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Natural gas

Panhandle Eastern Corp.'s $100 Million 10-Year Notes Receive Positive Rating

Strategic Insights

— 2 min read

Panhandle Eastern Corp.'s (PEC) issuance of $100 million 7.25% 10-year notes has been rated "BBB-" by Fitch, a positive development that joins outstanding debt on FitchAlert. This improvement is attributed to the company's five-year track record of significant credit quality enhancement, primarily due to management's restructuring efforts and operational efficiency gains. PEC's competitive position has been strengthened, and its core interstate natural gas pipeline businesses have achieved improved profitability, with pipeline capacity utilization levels increasing and gas throughput volatilities declining.

Key Takeaways:

  • Panhandle Eastern Corp.'s (PEC) $100 million 7.25% 10-year notes are rated "BBB-".
  • The new issue joins outstanding PEC and subsidiary pipeline debt on FitchAlert with positive implications.
  • Management's five-year track record of significant and sustained credit quality improvement is a key factor in the positive rating.
  • PEC has restructured and improved its competitive position, operational efficiency, financial condition, and credit quality since 1989.
  • The company's core interstate natural gas pipeline businesses have achieved improved profitability, with pipeline capacity utilization levels increasing and gas throughput volatilities declining.
  • Pretax coverage has risen from 0.92 times in 1988 to estimates nearing 3x in 1995.
  • Cash coverage has expanded from 1.62x in 1989 to projections above 3x in 1995.
  • Debt as a percentage of total capitalization has declined from 70% in 1990 to 54% currently.
  • Capital intensive pipelines like PEC have been large net users of cash, but Fitch projects PEC will become a modest net cash generator.
  • PEC's unregulated natural gas related businesses, including gathering, processing, and marketing price-hedged equity gas, have significantly expanded through two 1994 acquisitions.

Statistics:

  • Estimated total debt: $2.3 billion.
  • Parent company PEC: $1,129 million of debt rated "BBB-".
  • Subsidiary Texas Eastern Transmission Corp. (TETCO): $819 million of debt rated "BBB".
  • Subsidiary Panhandle Eastern Pipe Line Co. (PEPL): $420 million of debt rated "BBB".
  • Pretax coverage ratio: 0.92 times (x) in 1988, nearing 3x in 1995.
  • Cash coverage ratio: 1.62x in 1989, above 3x in 1995.
  • Debt as a percentage of total capitalization: 70% in 1990, 54% currently.
  • CFAR (Cash Flow to Asset Ratio) suggests PEC will become a modest net cash generator.
  • Unregulated natural gas related businesses: 20-25% of operating income in 1996-1997, up from 10% in 1994 and 5% in prior years.

Sources:

  • FitchAlert, debt totaling an estimated $2.3 billion was placed on FitchAlert with positive implications on March 13, 1995.
  • Panhandle Eastern Corp.'s (PEC) official announcement, noting the rating of the $100 million 7.25% 10-year notes.

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