El Paso is arranging $2.25 billion of secured and unsecured credit facilities to replace a total of $1.75 billion of secured revolvers and a $1.25 billion term loan "B" via its relationship lenders. The moves will lower borrowing costs as liquidity needs diminish at the Houston-based energy company.
The company signed an unsecured five-year, $500 million revolver with Deutsche Bank at LIBOR plus 2 1/4%, and it is arranging, through Citigroup and JPMorgan, a $1.25 billion revolver priced at LIBOR plus 1 3/4% and a $500 million deposit loan facility priced at LIBOR plus 2%. Currently, El Paso pays LIBOR plus 2 3/4% to borrow money under its various facilities, and slightly more to issue letters of credit.
Bill Baerg, investor relations manager at El Paso, said the company's liquidity needs will be less in the future as natural-gas contracts expire. Ben Tsocanos, analyst at Standard & Poor's, noted that El Paso put hedges in place on a significant amount of its gas production at low prices through its marketing and trading group that are in debt, but its exposure to gas prices is dropping and the company is replacing the hedges with collars. "Our trading book has gotten a lot smaller," said Baerg.
According to a recent regulatory filing, El Paso had $200 million of borrowing capacity remaining under its previous credit agreements. Baerg said El Paso currently has $970 million outstanding on the term loan, which will be refinanced with a combination of revolving credit and cash on hand.
El Paso was interested in Deutsche Bank's loan arrangement because it had a structure that allowed the company to obtain unsecured credit. The company's senior unsecured credit rating recently received a two-notch upgrade from Moody's Investors Service to B2. Standard & Poor's upgraded its rating of El Paso's senior unsecured debt to B.
El Paso's five year loan-only credit default swaps widened 10 basis points to 125 basis points on news the company would be refinancing. A trader said the LCDS widened because of concern that the new loan deal may be priced at the tight end of the pricing spectrum. Its 7% '11 bonds traded up to 100 1/4 from 98 5/8. Its term loan "B" fell to 100 1/8 from 100 3/8. A trader said the loan fell to around par because it will get paid back at that level.