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Rating Action:

MOODY'S CONFIRMS DEBT RATINGS OF USX CORPORATION (SENIOR UNSECURED AT Baa1)

24 Apr 2001
MOODY'S CONFIRMS DEBT RATINGS OF USX CORPORATION (SENIOR UNSECURED AT Baa1)

Ratings Confirmed in Light of Proposed Reorganization of Businesses

New York, April 24, 2001 -- Moody's Investors Service has confirmed its Baa1 senior debt ratings and its Prime-2 short term rating for USX Corporation. This confirmation reflects the announcement made today by USX Corporation that it intends to reorganize itself into separate energy and steel businesses through a tax-free spin-off of its steel business. The ratings outlook is stable.

Moody's has evaluated the structure of the proposed separation of the steel and energy businesses. The confirmation of USX Corporation's existing debt ratings reflects USX's representation that all public debt outstanding after the transaction will be obligations of Marathon Oil. Consequently, assuming the separation proceeds as planned, Marathon Oil's senior unsecured debt would be rated at least equal to Baa1, and its short term rating would be Prime-2. These ratings reflect a proposed $900 million value transfer from Marathon to the steel business as well as the assets and earnings potential of the stand-alone integrated petroleum company. Marathon's key assets include 1.23 billion proved BOE reserves and 2001 production of 425,000 to 430,000 BOE per day, as well as a 62% equity interest in Marathon Ashland Petroleum LLC, a leading refining and marketing company in the Mid-West.

Moody's noted that its Baa1 ratings for USX historically have considered the strength and cash flows of the Marathon business, which would have warranted a solid investment grade rating on a stand-alone basis. These strengths, however, were offset by the significant business challenges and cash flow cyclicality of the steel operations, which would have carried a low speculative grade rating on a stand-alone basis. Under the proposed transaction, a $900 million value transfer will occur. The transfer is designed to enhance the credit quality of the steel business, but will also somewhat diminish the prospective credit quality of Marathon, resulting in its rating being positioned at USX's current Baa1 level. Although the steel company is not anticipated to initially have any rated public debt securities, Moody's noted that if rated, the steel company on a stand-alone basis would likely be rated in the upper end of the speculative grade range, incorporating the positive effect of the $900 million value transfer.

Marathon's Baa1 rating as a stand-alone business reflects the benefits of its integrated petroleum company profile; the scope and diversification of its upstream reserve base and production; and the sizable and relatively stable cash flow contributions from its refining and marketing operations, all of which will support its debt burden. Additional factors considered in Marathon's rating are its relatively small reserve base and short reserve life within the integrated oil peer group; and its above average finding and development costs. In an industry that is rapidly consolidating and competing for capital, Moody's recognizes that Marathon, on a stand-alone basis, will be under pressure to increase its size and growth prospects, which could entail acquisitions or other business combinations.

Moody's also notes the proposed transaction is subject to shareholder approval, a favorable tax ruling from the IRS, completion of necessary financing arrangements, and receipt of regulatory and third party consents as may be required. The transaction is unlikely to be completed before year-end 2001. During this time, Moody's will continue to monitor progress of the transaction and will evaluate the rating implications of any changes that may emerge in the proposed structure, as well as sector fundamentals and company operations.

The confirmed ratings are:

USX Corporation -- senior unsecured notes, debentures, medium term notes, pollution control and industrial revenue bonds rated Baa1; convertible subordinated debentures rated Baa2; cumulative convertible preferred stock rated "baa3", and short term rating for commercial paper at Prime-2.

USX Capital Trust LLC -- cumulative monthly income preferred shares rated "baa2".

USX Capital Trust I -- cumulative convertible preferred stock rated "baa2".

USX Corporation, headquartered in Pittsburgh, PA, is primarily engaged in the production and marketing of oil, gas and steel. Revenues in 2000 totaled approximately $40 billion.

New York
Grace Kennedy
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

New York
Michael J. Mulvaney
Managing Director
Corporate Finance
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

No Related Data.
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