El Paso Corp. received another vote of confidence by a credit ratings agency after Moody’s Investors Service Thursday upgraded the corporation and its subsidiaries’ ratings by two notches and affirmed a “positive” rating outlook. The upgrades, said Moody’s, follow El Paso’s progress in meeting its 2006 financial goals after reducing about $2 billion of its debt since the beginning of the year and selling $500 million of common stock in May.
Standard & Poor’s Ratings Services upgraded El Paso’s credit ratings on Tuesday (see Daily GPI, May 31).
“The substantial debt reduction this year and the common stock offering mark a turning point in El Paso’s credit history that warrants a two-notch upgrade,” said Moody’s Vice President Mihoko Manabe. “The offering allowed for reduction of debt and demonstrated access to the stock market.”
Deleveraging, said Moody’s, has stabilized El Paso’s credit profile and supports its long-term viability.
“Over the last three years, the company has reduced its business risks through sales of more volatile, unprofitable business assets. With its divestment program and business restructuring about complete, Moody’s expects El Paso’s financial results to gain traction and to reflect more clearly the steady-state performance of its core pipeline and [exploration and production] E&P businesses than has come through during the past few years of financial distress and restructuring.”
The E&P business “has yet to demonstrate sustained organic production volume growth in the offshore and South Texas regions that have been problematic in the past,” but Moody’s noted its reserve portfolio and spending program “have become more balanced so as to promote more repeatability in the future. It has demonstrated sustained organic growth in its predominant onshore region and has recently had some drilling successes. The company continues to maintain adequate liquidity resources to meet its foreseeable cash requirements over the near term.”
The “positive” outlook “could accelerate as much of its remaining legacy power and trading assets are eliminated over the course of 2006.” However, the credit ratings agency said it “remains cautious as to the aggressive financial goals that El Paso has set out for itself in 2006, which incorporates expectations of a dramatic year-over-year turnaround in the company’s profitability.”
Problems could result, said Moody’s from commodity price fluctuations — El Paso’s recovery plan is based on 2006 average $8/MMBtu Henry Hub prices, about $2 higher than the current spot price — or a downturn in its E&P operating performance.”If the company fully achieves its current financial plan, its ratings could again be upgraded over the next 12 to 18 months.”
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