MOODY'S CONFIRMS SENIOR UNSECURED DEBT RATINGS OF PHILLIPS PETROLEUM COMPANY AT A3 AND RETAINS NEGATIVE OUTLOOK
Moody's confirmed all the outstanding debt and preferred stock ratings of Phillips Petroleum Company and subsidiaries with a negative outlook. This follows the announcement of the formation of a joint venture with Duke Energy which combines the gas gathering, processing and marketing ("GPM") assets of Phillips with the assets of Duke Energy Field Services ("DEFS").
The JV would retain the name Duke Energy Field Services and become the largest natural gas liquids (NGL's) producer in the country, producing 395Mbpd, 57,000 miles of pipeline and roughly $5.0 billion in assets. The 30% initial ownership retained by Phillips could be diluted to no less than 20% after a planned IPO based on enterprise value. DEFS will borrow $2.4 billion and use the proceeds to distribute cash to its owners, enabling both Phillips and Duke to take $1.2 billion in cash up front from the new venture when formed. DEFS plans to use any IPO proceeds for debt reduction. Phillips will have a 15-year, market-based contract for the supply of 150,000bpd of NGL's, guaranteeing a feedstock for its other operations. Regulatory and legal issues remain open although anti-trust issues are not expected to have a material impact on the transaction.
Moody's rating confirmation of Phillips' debt obligations recognizes the debt reduction in the short term expected from the transaction but also notes management strategies to use all proceeds from such joint ventures or divestitures in the E&P sector, primarily international. Phillips' goal of joint venturing its RM&T business as well as its core chemical operations will over time shift its risk profile toward a sector with more variable cash flows and large re-investment needs. Moody's will continue to monitor the implementation of the company's strategy, including its use of proceeds, aggressiveness of its capital expenditure program and exposure to commodity cycles.
Securities affected include: Phillips Petroleum Company unsecured bonds, notes, debentures and medium-term notes (A3), and secured, pass-through certificates (A2); Phillips 66 Capital Series I-IV ("baa1"), and Phillips Gas Company cumulative preferred stock ("baa1"). Phillips commercial paper is also confirmed at P-1.
Phillips Petroleum Company is headquartered in Bartlesville, Oklahoma.
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