El Paso Veers Off the Wise Course

Updated from 1:11 p.m. EST

El Paso (EP Quote) weathered a fresh blow on its first day under the leadership of a lame duck CEO.

Following similar action by Standard & Poor's last week, Moody's slashed El Paso's credit rating five notches to a category known for defaults. Moody's has assigned El Paso a Caa1 credit rating, the fifth-lowest possible, and warned Tuesday that the company's outlook remains negative.

In explaining the downgrade -- more severe even than the recent one by S&P -- Moody's listed the following as primary concerns: El Paso's expected plunge in cash flow from operations; its increasingly onerous debt load; its fast-approaching debt maturities; its dependence on quick asset sales; and its risky exit from the merchant energy business.

Karl Miller, a former energy executive, said El Paso's problems may be too great for even a new CEO to repair.

"The company faces potential insolvency and complete structural reorganization," said Miller, who now leads an energy-related acquisitions firm. "More executive changes are needed before any true damage control can begin.

Just hours ahead of Moody's action, El Paso released plans Tuesday to replace its embattled -- and richly compensated -- CEO.

The troubled energy giant, which saw its fortunes crumble with the merchant energy business, announced early Tuesday that longtime Chairman and CEO William Wise will depart by year-end. Wise is stepping down from a job that, during the merchant energy boom of 2001, paid him more than $27 million -- and ranked him high on the list of America's best-compensated CEOs.

Ronald Kuehn, El Paso's lead director, applauded Wise's contributions to El Paso and his willingness to remain at the company until a replacement can be found.

"We appreciate Mr. Wise's decision to remain in his role during this challenging period for the company as we move aggressively to address the issues affecting our business and move forward with our business plan," Kuehn said in a prepared statement Tuesday. "We thank him for his dedication and leadership."

News of Wise's retirement comes less than a week after El Paso rocked investors with plans to slash its dividend and sell off valuable assets in an effort to halt the company's rapidly deteriorating financial condition. El Paso's drastic turnaround strategy frightened investors, who sent the company's stock in a dive below $5 for only the second time in history.

The stock, which also dipped below $5 last October, opened strongly on news of Wise's departure. But the rally was short-lived. After shooting up 3.8% at the open, shares of El Paso plunged 9.2% to $4.72 following Moody's downgrade.

Still, some analysts remain optimistic. Credit Lyonnais immediately upgraded El Paso's stock from reduce to hold following news of Wise's retirement. And even Houston analyst John Olson, who called himself "a friend and admirer of Bill Wise," viewed the management change as a necessary step in the right direction.