El Paso Corp. was in the unenviable position of being the most traded common stock on the New York Stock Exchange Wednesday because investors were continuing a sell-off. The company’s stock dropped a little over 22% to $3.65. The market overall was down on war fears, and other energy companies took a hit, but not in the same league as El Paso.

Thursday’s fall-off was a continuation of a precipitous downturn since El Paso announced a week ago it would cut its dividend 82% to 16 cents annually, sell off another $2.9 billion in assets and exit the liquefied natural gas (LNG) business to reduce debt (see Daily GPI, Feb. 6). Then Tuesday morning it was announced El Paso Chairman Bill Wise would step down by the end of the year (see Daily GPI, Feb. 12). The company’s stock has dropped 54% since the first announcement and continues to set new lows. Its 52-week high was above $46.

Following on downgrades by several investment houses, Moody’s Investors Service dropped its rating on El Paso by five notches Tuesday afternoon. Moody’s downgraded the senior unsecured corporate debt ratings to Caa1 from Ba2 and lowered the ratings for its subsidiaries. The rating outlook is negative. In short form, Moody’s saw too much debt and too little cash.

The long form: Moody’s said the downgrades reflect: “1) significantly reduced near-term expectations for operating cash flows; 2) debt that remains high relative to the company’s cash flows; 3) the strain on liquidity from the increase in debt repayments required this year; 4) the uncertainty as to whether asset sales will provide sufficient and timely proceeds to help cover its larger-than-expected cash deficit; and 5) execution risks related to EP’s efforts to scale back its merchant energy activities, including exiting energy trading, consolidating the power business of its Electron affiliate, and divesting its petroleum and LNG businesses.”

The negative outlook reflects the ratings agency’s concern over operating cash flows and debt repayments, along with the uncertainties related to the ruling expected soon from FERC regarding the alleged exercise of market power and violations of marketing affiliate rules. “While the ultimate impact of these proceedings will not likely be known for some time, these proceedings could potentially precipitate other litigation and proceedings that could have a more immediate negative impact on EP’s financial position, liquidity, or business operations,” Moody’s said.

Moody’s notes that El Paso may not announce its 2002 results until March. The agency assessed the company’s various debt and credit arrangments and the prospects for asset sales to relieve the financial pressure. El Paso has raised its estimated asset sales this year from $2 billion to $3 billion, but the bulk of the planned sales are in power and petroleum assets, which the company may have trouble unloading in the current market.

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