MOODY'S REVIEWS ULTRAMAR DIAMOND SHAMROCK'S RATINGS FOR POSSIBLE UPGRADE (SR. UNSEC. AT Baa2)
Moody's Investors Service placed Ultramar Diamond Shamrock Corporation's ("UDS") long-term debt ratings under review for possible upgrade. Moody's review was prompted by the announcement on October 8, 1998 by UDS and by Phillips Petroleum Company (rated A3) that they have signed a letter of intent to combine all of the operating assets of UDS and the North American refining, marketing, and transportation operations of Phillips into a joint venture company to be named Diamond 66. The joint venture company will be owned 55% by UDS and 45% by Phillips.
The transaction is expected to close in the first quarter of 1999 and is subject to final approval by the respective boards of UDS and Phillips, the negotiation and execution of definitive agreements, the approval of UDS shareholders, and regulatory approvals.
Diamond 66 will be the largest independent refining and marketing company in North America. In its review, Moody's will consider the joint venture's improved competitive position, as well as the $250 million incremental cost and productivity synergies and $50 million capital savings expected to be derived from the combination. Moody's will also examine the joint venture company's ownership, governance, legal structure, and financial policies, including capital structure, debt incurrence, and cash distributions. Moody's current expectation is that Diamond 66 will assume all of UDS' outstanding debt obligations.
Ratings under review include Ultramar Diamond Shamrock's notes, medium-term notes, pollution control revenue bonds, and debentures at Baa2; its subordinated debentures at Baa3; its cumulative convertible preferred stock at "baa3"; and its shelf registration for senior/subordinated debt at (P)Baa2/(P)Baa3. Also placed under review were the guaranteed notes of Ultramar Credit Corporation at Baa2; the guaranteed preferred stock of UDS Capital I at "baa3"; and the shelf registrations for preferred stock of UDS Capital II, and UDS Funding II, LP at (P)"baa3". Ultramar Diamond Shamrock's Prime-2 rating for commercial paper is not under review.
Ultramar Diamond Shamrock Corporation is a large independent refining and marketing concern headquartered in San Antonio, Texas.
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