MOODY'S LOWERS ALL LONG TERM DEBT RATINGS OF PHILLIPS PETROLEUM COMPANY; SENIOR TO Baa2
Moody's Investors Service downgraded all the long term debt ratings of Phillips Petroleum Company after placing them on review on March 15, 2000 following the company's announcement of an agreement to purchase all of ARCO's Alaskan assets for $6.5-7.0 billion in cash. Phillips' senior unsecured debt ratings are lowered to Baa2 from A3, and its preferred debt ratings to "baa3", from "baa1". Phillips' rating for commercial paper is confirmed at Prime-2. The rating outlook is stable.
The purchase will cause Phillips' total debt-to-capital ratio, including "off- balance-sheet" obligations, to rise to 65% after utilizing the approximately $1.1 billion of capital raised from its Gas Processing and Marketing ("GPM") joint venture to pay down debt. The joint venture of its chemicals business is likely to close before yearend, bringing in another $800 million in cash to be utilized for debt reduction. While somewhat elevated at the outset relative to its peer group, Phillips' debt position should decline relatively quickly due to significant cash flow generation under an achievable price scenario.
Moody's has reviewed both the financial and operational outcome of the transaction coupled with management intentions for future development and growth. Moody's believes that incremental cash flow from the Alaskan operations available after capital expenditure obligations in Alaska should support Phillips' continued international development efforts. The company's cash flow will be more volatile as its operating mix moves significantly more toward oil away from both gas and its non-E&P activities in GPM, chemicals and RM&T. The addition of the Alaskan production and reserves, however, diversifies its portfolio and lessens its overall political risk exposure in the sector.
Phillips is headquartered in Bartlesville, Oklahoma.
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