Citing external pressure to boost share prices, Standard & Poor’s (S&P) on Wednesday cut the debt ratings of Kerr-McGee Corp. The move followed Kerr-McGee’s decision this week to spin off or sell its chemicals business and repurchase at least $1 billion worth of stock (see Daily GPI, March 9).

Earlier this month financier and shareholder Carl Icahn recommended to Kerr-McGee that it sell its chemicals business and 20% of future oil and natural gas production so that it could buy back $10 billion in stock. S&P said that even though Kerr-McGee is unlikely to follow all of Icahn’s recommendations, the size of the share buyback indicates a changing attitude toward credit quality.

“The downgrade is based on management’s decision to pursue a more aggressive financial policy, in order to satisfy shareholder concerns, than that contemplated in previous ratings,” said credit analyst Kimberly Stokes. “These actions are likely to be detrimental to credit quality in the near term and are not consistent with the ‘BBB’ rating level.”

S&P cut Kerr-McGee’s corporate credit rating to “BBB-,” the lowest investment-grade rating. The “A-3” short-term corporate credit rating on the company also remains on CreditWatch with negative implications. Kerr-McGee has about $3.1 billion in debt outstanding pro forma for the recent $600 million debt-to-stock conversion.

“The ratings remain on CreditWatch with negative implications because of the external pressures on management to enhance shareholder value to the detriment of credit quality,” Stokes said. The CreditWatch will be resolved in S&P’s ongoing review of Kerr-McGee’s credit profile.

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