CHICAGO, May 18 /PRNewswire/ -- Duff & Phelps Credit Rating Co. (DCR) has
downgraded Union Oil Company of California's senior unsecured debt rating to
'BBB+' (Triple-B-Plus) from 'A-' (Single-A-Minus). In addition, DCR has also
lowered Unocal's TOPrS (Trust Convertible Preferred Securities) rating to
'BBB' (Triple-B) from 'BBB+' (Triple-B-Plus) and its commercial paper rating
to
'D-2' (D-Two) from 'D-1-' (D-One-Minus). This rating action affects
approximately $2.7 billion of outstanding debt securities. The Rating Outlook
is Stable.
The downgrade is a result of credit protection measures being below
expectations for the rating. EBITDA/interest for 1999 was 5.8 times while
debt/EBITDA was 2.0 times for the year. Since the end of 1997 debt levels
have grown but production and cash flow have been relatively flat. Adjusted
debt has risen to $3.4 billion at the end of 1999 from approximately
$2.5 billion at the end of 1997. During the same time, production averaged
481,000 barrels of oil equivalent per day in 1999 while in 1998 production
averaged 488,000 barrels of oil equivalent per day.
Going forward, the company should benefit from the current strong
hydrocarbon-pricing environment. In the near term, cash flow coverages, as
measured by EBITDA/interest, should be more than 7.0 times while debt/EBITDA
should be between 1.0-1.5 times (in Q1, EBITDA/interest was approximately
7.5 times and debt/EBITDA was approximately 1.4 times). Given price
expectations for oil and gas as well as anticipated production growth in 2000,
Unocal should be free cash flow positive which would allow it to achieve
modest debt reduction. In addition, Unocal is selling its agricultural
products business and, potentially, its graphite and carbon businesses.
Proceeds from these sales could be used for additional debt reduction. Longer
term, DCR believes that Unocal will drive production levels higher and
increase cash flow; however, it will need to balance its capital spending with
available internally generated cash.
Unocal is one of the world's largest independent oil and gas exploration
and production companies, with major activities in Asia and the U.S. Gulf of
Mexico. Worldwide reserves at yearend 1999 were approximately 1.6 billion
barrels of oil equivalent. Unocal is also a leading producer of geothermal
energy in Asia, a provider of electrical power and manufacturer and marketer
of petroleum coke, graphites and specialty minerals. Other activities include
project development, ownership in proprietary and common carrier pipelines,
the marketing and trading of hydrocarbon commodities and real estate.
SOURCE Duff & Phelps Credit Rating Co.
 back to top
Related links:
http://www.dcrco.com
CONTACT:
Sean T. Sexton, 312-368-3130, or
sexton@dcrco.com, or Bert A. Bierschenk, 312-368-3210, or
bierschenk@dcrco.com, both of Duff & Phelps Credit Rating Co.
|
