DBRS Places the Ratings of Anadarko Petroleum Corporation Under Review with Negative Implications

DBRS has today placed the ratings of Anadarko Petroleum Corporation (Anadarko or the Company) and Kerr-McGee Corporation (Kerr-McGee) Under Review with Negative Implications. The rating action reflects DBRS’s concern with the December 12, 2013, interim opinion from the bankruptcy court regarding the ongoing Tronox Inc. litigation that could potentially impose a liability of up to $15 billion on the Company. Although the judgment is in no way final and Anadarko has the right to appeal the final decision once it is out, DBRS expects the range of the payout, $5 billion to $15 billion, to be punitive for the Company’s already stressed credit metrics for a BBB rating.

Pro forma, following any imposed final liability, assuming a debt-financed low end of the before-tax payout range of $5 billion, (1) the percentage of debt in the capital structure is expected to rise close to 50%, which is below the current BBB rating category; (2) debt-to-cash flow is expected to exceed 2.5 times, which is also below what is required for the current rating category; and (3) EBIT-interest coverage is expected to be below 4.0 times, which, including the aforementioned credit metrics, is below investment grade.

DBRS recognizes that Anadarko has the right to appeal once the final decision from the bankruptcy court is announced and that the process might drag on for a number of years before any final settlement and payout have to occur. This contingent liability will, however, have negative implications for the credit outlook of the Company.

As at September 30, 2013, Anadarko has $3.9 billion of cash on hand and $5 billion available in its secured revolving line of credit, which will potentially have to be drawn against to fund the payout.

Kerr-McGee’s Senior Unsecured Notes and Debentures are guaranteed by Anadarko Petroleum Corporation.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Companies in the Oil and Gas Industry (July 2013), which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.