El Paso Debt Deal Shows High Yield Market Is Not Dead, Just Expensive

To get an idea of how bad the high yield debt market is right now, one need only look at what price El Paso (EP) had to pay this week to issue $500 million worth of senior notes. El Paso is a solid company and should not have trouble selling debt. Its hybrid business model; energy pipelines coupled with exploration and production, makes the company's cash flow more predictable than more narrowly focused energy companies.

Still, El Paso is paying 12% interest and even with such a coupon rate, could not sell the notes at par. Instead it discounted them to entice buyers, who will earn 15.25% by holding to maturity. Why did EP sell such expensive debt? It has more than $13 billion of debt, with more than $1 billion coming due in 2009, and wanted to refinance until 2013.