El Paso Offers to Swap Debt - Analyst Blog

In a process to restructure its debts, El Paso Corporation (EP) announced that it will issue 6.50% notes due 2020 and swap them with its outstanding 12.0% senior notes due 2013.

The exchange offer is valid till October 7, 2010. However, El Paso has also fixed an early exchange date of September 23, 2010, for swapping the notes. Existing holders of the notes, who tender their notes on or before the early exchange date, will be eligible for an additional early exchange premium.

El Paso’s exchange offer is subject to certain conditions; one among them is that the company needs to receive valid tenders, not validly withdrawn, of at least $300 million aggregate principal amount of 12.0% senior notes, on or prior to the early exchange date.

The interest and debt expenses of El Paso at the end of second-quarter 2010 were $284 million versus $253 million at the end of second-quarter 2009. We expect with the swapping of debts, the interest expense to come down going forward.

The adjusted earnings of El Paso at the end of second-quarter 2010 were 22 cents per share compared with 25 cents per share in the year-ago comparable period. The Zacks Consensus Estimates for third quarter fiscal 2010, fiscal year 2010 and fiscal year 2011 are 21 cents per share, 99 cents per share and $1.07 per share, respectively.

El Paso competes head-to-head with Transmontaigne Partners L.P. (TLP), Williams Companies Inc. (WMB) and Buckeye GP Holdings L.P. (BGH). However, in the trailing twelve months, the net margin of the company fared better than its peers.

El Paso currently retains a Zacks #3 Rank (short-term Hold rating). We also maintain a Neutral rating on the stock.

Based in Houston, Texas, El Paso operates in the natural gas transmission, and exploration and production sectors of the energy industry primarily in the United States.