S&P lowers Medco

Standard & Poor's said it lowered the long-term corporate credit rating on PT Medco Energi Internasional Tbk. to B from B+ and on the $176.9 million convertible bonds due May 12, 2011 issued by Medco CB Finance BV and the $325.4 million guaranteed notes due May 22, 2010 issued by MEI Euro Finance Ltd., both guaranteed by Medco.

The outlook is stable.

"The rating action on Medco reflects our opinion that the weaker oil price environment is likely to result in weaker-than expected cash flow protection measures in the medium term. We expect the company's ratio of funds from operations to debt to decline to less than 15% and its ratio of debt to EBITDA to increase to above 3.5x in the medium term. We believe that, combined with the expected decline in production, Medco's already aggressive financial risk profile could come under additional pressure," S&P analyst Yasmin Wirjawan said in a statement.

Medco's financial flexibility is weak, with the decline in oil prices reducing the company's ability to generate internal funds and potentially affecting its ability to attract external funds, the agency said.

These factors are tempered by Medco's adequate liquidity to meet short-term debt maturities and the good growth potential in its exploration blocks, Moody's noted.

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