MOODY'S UPGRADES ARCO'S LONG-TERM RATING TO Aa2 AND KEEPS IT UNDER REVIEW FOR FURTHER UPGRADE; VASTAR AT Baa1 REMAINS UNDER REVIEW FOR UPGRADE; BURMAH CASTROL AT A2 ALSO REMAINS UNDER REVIEW FOR UPGRADE
Moody's Investors Service reaffirmed the Aa1 / Prime-1 ratings of BP Amoco plc following this morning's announcement that the transaction to take over of Atlantic Richfield Company (ARCO) has closed. At the same time, Moody's upgraded the long-term debt of, or guaranteed by, ARCO from A2 to Aa2 and kept it under review for possible further upgrade pending clarification of the degree of support (if any) that BP Amoco will give to the debt. ARCO's short-term Prime-1 rating was affirmed last year when BP Amoco announced its intention to acquire the company. The Baa1 / Prime-2 ratings of Vastar Resources, Inc and the A2 long-term rating of Burmah Castrol plc remain under review for possible upgrade pending the BP Amoco's acquisition of the minority interest in the former and regulatory approval for the acquisition of the latter, as well as clarification of BP Amoco's financial support in both cases. Moody's affirmed Burmah Castrol's Prime-1 rating in March when the agreed acquisition by BP Amoco was announced.
Last week's agreement between BP Amoco, ExxonMobil, ARCO and Phillips Petroleum, which resolved outstanding issues related to the ownership and operation of the companies' Alaskan operations, opened the way for the Federal Trade Commission (FTC) to approve BP Amoco's proposed take-over of ARCO. Under the agreement, Phillips will acquire ARCO's Alaskan interests for around $7 billion. BP Amoco, ExxonMobil and Phillips will divide ownership of the Prudhoe Bay field 26.7%, 36.8% and 36.8% respectively, but BP Amoco will be the sole operator. Ownership of the Point Thomson field will also be adjusted. The agreement will reduce costs at Prudhoe Bay, and satisfies the FTC's concerns about BP Amoco's dominance of the North Slope. As a result, the FTC was able to give BP Amoco the go-ahead to take over ARCO.
At the time BP Amoco announced its proposed all-equity agreed acquisition of ARCO in April 1999, Moody's affirmed BP Amoco's Aa1 / Prime-1 ratings. While the operational and financial benefits of the take-over to BP Amoco will be modestly reduced as a result of the agreement and other minor regulatorily required amendments, these will be offset by the debt reduction from the sale of assets to Phillips. The closing of the transaction today allows Moody's to raise ARCO's long-term rating to Aa2, one rating notch below the new parent company, and maintain the review for possible further upgrade pending clarification of the extent of BP Amoco's financial support for ARCO's debt. In the case of Vastar Resources the ratings are held at Baa1 / Prime-2 until the minority interest in Vastar is acquired or BP Amoco states its intention to support that company's debt. There are European regulatory and shareholder approvals to be received before the acquisition of Burmah Castrol can proceed. Hence Moody's maintains its review for possible upgrade on that company's A2 long-term debt.
BP Amoco plc, headquartered in London, is the third-largest publicly-held petroleum company in the world. It was formed in December 1998 when British Petroleum PLC merged with Amoco Corporation. Atlantic Richfield Company (ARCO) is a major US integrated petroleum company headquartered in Los Angeles, California. Vastar Resources, Inc. is located in Houston, Texas, and is 83% owned, but not guaranteed, by ARCO. Burmah Castrol PLC, headquartered in Swindon, England, is an international manufacturer of lubricants and speciality chemicals.
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