Moody's upgrades El Paso

Moody's Investors Service said it upgraded El Paso Corp.'s corporate family rating to Ba3 from B2, subordinated convertible bond rating to B2 from Caa1, senior secured bank credit facility to Ba1 (LGD2, 26%) from Ba3 (LGD2, 26%) and senior unsecured regular and convertible bond ratings to Ba3 (LGD4, 51%) from B2 (LGD4, 52%).

The agency also upgraded the 4.75% trust convertible preferred securities of El Paso Energy Capital Trust I to B2 (LGD6, 96%) from Caa1 (LGD6, 96%); the senior unsecured debentures of El Paso Tennessee Pipeline Co. and the performance-linked trust securities of El Paso Performance-Linked Trust to Ba3 (LGD4, 51%) from B2 (LGD4, 52%); the senior unsecured bond ratings of El Paso Natural Gas Co., Southern Natural Gas Co., Tennessee Gas Pipeline Co. and Colorado Interstate Gas Co. to Baa3 from Ba1; the senior unsecured regular and convertible bond ratings of Sonat Inc. and El Paso CGP Co. to Ba3 from B2 and the subordinated bond rating of EL Paso CGP to B2 from Caa1.

The ratings of El Paso Exploration & Production Co., including its Ba3 corporate family rating, were confirmed.

This concludes the review for possible upgrade begun on Feb. 28 and follows El Paso's announcement that it will use up to $3.3 billion of the proceeds from the ANR Pipeline sale to retire parent company debt. The outlook is positive.

After nearly five years of financial distress and company restructuring, El Paso returned to profitability in 2006 and looks capable of sustaining it, Moody's said, now that it has lower debt, has substantially completed its exit from non-core businesses and has eliminated a number of its contingent liabilities. The retirement of $3 billion of debt and the elimination of $744 million of ANR debt would reduce almost a quarter of El Paso's consolidated debt and interest expense, though the company would still be leveraged on an absolute basis with $12 billion of debt.

The agency said the upgrade in El Paso's corporate family rating reflects its progress in decreasing parent-level debt and legacy energy merchant assets and obligations and that the upgrade of the pipeline subsidiaries reflects the lessened burden placed on them by parent debt.

El Paso's ratings remain constrained by the relative operational weaknesses of El Paso Exploration & Production and the parent debt's structural subordination to subsidiary debt, Moody's said.

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