MOODY'S CONFIRMS DEBT RATINGS OF BHP (SENIOR UNSECURED AT A3)
Moody's Investors Service confirmed the debt ratings of certain subsidiaries of The Broken Hill Proprietary Company Limited (BHP) (senior unsecured at A3). Moody's action follows BHP's announcement of summary FY1999 results which include significant asset writedowns, plant closure and restructuring costs totaling approximately A$3.7 billion. Moody's ratings reflect the cash generation capability of BHP's asset base in core operating segments, adequate operating performance under difficult market conditions, and management's commitment to focus strategy on a reduced portfolio comprising businesses wherein BHP possesses particular strengths. However, persistently weak market conditions, or failure to deliver expected progress in operating performance and debt reduction, could result in downward rating pressure.
The ratings confirmed are:
BHP Finance Ltd. (guaranteed) - A3 long term counterparty rating lowered to A3 from A2; Prime-2 short term rating
BHP Finance (USA) Inc. (guaranteed) - Prime-2 short term rating
BHP Finance (USA) Ltd. (guaranteed) - A3 senior unsecured long term rating
BHP Copper Inc. - A3 senior unsecured long term rating (guaranteed); Baa3 senior unsecured long term rating (not guaranteed)
BHP Petroleum Great Britain Plc (guaranteed) - Prime-2 short term rating
In the past few years, BHP's financial performance has been weakened by a combination of deteriorating markets for its key commodities and the servicing of debt incurred to finance acquisition and investment opportunities, the most notable being the acquisition of Magma Copper Co. for US$2.4 billion (A$3.2 billion) in 1996. As commodity prices have deteriorated, BHP has undertaken several rounds of asset writeoffs, culminating in today's announcement of approximately A$3.7 billion in abnormal charges, offset by about $0.6 billion in asset sale gains. Cumulative writeoffs in the past three years now total more than A$7 billion. While the writeoffs reflect a severe miscalculation of market trends, Moody's expects that today's action has effectively cleared the balance sheet of overvalued assets and reflects a more realistic and practical view of the future. At the same time, dedication of cash flows to debt reduction has enabled gearing to remain at approximately 54%. Looking forward, it is expected that BHP's core operations will generate sufficient cash flow, even at current pricing levels, to continue progress in debt reduction. However, commodity pricing remains a key risk to the rating. In summary, Moody's views today's actions as establishing a base for future improvement; the challenge remains to deliver results consistent with the company's potential.
BHP has diversified activities in mining, steel manufacturing and petroleum. It is based in Melbourne, Australia.
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