El Paso Corp.'s bank debt took a dive last week on reports that the company has drawn down on its $1 billion credit due in August. Dealers said a block of the bank debt traded out of an original lender in the mid-80s, slipping from the low 90s. "They drew down on the bank debt, which has everyone spooked. Why do you want to draw down on something maturing in August?" one dealer commented. Calls to Dwight Scott, El Paso cfo, were referred to a spokeswoman. She said the company indicated in a recent presentation that it might draw down on its lines to maximize liquidity. She did not respond to questions regarding how El Paso plans to deal with its near-term bank debt maturities.
By last Thursday, some market players indicated the bank debt was in the high 70s-low 80s, while others maintained it still stood in the mid-80s range. The company also has a $3 billion 364-day revolver maturing in May, though this credit has a term-out option. About $1.5 billion of that credit remains outstanding.
Recent management shake-ups and pressure from rating agencies over the last couple of weeks have added to investor concerns. Most recently, Moody's Investors Service slashed the Ba2 rating on El Paso's bank debt to Caa1. Lower expectations for operating cash flows, a highly leveraged position, increased debt repayments, and the uncertainties associated with the Federal Energy Regulatory Commission's ruling on El Paso's alleged exercise of market power contributed to the downgrade.