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S&P Lowers Credit Ratings of Texaco and Atlantic Richfield

May 22, 1985

NEW YORK (AP) _ Standard & Poor’s Corp., a leading business-information service, said Wednesday it had reduced its credit ratings for Texaco Inc. and Atlantic Richfield Co., citing the high debt burdens of both oil giants.

Texaco, the nation’s third-largest oil company, saw the rating of its senior bonds reduced to A-plus from AA-minus. Ratings for the senior debt of No. 6 Arco were nudged down to AA-minus from AA-plus.

S&P noted Texaco’s debt burden was raised substantially last year with its $10.1 billion purchase of Getty Oil Co. and that Arco recently announced a major restructuring coupled with a stock buyback program that will increase its debt by up to $4 billion.

Texaco, based in White Plains, N.Y., declined comment.

But at Arco’s headquarters in Los Angeles, spokesman Raymond Parr said, ″we’re pleased with the ratings.″ Parr noted that S&P, in its assessment, said that the company’s restructuring plans may improve its return on capital as cost savings are realized.

The ratings assess how creditworthy a borrower is, and companies that have ratings lowered usually have to pay higher interest rates when they raise money by selling bonds.

S&P has 10 letter grades, ranging from the top rank of AAA to a low of D.

The ranking AA, one level below the top ranking, indicates a borrower with ″a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree,″ according to S&P.

The agency says its rating of A is a step below AA and indicates a borrower ″has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.″

Within some letter grades, S&P uses plus and minus to show relative standing.

″With weak oil market conditions expected to persist for several years, Texaco’s ability to quickly regain past levels of financial strength is impaired,″S&P said. It cited Texaco’s huge debts and ″weak operating results.″

In the case of Arco, S&P said the rating cut reflects ″the increased financial risk profile″ that results from the company’s restructuring plans.

But it said that while oil markets are expected to remain sluggish, Arco’s ability to generate cash from its operations ″will continue at strong levels″ because of the company’s huge Alaskan oil holdings and its planned cutbacks in operations.

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