El Paso Natural Gas Co. has passed an important milepost on its trek toward independence from parent Burlington Resources Inc., a company spokesman said yesterday.
Enough holders of El Paso's 9.45% notes due 1999 and 8 5/8% debentures due 2012 tenderd their securities by last Tuesday to allow the company to substitute a supplemental indenture for both debt sereis, the spokesman said. Holders representing more than the required 50% principal amount of each series tendered their securities, he said.
The supplemental indenture lacks some restrictions contained in the originals regarding paying dividends and distributing capital stock.
"This is the most important part of step one," the spokesman said, "Without the change, it would have made it much less efficient to spin off El Paso."
The spin-off would separate El Paso, a federally regulated interstate gas pipeline system, from Burlington's other major subsidiary, Meridian Oil Holding Inc. Meridian engages in oil and ntural gas exploration, production, and marketing. It will effectively become Burlington.
Before the spin-off can take effect, El Paso must pay Burlington a non-cash dividend of $325 million to settle an intercompany cash management liability, the spokesman said. That would have been impossible without the indenture change because the settlement exceeds the indenture's original limit on such payments, he said.
The tender offers and indenture change are part of the first step in a three-step spin-off plan announced Dec. 5.
As of Dec. 4, the $300 million principal amount of the 9.45% notes and $150 million of the 8 5/8% debentures were outstanding. The tender offers expire Jan. 6. Dealer manager for the tender offers is Morgan Stanley & Co.
Also as part of the first step, El Paso will call a third issue for redemption. The company spokesman believed Morgan Stanley would also handle that transaction. The three debt issues total $550 million.
As its second step, El Paso will issue 20% of new El Paso common stock through an initial public offering sometime during the first quarter, he said. Three to six months after the initial offering, Burlington will distribute the remaining 80% of El Paso stock to Burlington shareholders tax free.
El Paso should be operating as a separate company by the end of the third quarter of 1992, the spokesman said.
In secondary-market activity, high yield bonds finished up about 1/8 point in quiet trading. High-grades finished unchanged.
In yesterday's rating actions, Fitch Investors Service Inc. downgraded General Motors Corp.'s senior debt rating to A-plus from AA-minus. The action affects $5.4 billion of debt. The agency also lowered GM's $520 million of passthrough certificates to A-plus from AA-minus and GM's $1 billion of preference stock to A from A-plus.
In addition, Fitch downgraded about $5 billion of General Motors Acceptance Corp.'s senior debt to A-plus from AA-minus, and demand notes were lowered to F1 from F1-plus. It also lowered the following commercial paper programs to F1 from F1-plus: General Motors Acceptance Corp., domestic and European; General Motors Acceptance Corp. (U.K.) Plc.; and General Motors Acceptance Corp. Nederland N.V.
The agency removed all ratings from FitchAlert where they were placed on Nov. 14.
The automaker has unveiled more steps in a plan to restore profitability in its North American automotive business, which has diluted the contribution from its other profit centers: internal automotive, GMAC, Hughes and EDS, Fitch said.
"These ongoing actions are designed to mitigate near-term stresses on GM's overall financial condition while strengthening its ability to compete successfully in a highly competitive, maturing market," the release says.
"While Fitch believes these actions will strengthen GM's long-term creditworthiness, there are several obstacles that could delay the successful execution of cost-reduction actions," Fitch said.
Meanwhile, Duff & Phelps Credit Rating Co. assigned first-time ratings to General Motors Acceptance Corp.'s securities. The ratings are as follows: Senior debt, A-minus; subordinated debt, BBB-plus; and commercial paper, Duff 1. The ratings apply to about $79 billion of securities.
"These ratings for General Motors Acceptance [GMAC] reflect the strong asset quality and good profitability measures of GMAC as well as the close marketing, operational, and financial ties with parent General Motors," a Duff & Phelps release says, adding, "Importantly, GMAC has taken steps to protect itself from the adverse economic environment affecting auto manufacturers in general and parent General Motors in particular."
Duff & Phelps rating was effectively a downgrade because both GMAC's and General Motors senior debt had earlier been privately rated A-plus, a Duff & Phelps official said.