Capital Markets

El Paso Reopens Junk Bond Pipeline

El Paso Corp. prices the first junk bonds to be offered in more than a month.
Stephen TaubDecember 9, 2008

The first junk bond offering in more than five weeks was priced Tuesday afternoon when El Paso Corp., the natural gas producer and pipeline company, announced it had successfully issued $500 million of five-year notes.

The 12 percent notes were priced at a discount generating a yield of 15.25 percent, or a whopping 1,325 basis points over comparable Treasuries. The issue, however, was the first junk bond sale since October 30, breaking the worst downturn in that market on record.

The company said it expects the offering to close on Friday. The notes are being offered under El Paso’s shelf registration statement.

The company said it plans to use proceeds for general corporate purposes, including the repayment of debt maturing during 2009, which will exceed $1.06 billion.

The new debt is rated Ba3 by Moody’s Investors Service and BB-minus by Standard & Poor’s, according to Bloomberg.

“Today’s successful debt offering demonstrates El Paso’s strength and ability to access the capital markets, even in these turbulent times,” said Doug Foshee, president and chief executive officer of El Paso. “We are pleased with this important step in our progress towards meeting the company’s 2009 capital needs.”

The last junk offering took place on October 30, when casino operator MGM Mirage sold about $700 million in five-year notes, according to Reuters.

However, market researchers expect a number of companies to come to market next year to refinance debt as banks lending remains sparse.

Reuters pointed out that year-to-date, junk bonds have lost a record 32.5 percent in value.