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Hammered at FERC and on Wall Street, El Paso Says Liquidity Is Strong
Embattled El Paso Corp. assured investors that its liquidity position remains “strong” in the wake of Moody’s Investor Service’s decision Wednesday to lower its rating on the company’s $23 billion in debt to near junk status.
In taking the action, Moody’s cited concerns about the low level of El Paso’s cash flow compared to “substantial debt,” although it acknowledged the company’s liquidity appeared to be adequate to meet its “foreseeable near-term obligations.” Moody’s estimated El Paso’s cash balance at about $1 billion, net of $250 million of commercial paper outstandings, and said the company also would have access to a $3 billion bank facility in May 2003.
As of Sept. 30, El Paso pegged its net available liquidity at a slightly higher amount of $4.5 billion, including $1.3 billion in cash and $4 billion in bank facilities (minus $800,000 of commercial paper outstandings and other uses).
The energy company contends it has made “significant progress in strengthening its financial profile and creditworthiness” over the past 10 months. It noted it has issued $2.5 billion of equity securities, completed or announced $2.5 billion in asset sales, eliminated $4 billion of rating triggers and reduced costs by approximately $300 million. El Paso plans to sell another $2.5 billion in assets this year and next.
“El Paso is disappointed that Moody’s rating action appears to be influenced by the market uncertainty created by the recent proposed decision by a Federal Energy Regulatory Commission Administrative Law Judge,” who ruled last week that subsidiary El Paso Natural Gas withheld large amounts of pipeline capacity from customers to drive up natural gas prices during the California energy crisis in 2000-2001. The judge recommended that the full Commission take penalty action against El Paso, possibly ordering refunds.
El Paso’s stock has taken a beating on Wall Street following the FERC judge’s decision, closing down at $6.90 a share Wednesday. Its stock was up slightly at $7.32 in early trading Thursday, but it’s a far cry from the $54 that it went for a year ago.
“El Paso believes that this decision is fundamentally flawed and will be overturned” by the full Commission, which has the option to accept or reject in full or in part the FERC judge’s ruling. FERC Chairman Pat Wood has indicated the agency will issue a ruling by the end of the year.
“If the order is unfavorable, the company is likely to pursue a rehearing by the FERC and, if necessary, an appeal in the federal courts,” Moody’s said. “While the ultimate impact of these proceedings will not be known for some time, they could potentially bring about other litigation and proceedings that could have a negative effect on El Paso’s financial position or business operations.”
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