Freeport-McMoran (FCX) Downgraded to 'BBB-' by S&P

Standard & Poor's Ratings Services said it lowered its corporate credit rating on Phoenix-based Freeport-McMoRan Inc. (NYSE: FCX) to 'BBB-' from 'BBB'. The outlook is stable.

The downgrade of Freeport McMoRan is driven by a revision of the company's financial risk profile to significant from "intermediate" as a result of our lowered commodity price assumptions--particularly copper. Under the revised price assumptions, we are forecasting a marked weakening in credit measures, with leverage rising from 2.3x at the end of 2014 and peaking in 2015 for an average of around 3.2x over the next 24 months.

"The stable outlook reflects our view that Freeport's leverage will peak in 2015, given our view that copper and oil and gas prices will be relatively stable and production volumes will increase over the next 24 months," said Standard & Poor's credit analyst Chiza Vitta.

We could lower the ratings if commodity prices drop significantly and remain depressed or the company's debt balance increases, causing the company's financial ratios to deteriorate. Specifically, we could lower the ratings if debt to EBITDA rises above 4.5x in 2015 or if the company amended its production plans such that we thought leverage was likely to remain above 3.5x in 2016. We could also lower the rating if there is a material reduction in sources of liquidity as a result of a credit agreement amendment.

We could raise the rating if debt to EBITDA falls below 3x and FFO to debt rises above 30%. This would most likely be the result of a combination of improving commodity prices and increasing volumes.

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