Can't win department. The effect of blowing Enron will remain with the rating agencies for a loooong time.
Moody's Confirms El Paso Corp At B3
DOW JONES NEWSWIRES
The following is a press release from Moody's Investors Service:
New York, December 15, 2003 -- Moody's Investors Service confirmed the ratings of El Paso Corporation (EP, B3 senior implied) and its subsidiaries with a negative outlook, following EP's unveiling of its turnaround plan, which provides only a modest near-term change from its pre-existing initiatives and limited immediate change from factors we considered in changing its outlook to negative last month. The negative outlook reflects the numerous challenges and extended time frame in executing this plan and our assessment that there will not be a material improvement in the company's credit profile in the immediate future. In the meantime, EP continues to face sinking natural gas production, falling but still heavy spending needs, and exposure to volatile natural gas prices.
EP announced the sale of half of its general partner interest in GulfTerra Energy Partners, L.P. (Ba2 sr. imp.) to Enterprise Products Partners (Enterprise Products Operating L.P. rated Baa2 sr. uns.) which will generate about $330 million of cash immediately and, contingent on regulatory and unitholder approvals, approximately $650 million (including the sale of processing plants) in the latter half of 2004. The consummation of this sale, together with a proven turnaround of EP's E&P business, are keys to strengthening EP's credit profile over the next year.
EP is mired in poor profitability due to production declines at its E&P unit (a key to return to financial health), underperforming merchant businesses that it may not be able to exit for some time, and high interest expense that has exceeded reported operating income. Negative cash flows have moderated but potential for large deficits remain. The full realization of the plan will depend on the positive alignment of numerous factors that may be outside EP's control. It will take time to demonstrate its success in managing controllable factors, such as cost reduction, and improving profitability while continuing to reduce capex. Execution risk is underscored by the time it will take to fully implement the plan, with expectation of some near-term weakness (particularly in E&P), even under benign assumptions. Significant iterations are possible as the plan is implemented.
The turnaround plan seeks to meaningfully improve EP's creditworthiness by 2006 and continues many of the initiatives that the company has been implementing for over the past year: asset sales to pay down debt to levels in line with its core businesses' debt capacity, conservation of liquidity, and exit from investments outside its pipeline and E&P businesses. Over the next two years, the success of the plan as contemplated will entail selling over $3 billion of assets (the largest pieces including the GulfTerra GP interests and the domestic contracted power portfolio); using those proceeds to pay down $5 to $7 billion of debt (almost $2 billion of which is non-recourse debt associated with its power business); and profitably transitioning its E&P business to a model with a more sustainable production profile. The plan makes assumptions as to the timing of asset sales and access to the capital markets, which may not always be as favorable as they were this year. During this period, it may remain difficult to discern a baseline for recurring earnings as businesses continue to be sold, restructured, and written down. As part of our monitoring EP's E&P segment, Moody's plans to assess the results of Ryder Scott's report once they complete their independent review of the company's reserves.
The following ratings have been confirmed with a negative outlook:
El Paso Corporation - Senior unsecured debt Caa1, senior implied B3, subordinated Caa3, senior unsecured shelf (P)Caa1, subordinated shelf (P)Caa3, preferred shelf (P)Ca, SGL-3 speculative grade liquidity rating; B3 secured credit facility;
El Paso CGP Company - Senior PRIDES Caa1, senior unsecured Caa1, subordinated Caa3;
ANR Pipeline Company - Senior unsecured B1, long-term issuer rating B1;
Colorado Interstate Gas Company - Senior unsecured B1, long-term issuer rating B1;
Coastal Finance I -- Trust preferred stock Caa3;
El Paso Natural Gas Company - Senior unsecured B1, long-term issuer rating B1;
El Paso Tennessee Pipeline Co. - Senior unsecured Caa1, preferred stock Ca, senior unsecured shelf (P)Caa1, preferred shelf (P)Ca;
Tennessee Gas Pipeline Company - Senior unsecured B1;
Sonat Inc. -- Senior unsecured Caa1;
Southern Natural Gas Company - Senior unsecured B1;
El Paso Production Holding Company - Senior implied B2, senior unsecured B2, issuer rating B3;
El Paso Energy Capital Trust I -- Trust preferred stock Caa3;
El Paso Capital Trust II -- Shelf (P)Caa1/(P)Caa3;
El Paso Capital Trust III -- Shelf (P)Caa1/(P)Caa3;
Gemstone Investor Limited - Senior unsecured guaranteed notes Caa1. |
