MOODY'S REVIEWS A2 LONG-TERM DEBT AND PRIME-1 COMMERCIAL PAPER RATINGS OF ATLANTIC RICHFIELD COMPANY FOR POSSIBLE DOWNGRADE; UNION TEXAS PETROLEUM HOLDINGS, INC. REVIEWED FOR UPGRADE
New York, 05-04-98 -- Moody's Investors Service placed under review for possible downgrade the A2 long-term debt and Prime-1 commercial paper ratings of the Atlantic Richfield Company (ARCO) and its guaranteed subsidiaries in response to the company's announcement that it had reached a definitive merger agreement whereby it will make an all cash tender offer to acquire Union Texas Petroleum Holdings, Inc., (UTP) in a transaction valued at approximately $3.3 billion, including $800 million of debt and preferred stock to be assumed from UTP. Concurrently, Moody's reviewed for upgrade UTP's Baa3 long-term debt rating and other securities ratings.
The UTP acquisition will substantially increase ARCO's current total debt from $6.2 billion to about $9.2 billion. It will also increase ARCO's reserve base about 14%, adding approximately 573 million proved barrel-of-oil equivalent reserves. Moody's rating review will focus on the strategic benefit and overlay of UTP's petroleum reserves with ARCO's operations; on the company's sources of debt reduction, including asset sales and internal cash flow; on ARCO's financial leverage goals and the time frame for debt reduction, particularly in a lower oil price environment; and on the levels of capital spending necessary to develop ARCO's combined reserve base. Moody's will also assess opportunities for cost reduction arising from the merger. Because ARCO is assuming UTP's debt and preferred stock obligations, the ratings for those securities will reflect the outcome of ARCO's rating review.
Ratings under review for downgrade include the A2 notes, medium-term notes, debentures and counterparty ratings for ARCO and its guaranteed subsidiaries, and the Prime-1 commercial paper ratings for ARCO and its guaranteed subsidiaries, ARCO Coal Australia and ARCO British Limited. UTP's securities under review include its senior and guaranteed notes and medium-term notes, rated Baa3 and its preferred stock, rated "ba2." Moody's A3 long-term debt and Prime-2 ratings for ARCO Chemical Company, a chemical subsidiary owned 82.3% by ARCO, are confirmed with a negative outlook. The Baa1 long-term debt and Prime-2 ratings for Vastar Resources, Inc., an 82.2% owned exploration and production subsidiary, are also confirmed with a stable outlook. ARCO does not guarantee the debt obligations of either subsidiary.
Atlantic Richfield Company, a major integrated oil company, is headquartered in LosAngeles, California. Union Texas Petroleum Holdings, Inc. and Vastar Resources, Inc. are located in Houston, Texas. Arco Chemical Company is headquartered in Newton Square, Pennsylvania.
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