Fitch Places Conoco Inc. On Rating Watch Negative.Business Editors CHICAGO--(BUSINESS WIRE)--May 29, 2001 Fitch has placed 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) on Rating Watch Negative after its announcement that it has reached a definitive agreement to buy Gulf Canada Resources, Limited (Gulf Canada) for $6.3 billion. Fitch currently rates Conoco Inc.'s unsecured debt `A-`. Separately, Fitch has affirmed af·firm v. af·firmed, af·firm·ing, af·firms v.tr. 1. To declare positively or firmly; maintain to be true. 2. To support or uphold the validity of; confirm. v.intr. Conoco's commercial paper rating of `F2'. This morning, Conoco announced that it has signed a definitive agreement with Gulf Canada to acquire with cash all of the outstanding common shares of Gulf Canada in a transaction valued at $6.3 billion, which includes the assumption of approximately $1.6 million of Gulf Canada debt, $370 million of 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. and approximately $170 million of minority interests. The payment for the Gulf Canada equity will be approximately $4.3 billion cash, which will be financed with debt. The assumed debt plus the additional debt raised by Conoco to finance the cash portion of the transaction (approximately $4.3 million) will total approximately $6 billion. After closing, Conoco's debt will rise to approximately $10.2 billion from $4.5 billion, raising adjusted debt/capital to approximately 65%. Management plans to aggressively reduce debt by approximately $2.5 billion-$3 billion over the next 18 months through free cash flow, as well as some asset sales. Conoco has stated that the debt reduction plan will include appropriate hedging to ensure the debt reduction targets are achieved. If hedges are not established to `lock in' targeted debt reduction, Fitch anticipates that, at closing, Conoco's unsecured rating will likely be downgraded at least one notch notch (noch) incisure; an indentation on the edge of a bone or other organ. aortic notch dicrotic n. cardiac notch 1. . Fitch intends to meet with Conoco management to discuss in detail hedging strategies and positions in order to fully achieve targeted debt reduction over the next 18 months. Through this acquisition, Conoco will gain 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. of more than 1.0 billion barrels of oil equivalent (boe) split approximately 55% liquids and 45% natural gas at a cost of $6.21 per proved boe. As a result, Conoco's proved reserves will increase almost 40% to approximately 3.7 billion boe. The transaction will increase the company's North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. natural gas production and proved reserves by 50% to 1.4 billion cubic feet per day and 4.1 trillion cubic feet net, respectively. Conoco's North American proved liquids reserves will more than triple and its liquids production in 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. will more than double. The transaction will also establish 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. as a fourth core area for Conoco with the addition of Gulf Canada's interest in Gulf Indonesia Resources Ltd. Closing for the transaction is expected in the third quarter of this year and is subject to Gulf Canada shareholder approval, as well as customary regulatory approvals. |
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