Fitch Lowers Conoco Inc.'s Unsecured Rating.Business Editors CHICAGO--(BUSINESS WIRE)--July 17, 2001 Fitch has downgraded the unsecured debt Unsecured debt Debt that does not identify specific assets that the debtholder is entitled to in case of default. ratings of Conoco, Inc. (Conoco) to `BBB BBB A medium grade assigned to a debt obligation by a rating agency to indicate an adequate ability to pay interest and repay principal. However, adverse developments are more likely to impair this ability than would be the case for bonds rated A and above. +' from `A-` after the closing of its acquisition of Gulf Canada Resources, Limited (Gulf Canada). Fitch has also affirmed Conoco's commercial paper rating of `F2'. In addition, Fitch has assigned a rating of `BBB' to the Gulf Canada senior notes, a rating of `BBB-` to the Gulf Canada senior subordinated debentures subordinated debenture An unsecured bond with a claim to assets that is subordinate to all existing and future debt. Thus, in the event that the issuer encounters financial difficulties and must be liquidated, all other claims must be satisfied before , and a rating of `BB+' to the Gulf Canada preferred stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. . The Rating Outlook for Conoco is Stable. The downgrade results from the additional leverage Conoco has incurred in connection with the acquisition. The transaction, valued at nearly $6.3 billion, is being initially financed with approximately $4 billion of bank debt, the assumption of approximately $1.6 billion in Gulf Canada debt as well as the assumption of $385 million in Gulf Canada preferred stock and $170 million of minority interests. Resultantly, Conoco's debt rises to approximately $10 billion from approximately $4.4 billion. After making adjustments for off-balance-sheet items such as operating leases, Conoco's adjusted debt-to-capital is now greater than 60%. While debt repayment is expected over the next year and a half through free cash flow and potential asset sales, the firm's pace of debt reduction is dependent upon hydrocarbon prices. Assuming current strip prices, Conoco's adjusted debt-to-capital will likely be above 50% until at least 2003. Interest coverages should, however, remain fairly strong. In 2002, coverages, as measured by EBITDA-to- interest, should remain at or above 6 times (x) even in a `midcycle' pricing environment. As a result of the transaction, Conoco's proved reserves proved reserves The quantity of minerals expected to be recoverable under current economic and operating conditions. The amount of proved reserves is important in valuing the stock of a company with significant holdings in natural resources. rise to 3.7 billion barrels of oil equivalent (boe) from 2.7 boe and the company's reserve life remains over 11 years. The company's production is now approximately 915,000 boe per day split 55% oil and 45% natural gas, with more than 75% coming from North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. and Europe. Operationally, the acquisition provides Conoco with a larger portfolio of longer-term exploration and development projects, particularly in Canada and Southeast Asia Southeast Asia, region of Asia (1990 est. pop. 442,500,000), c.1,740,000 sq mi (4,506,600 sq km), bounded roughly by the Indian subcontinent on the west, China on the north, and the Pacific Ocean on the east. . Conoco now has 4 million acres of undeveloped acreage in western Canada
Western Canada, commonly referred to as the West and the Mackenzie Delta. Southeast Asia is now Conoco's fourth core area with the addition of Gulf Canada's 72% interest in Gulf Indonesia Resources, Ltd. In Southeast Asia. Conoco's reserves will more than double to 365 million boe and its production will more than triple. Conoco, Inc. is a major integrated energy company active in more than 40 countries worldwide. |
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