Fitch downgrades Anadarko

Fitch Ratings said it downgraded Anadarko Petroleum Corp.'s issuer default, senior unsecured debt and bank loan ratings to BBB from BBB+ and the company's preferred stock rating to BBB- from BBB. Anadarko's F2 commercial paper rating was affirmed.

The outlook is negative.

The agency said the downgrade is due to Anadarko's increased leverage resulting from the all-cash acquisitions of Kerr-McGee Corp. and Western Gas Resources, which totaled slightly over $23 billion including assumed debt. Currently, debt to proved developed producing is quite high at nearly $12 per proved developed producing. However, Anadarko's plan is to sell $15 billion in assets and equity to quickly delever over the next year and bring debt down to approximately $6 per proved developed producing, which Fitch still considers high for the BBB rating level, and the company plans to use free cash flow for additional debt reduction.

The negative outlook reflects the execution risks associated with the delevering strategy, including the ability to produce significant free cash flow in 2006 and 2007 to reduce debt beyond the $15 billion from asset and equity sales.

However, Fitch predicted that near-term credit metrics should remain robust with normalized debt to EBITDA below 2 times.

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