Fitch Ratings has raised the issuer default rating (IDR)
of Kerr-McGee Corporation to 'BB' from 'BB-' and assigned a rating of
'BB' to the company's new $1.25 billion senior unsecured credit
facility. Fitch has also assigned the senior unsecured rating of 'BB'
to the company's $2.6 billion of public notes (excluding the $550
million of debt at Tronox Inc.), which became unsecured with the new
credit facility. With the removal of the security, Fitch is
withdrawing Kerr-McGee's secured rating of 'BB'. Fitch is also
withdrawing the company's commercial paper rating of 'B', which has
been inactive since the company's ratings were downgraded below
investment grade in 2005. The Rating Outlook remains Positive. The
debt ratings of Kerr-McGee are as follows:
-- IDR upgraded to 'BB' from 'BB-';
-- Senior unsecured credit facility assigned 'BB';
-- Senior unsecured notes assigned 'BB' (formerly senior secured notes);
-- Senior secured rating and commercial paper rating withdrawn.
Fitch also rates the debt of the Tronox Inc. (Tronox) subsidiaries as follows:
-- Tronox IDR 'B';
-- Tronox Worldwide LLC's and Tronox Finance's $350 million senior unsecured notes 'B+/RR3';
-- Tronox $250 million senior secured revolving credit facility and $200 million senior secured term loan rating of 'BB/RR1'.
The Rating Outlook for Tronox is Stable.
The rating action reflects the continued improvement in the credit profile of Kerr-McGee as the company continues to reduce its balance sheet debt through the proceeds from asset sales. The company has completed all of the major divestments with the exception of the Gulf of Mexico shelf properties. Bids for the shelf properties were received in late 2005 with a sale expected in the first quarter of 2006. With the announcement of the tender offer for the company's 7% debentures due 2011, the expected distribution of Tronox in 2006 and the maturity of the $300 million of 5.875% notes in September 2006, balance sheet debt is expected to be down to $2.1 billion at year-end 2006. Kerr-McGee's credit profile will also continue to benefit from the strong commodity price environment, the significant hedges in place through 2007 at prices well above historical levels, the 90% reduction in dividend payments, as well as the size and diversity of its reserve base. Fitch also expects Kerr-McGee to significantly reduce its environmental exposure with the distribution of Tronox.
The rating action also takes into consideration the initiation of a $1 billion share repurchase program with the target of reducing outstanding shares by 9% or approximately 10 million shares. Fitch expects Kerr-McGee will fund the program, as well as the tender of the 2011 debentures, with the significant level of cash on hand following the asset sales as well as free cash flow generation. The new program follows the 'Dutch Auction' tender in 2005, in which the company sold a significant portion of its assets, including approximately 30% of year-end 2004 reserves, to buy back approximately $4.0 billion of stock. The ratings also continue to reflect the abrupt change to the company's financial and operational strategy in 2005.
The positive outlook reflects the rapid improvement in the company's credit metrics towards investment grade levels. Fitch will continue to review Kerr-McGee over the next several months to evaluate the company's results following the asset sales. The transition in the company has dramatically changed the company's asset base and production profile. Fitch's forecasts, however, reflect strong performance for Kerr-McGee, particularly given the hedges the company has in place and the reduction in the dividend.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
-- IDR upgraded to 'BB' from 'BB-';
-- Senior unsecured credit facility assigned 'BB';
-- Senior unsecured notes assigned 'BB' (formerly senior secured notes);
-- Senior secured rating and commercial paper rating withdrawn.
Fitch also rates the debt of the Tronox Inc. (Tronox) subsidiaries as follows:
-- Tronox IDR 'B';
-- Tronox Worldwide LLC's and Tronox Finance's $350 million senior unsecured notes 'B+/RR3';
-- Tronox $250 million senior secured revolving credit facility and $200 million senior secured term loan rating of 'BB/RR1'.
The Rating Outlook for Tronox is Stable.
The rating action reflects the continued improvement in the credit profile of Kerr-McGee as the company continues to reduce its balance sheet debt through the proceeds from asset sales. The company has completed all of the major divestments with the exception of the Gulf of Mexico shelf properties. Bids for the shelf properties were received in late 2005 with a sale expected in the first quarter of 2006. With the announcement of the tender offer for the company's 7% debentures due 2011, the expected distribution of Tronox in 2006 and the maturity of the $300 million of 5.875% notes in September 2006, balance sheet debt is expected to be down to $2.1 billion at year-end 2006. Kerr-McGee's credit profile will also continue to benefit from the strong commodity price environment, the significant hedges in place through 2007 at prices well above historical levels, the 90% reduction in dividend payments, as well as the size and diversity of its reserve base. Fitch also expects Kerr-McGee to significantly reduce its environmental exposure with the distribution of Tronox.
The rating action also takes into consideration the initiation of a $1 billion share repurchase program with the target of reducing outstanding shares by 9% or approximately 10 million shares. Fitch expects Kerr-McGee will fund the program, as well as the tender of the 2011 debentures, with the significant level of cash on hand following the asset sales as well as free cash flow generation. The new program follows the 'Dutch Auction' tender in 2005, in which the company sold a significant portion of its assets, including approximately 30% of year-end 2004 reserves, to buy back approximately $4.0 billion of stock. The ratings also continue to reflect the abrupt change to the company's financial and operational strategy in 2005.
The positive outlook reflects the rapid improvement in the company's credit metrics towards investment grade levels. Fitch will continue to review Kerr-McGee over the next several months to evaluate the company's results following the asset sales. The transition in the company has dramatically changed the company's asset base and production profile. Fitch's forecasts, however, reflect strong performance for Kerr-McGee, particularly given the hedges the company has in place and the reduction in the dividend.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.