DUFF & PHELPS LOWERS RATINGS OF ARKLA, INC.
CHICAGO, April 21 /PRNewswire/ -- Duff & Phelps Credit Rating Co. has lowered the ratings of Arkla, Inc.'s senior debt to `BB' (Double-B) from `BBB-' (Triple-B-Minus) and convertible exchangeable preferred stock to `BB-' (Double-B-Minus) from `BB+' (Double-B-Plus). The downgrade affects approximately $2 billion of securities. The commercial paper rating has been withdrawn. The financial improvement resulting from Arkla's strategic restructuring efforts to date has been slower than expected. Although Arkla has reduced the amount of debt outstanding, interest coverages remain thin. In 1992, Arkla undertook asset sales, reduction of the common dividend, and other cost controls which have stemmed further financial deterioration. The sale of exploration and production operations and other assets provided about $500 million of net cash for debt reduction. The D&P rating assumes that Arkla will successfully complete the proposed asset divestitures of its Louisiana Intrastate Gas pipeline and certain distribution properties, and use the proceeds to reduce debt. Arkla's management continues to take steps to strengthen the company's financial condition. A new two-year $400 million credit facility will bolster near-term liquidity. Further improvement in Arkla's financial condition will depend upon management's ability to fully realize the value of Arkla's assets and reduce debt. Arkla is evaluating several alternatives to strategically reposition its interstate pipeline system. All options are being examined including joint ventures and a possible sale. Arkla may also continue to own and operate the pipeline systems. Arkla's pipeline margins have been pressured by a number of factors including an adverse price differential between Mid-Continent and Gulf Coast natural gas spot prices. The company is taking steps to improve its pipeline margins, including de- bottlenecking pipeline capacity, cost containment, and operational changes. Additionally, FERC Order 636 will benefit the pipeline by making the pipeline revenues less sensitive to variations due to weather. Arkla has potential monetary exposure under the Resolution Trust Corporation (RTC) lawsuit. The suit alleges harm from a failed savings and loan owned by an acquired company, but divested prior to Arkla's involvement. The RTC seeks compensatory damages of at least $535 million. It is anticipated that Arkla's financial condition will improve before the ultimate disposition of the lawsuit. Arkla is an integrated energy company engaged in natural gas transmission and distribution. Distribution operations, which have been refocused on core markets with more favorable outlooks, have provided a stable earnings and cash flow base. Arkla's pipeline business includes two major interstate pipeline systems, an intrastate pipeline in Louisiana (pending sale), and a non-regulated marketing affiliate. -0- 04/21/93 /CONTACT: David W. Eisinger, CFA of Duff & Phelps Credit Rating Co., 312-368-3145/ (ALG)
CO: Arkla, Inc. ST: Louisiana IN: OIL SU: RTG
AH -- NY105 -- 8933 04/21/93 16:12 EDT
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|Date:||Apr 21, 1993|
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