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Rating Action:

MOODY'S REVIEWS SECURITIES RATINGS OF PHILLIPS PETROLEUM (A3 SENIOR) AND CONOCO (BAA1 SENIOR) FOR POSSIBLE UPGRADE

19 Nov 2001
MOODY'S REVIEWS SECURITIES RATINGS OF PHILLIPS PETROLEUM (A3 SENIOR) AND CONOCO (BAA1 SENIOR) FOR POSSIBLE UPGRADE

New York, November 19, 2001 -- Moody's Investors Service placed under review for upgrade the securities ratings of Phillips Petroleum Company (A3, senior unsecured debt) and Conoco Inc. (Baa1, senior unsecured debt). The rating review is prompted by the companies' announcement of a merger agreement in an equity transaction valued on a proforma basis at $35.6 billion. Ratings under review include the respective Issuer Ratings and long-term debt ratings of Phillips Petroleum and its subsidiary Tosco Corporation (A3 senior unsecured); and Conoco Inc. and its subsidiary Gulf Canada Resources (Baa2, senior unsecured). The Prime-2 commercial paper ratings of Phillips Petroleum and Conoco Inc. are also under review.

The Boards of Directors of Phillips Petroleum and Conoco have agreed to a merger of equals to form a new company named ConocoPhillips, with shareholders of Phillips and Conoco ultimately owning 56.6% and 43.4%, respectively. The merged company will be rank as one of the largest global integrated petroleum companies, with a total of 8.68 billion proved BOE reserves, pro-forma petroleum production of 1.7 million BOE per day, and downstream domestic and international operations comprising 19 refineries, 2.68 million bpd of refining capacity, and 20,000 retail outlets. Other significant assets will include Phillips Petroleum's 50% stake in the Chevron Phillips Chemical Company (Baa1, senior unsecured) and its 30% stake in the mid-stream operations of Duke Energy Field Services, LLC (Baa2, senior unsecured). Neither of these entities' credit ratings are affected by the rating review. The merger is expected to close in late 2002 and is subject to shareholder vote as well as regulatory approval by the Federal Trade Commission, among other agencies.

Moody's rating review will focus on the combined competitive position and cash generating profile of ConocoPhillips; potential cost benefits of the merger, currently estimated at $750 million p.a.; upstream and downstream portfolio restructuring and asset divestitures that may evolve; and the company's expected financial leverage profile. The latter will be particularly important in determining whether ConocoPhillips can be rated higher than Phillips Petroleum's current A3 long-term debt rating, given the combined debt liabilities of the two companies. In addition to approximately $17.3 billion of core balance sheet debt, both companies have substantial off-balance-sheet obligations. Moody's will thus focus on ConocoPhillips's combined core cash generation, targeted asset sales, timing of potential debt reduction, and the new company's goals for balance sheet management and capital allocation. The rating review will also factor in structural and guarantee issues concerning subsidiary debt.

Phillips Petroleum Company is headquartered in Bartlesville, Oklahoma. Conoco Inc. is headquartered in Houston, Texas.

New York
John Diaz
Managing Director
Corporate Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Thomas S. Coleman
Senior Vice President
Corporate Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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