In an effort to restore its financial liquidity, El Paso Corp. said Tuesday two pipeline subsidiaries, Southern Natural Gas (Sonat) and ANR Pipeline, will launch note offerings this week to obtain $700 million. Most of the proceeds will be used to pay the parent company for transferring its ownership interests in Florida Gas Transmission (FGT) and Great Lakes Gas Transmission to Sonat and ANR, respectively.

Sonat will initiate an offering for $400 million of senior unsecured notes due 2010. Of that amount, El Paso will receive $295 million in cash in exchange for transferring the ownership and management of its 50% interest in Citrus Corp., parent of FGT, to Sonat, and Sonat will cancel out $305 million in receivables on its books with El Paso, said El Paso President Brent Austin. The fair-market value of El Paso’s interest in Citrus was estimated at $600 million.

Sonat will retain the remaining $95 million of the net proceeds from the note offering to fund capital projects this year, Houston-based El Paso said in a press statement.

ANR will seek an offering of $300 million of senior unsecured notes. At the same time, El Paso said it will transfer ownership of its 50% interest in Great Lakes to ANR at a fair market value of about $400 million. ANR is expected to use $267 million of the proceeds from the note offering to reduce loans owed to El Paso, and separately ANR will cancel $400 million in intercompany receivables with El Paso. ANR will retain $25 million of the funds from the note for its 2003 capital projects.

El Paso gets “some immediate liquidity from the transactions,” Austin told Daily GPI . Moreover, he said placing Citrus and Great Lakes with Sonat and ANR, respectively, was logical because it puts the ownership of the pipelines closer to the actual facilities. Citrus and Sonat are located in the Southeast, while ANR and Great Lakes serve the Midwest region.

Both Sonat and ANR will face interest rates of 9.5% for the $700 million note offerings. “That’s steep for the current market but that’s all they could get given the current liquidity trap,” said industry analyst John Olson of Sanders Morris Harris Inc.

In addition, El Paso said Tuesday it obtained a new $1 billion financial commitment in order to retire the projected $825 million net balance of its Trinity River financing in March of this year. The financing commitment was arranged by Salomon Smith Barney and Credit Suisse First Boston, the company noted.

The interest rate for the $1 billion financing arrangement is in the “mid-teens,” Olson said. “This is a company that has been financing bank lines [at] 2 1/2 to 3%,” he noted.

The parent also announced it has sold its European natural gas trading book for an estimated $80 million, including recovery of cash collateral.

Lastly, El Paso confirmed it has entered into an agreement with Oklahoma City, OK-based Chesapeake Energy Corp. to sell its Mid-Continent oil and gas reserves for $500 million (See Daily GPI, Feb. 25). The deal is expected to close in March.

The transaction expands the value of the El Paso asset sales to be carried out this year to $3.4 billion, according to the energy company. So far, it reported it has completed $1.05 billion , or 31%, of the scheduled asset sales for 2003.

Meanwhile, while the rest of the stock market was going down Tuesday, El Paso’s stock had gained 45 cents a share to close at $5. The company’s common stock has been steadily making its way back from its $3.45 low on Feb. 13.

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