S&P Downgrades Freeport-McMoran (FCX) to 'BB-'; Outlook is Stable
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S&P Global Ratings said it lowered its corporate credit rating on Freeport-McMoRan Inc. (NYSE: FCX) to 'BB-' from 'BB'. The outlook is stable.
At the same time, we lowered the issue-level ratings on the company's senior unsecured debt to 'BB-' from 'BB'. The recovery rating on the debt remains '3', indicating our expectation of meaningful (50% to 70%; upper half of the range) recovery in the event of a payment default. In addition, we lowered our ratings on the company's preferred stock to 'B' from 'B+'.
"The downgrade reflects an updated view of Freeport's competitive position, operating efficiency, and scale," said S&P Global Ratings credit analyst Chiza Vitta. "It also incorporates our view that despite stagnant credit measures in the first half of 2016, we anticipate a stronger financial risk profile by year end due to the company's ongoing efforts to reduce debt."
Freeport continues to sell assets and is focusing on its core copper business. Asset sale and equity issuance proceeds are being applied toward repaying debt, which, along with elevated levels of gold production over the next 24 months, is mitigating the recent EBITDA decline and supporting leverage levels commensurate with an aggressive financial risk profile.
We could lower the ratings if we believe leverage will remain above 5x through the end of 2016. This could be the result of canceled or delayed assets sales or equity issuances. We could also lower the rating if we no longer considered the company's business risk profile to be satisfactory. This could be the case if adjusted EBITDA margins are likely to remain below 25%.
We could raise the rating if debt to EBITDA is sustained below 4x. This would most likely be the result of successfully taking steps toward reaching the $10 billion net debt target by the end of 2017. We could also raise the rating once pending asset sales and equity issuances are completed and applied toward debt repayment, removing the related execution uncertainty.
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