Fitch Assigns Ratings to Anadarko, WGS, and Kerr-McGee

Fitch Ratings has placed the following ratings of Anadarko Petroleum Corp. on Rating Watch Negative after this morning announcement that it is acquiring Kerr-McGee Corp. and Western Gas Resources in separate transactions:

  • Long-Term Issuer Default Rating 'BBB+'
  • Senior unsecured debt 'BBB+'
  • Bank credit facility 'BBB+'
  • Preferred stock 'BBB'
  • The rating action affects approximately $3.6 billion in publicly-traded debt securities.

    Friday morning morning Anadarko announced it is acquiring Oklahoma City based Kerr-McGee Corp. (IDR rated 'BB' by Fitch) and Denver based Western Gas Resources (IDR rated 'BBB-') for total cash of $21.1 billion plus assumed debt of approximately $2.2 billion. The offer for Western Gas represents an approximate 50% premium and the Kerr-McGee offer represents an approximate 40% premium. Together, the acquisitions would give Anadarko 1,051 million barrels of oil equivalent in proven reserves located onshore U.S. and in the deepwater of the Gulf of Mexico as well as sizable mid-stream assets.

    Anadarko intends to take out or guarantee both targets' existing debt shortly after closing. APC intends to initially finance the $23.3 billion acquisition with a $24 billion 364-day acquisition facility provided by UBS, CSFB and Citibank. This facility will be used to close the two deals and provide for any debt refinancing pursued ($2.2 billion). Anadarko's plan to repay the acquisition facility is to sell assets and common equity totaling approximately $15 billion and issue debt securities to refinance the balance of the facility ($7.5 billion). Part of the asset sales will be from legacy Anadarko properties. The equity issuance is expected to be done within approximately 12 months of the closing. Anadarko intends to hedge up to 75% of the acquired asset's (post divestitures) production for two years to lock in some of the economics of the transactions.

    Given the broad financing plan outlined by Anadarko and the increase in leverage from current levels, Fitch anticipates the current long-term ratings will likely be downgraded but that the IDR and senior unsecured ratings will remain investment grade.

    Fitch has also placed the following ratings of Western Gas Resources (WGR) on Rating Watch Positive following the company's announcement that it has agreed to be acquired by Anadarko.

    • Long-term Issuer Default Rating (IDR) 'BBB-'
    • Senior unsecured credit facility 'BBB-'
    • Senior unsecured notes 'BBB-'

    WGR announced that it has agreed to be acquired by Anadarko in a transaction valued at approximately $5.3 billion. The rating watch reflects the expectation that WGR's existing $515 million.

    In addition, Fitch has placed the following ratings of Kerr-McGee Corp. on Rating Watch Positive following the company's announcement that it has agreed to be acquired by Anadarko:

    • Long-term Issuer Default Rating (IDR) 'BB'
    • Senior unsecured credit facility 'BB'
    • Senior unsecured notes 'BB'

    Kerr-McGee announced that it has agreed to be acquired by Anadarko in a transaction valued at approximately $18 billion. The rating watch reflects the expectation that Kerr-McGee's existing $2.4 billion of debt will be taken out shortly after closing or guaranteed by Anadarko.

    WGR is a midsized integrated natural gas company with core operations encompassing exploration and production (E&P), midstream natural gas and liquids services, and related energy marketing activities. E&P operations are focused on the U.S. Rockies region, with a large concentration in Wyoming's Powder River Basin CBM play.

    Kerr-McGee is an Oklahoma City, Okla.-based energy company with proven reserves of approximately 900 million barrels of oil equivalent (boe) following the significant asset sales over the last several quarters.

    Anadarko is one of the world's largest independent natural gas and crude oil exploration and production companies. The company's drilling programs focus on major geologic basins onshore and offshore, both in North America and overseas. At yearend 2005, Anadarko had proved reserves of approximately 2.45 billion barrels of oil equivalent (boe), split nearly equally between liquids and gas, with a reserve life index of approximately 15 years.

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