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Encana Corporation Message Board

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  • margin321 margin321 Jan 26, 2008 9:44 AM Flag

    ECA borrows 750 million

    <<Why does ECA with cash flow in the billions need to borrow all this money at 5.8%?>>

    I think you answered your own question.

    << to repay a portion of EnCana's existing bank and commercial paper indebtedness. >>

    Corporate finance is complex and includes prudent debt which has implication on taxes and influences return on investment.
    business model calls for net debt to capitalization of 30-40% and net debt to ebitda of 1-2x.

    Recently ECA's debt has been low relative to their model, in the 20's as percent of capitalization and less than 1 times ebitda.

    With the East Texas aquisition the metrics now are are 33% and 1.1 for these two metrics, still at lower end of range.

    Bottom line is that ECA will maintain some prudent debt and transactions like these are just part of the management of that debt. Lower interest rates on the debt are beneficial.

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