Five-year credit-default swap spreads on energy giant El Paso Corp. tightened more than 200 basis points last week as positive news emerged out of the embattled energy sector. Protection on El Paso narrowed to 750-850 basis points Wednesday from 1,050bps Monday, according to traders. "El Paso has revised some of its financing, so its liquidity has improved and there's some positive sentiment coming out of the sector as a whole," said one New York trader.
Bullish statements from Williams Companies, which said last week that it expects more than USD1 billion in profits this year from its pipeline and energy distribution business, were also behind El Paso's move. Protection on distressed Williams does not trade, so the market used El Paso as a proxy, said traders. Despite the tighter spreads El Paso is far from being viewed as a safe credit. Analysts said despite the tightening, El Paso and the sector face an uphill struggle. Jon Kyle Cartwright, a senior energy analyst at Raymond James & Associates in St. Petersburg, Fla., said the movements are a sign that the market's opinion of El Paso may be beginning to shift. "It's an indication the market is feeling better about the company. It's positive but it's a painful path," he said of El Paso's rehabilitation program.
Five-Year Protection On El Paso
