale proceeds in 2002 and $600 million in 2003.

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