Five-year credit protection on El Paso Corp. dramatically widened last Wednesday, blowing out to 1,250 basis points, from 1,000 bps where it had traded the previous week, said a New York-based trader. The move followed an announcement by the energy company last Wednesday of its intention to cut its dividend by as much as 82%, sell USD2.9 billion in assets and cut capital spending, the trader noted.
One trader noted that in spite of the spread movement, widening on many of the more liquid credits in the U.S., such as El Paso, has been tempered by large flows of cash into the bond market. In spite of bad earnings pronouncements being made by many firms, the bond market is seeing huge inflows from real money accounts, such as mutual fund managers, and this is having an overall tightening effect on credit protection, he noted.
Hugh Welton, senior director at Fitch Ratings in New York, said El Paso's announcement last Wednesday was not unexpected. While Fitch doesn't give a rating to El Paso Corp., on Jan. 31 the agency downgraded the firm's Cedar Brakes I and Cedar Brakes II senior secured bonds, representing a total of USD742 million, to BB from BBB.
In order to take the bonds off negative watch, which they have been on since October, Fitch is looking for El Paso to execute its planned sales of non-core assets as well as renegotiate or renew its bank credit facilities, Welton said.
Five-Year Credit protection On El Paso*