Wachovia analyst says El Paso common dividend cut boosts convert by $3.23

By Ronda Fears

Nashville, Feb 5 - El Paso Corp.'s 82% cut to its common dividend equates to a $3.23 boost to the 9% mandatory's theoretical value, said Wachovia Securities, Inc. convertible analyst Kimberlee Brody.

Still, the analyst noted in a report Wednesday that at 29.9 versus $8 for the stock, the mandatory is 5.83% rich.

That is based on a credit spread of 1,912 basis points over Treasuries and 60% volatility in the common, with the common yielding 2%.

The current yield on the convert at 29.9 is 15%.

With a 25% movement in the stock, the convert will participate 80% on the upside and 47% on the downside.

The dividend cut was part of a five-prong turnaround plan announced by El Paso early Wednesday.

El Paso's plan also includes selling some $2.9 billion of assets and strengthening its balance sheet with a target of reducing debt by $2.5 billion.

The company also said it expects to post a loss for fourth quarter and 2002, citing charges related to exiting energy trading, new accounting rules and asset impairments. The company plans to release results in mid-March.

For 2003, El Paso said it expects ongoing earnings of about $1 a share.

At Jan. 31, the company said it had $2.6 billion in available liquidity and may draw all or part of its available bank facilities in an effort to maximize liquidity.

The El Paso mandatory closed on the New York Stock Exchange down 3.82 points to 26.08. The common stock ended down $1.80 to $6.20.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.