Credit watch

Despite volatility in the underlying energy markets, the median energy* company CreditGrade tightened by 8 basis points (bp) in the month from February 19 to March 20. As the graph shows, the energy CreditGrade has now tightened to its lowest level post-September 11, 2001, and at 165bp is some 90bp tighter than its highs of 260bp of summer 2002.

In terms of specific names, this month’s top-two tighteners – El Paso Corp and Williams – were last month's top wideners.

El Paso tightened by 115bp, as it replaced its chairman and chief executive, William Wise, closed on a $1.2 billion two-year loan, sold certain non-core assets – bringing it to 45% of its targeted amount of asset sales for the year of $1.35 billion – and, most recently, reached a settlement with California over claims that the company conspired to drive up power prices during the state’s energy crisis.

Williams tightened by 106bp, as it announced it had swung to an unexpected profit in the fourth quarter of 2002, and said it expects to generate $2.8 billion of cash at year-end through asset sales and financings and to have sufficient liquidity to meet debt obligations and operate its businesses.

The bullish tone of the energy sector was underscored by the relatively minor widening of this month’s top wideners. Leading the list was Hanover Compressor, a provider of natural gas compression services, which widened by 38bp as it posted a fourth-quarter loss as it took charges on the sale of its California power generation assets and some used equipment business lines.

* ‘Energy’ for CreditGrades purposes refers to companies defined as being in the energy sector by Bloomberg. Bloomberg has 10 sectors, and there are 167 companies in the energy sector. For the ‘top movers’, we restrict this universe to companies with market capitalisations greater than $400 million. In addition, the firms we analyse here are listed either on the New York Stock Exchange or Nasdaq.

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