El Paso Corp.'s bank debt plunged almost 20 points last week after the Federal Energy Regulatory Commission disclosed that the company's pipeline subsidiary would be held responsible for withholding capacity from California during the state's 2000/2001 energy crisis. A $5-10 million trade in the 75-77 range created quite a buzz in the market as the paper had been in the 90s. Market players were taken aback by the low levels at which the trade was posted and the relative quiet surrounding the parties involved in the trade. The buyer and seller could not be determined.
Whether the piece that changed hands was from the company's 364-day, $3 billion revolver with term-out option or its three-year, $1 billion revolver could not be determined, but many traders speculated that it was the shorter-term paper that had moved. The three-year paper was being bid at 80 at the time of the post, which led people to believe it was the piece with the term-out option that merited the lower pricing, one market source said. But dealers said the trade was an anomaly--one completed in a moment of panic--and toward the end of the week the paper was quoted at 80.
The recent noise surrounding El Paso Corp. has cast doubt on the syndication by J.P. Morgan of a $250 million credit facility for the master limited partnership, El Paso Energy Partners. While the MLP is a separate legal entity from El Paso Corp. and the subsidiary in question, the assets held by the MLP were owned by the corporation at the time that the natural gas pipeline system was said to exercise market power, explained one trader. He wondered, if El Paso spun off these assets into a separate entity but still has a minority interest in the MLP, does the liability transfer down? If it doesn't, then why wouldn't other companies sell all of their assets to a linked entity and declare bankruptcy at their shell corporation level when they run into trouble, he reasoned.
It could not be determined whether or not there would be significant changes to the $250 million loan for the MLP or if the deal would be pulled altogether. "[The banks] are trying to make guys comfortable with the fact that El Paso Energy Partners had nothing to do with the corporation," one trader said, noting that the deal could be a tough sell because of the sector's problems. Calls to Brent Austin, cfo of El Paso Corp., were referred to a spokesman, who did not return calls. Calls to Keith Forman, cfo of El Paso Energy Partners, were not returned. A J.P. Morgan banker did not return calls.