S&P: Inco, Falconbridge on negative watch

Standard & Poor's said it placed its ratings on Inco Ltd. and Falconbridge Ltd. on CreditWatch with negative implications after Inco announced a friendly acquisition of Falconbridge for $10 billion in shares and cash.

Ratings on watch include Inco Ltd.'s corporate credit rating of BBB-, senior unsecured debt of BBB- and subordinated debt of BB+, along with Falconbridge Ltd.'s corporate credit rating of BBB-/stable/A-3, senior unsecured debt of BBB-, subordinated debt of BB+, Canadian national scale commercial paper of A-3, global scale preferred stock of BB and Canadian national scale preferred stock of P-3.

Should the acquisition of Falconbridge be executed, the ratings on the combined entity will be maintained at BBB- with a negative outlook, reflecting the entity's solid diversity, reserve base and cost position, tempered by its increased debt burden, S&P said.

But if Inco materially increases the debt-funded cash consideration to complete the transaction, the ratings could be lowered, S&P said.

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