Fluor Corp.’s Debt Rating Down to A minus

In response to a continuing slump in the worldwide engineering and construction industry, Standard and Poor’s Corp. Wednesday downgraded Fluor Corp.’s debt rating from A to A minus for long-term debt and from A1 to A2 for commercial paper.

In the first half of fiscal 1985, the Irvine engineering, construction and natural resources company, lost $72 million on revenues of $2.1 billion, although it booked nearly $3 billion in new orders during the period.

George W. Mefferd, Fluor’s chief financial officer, said “the new rating will have no effect on interest expense,” because the company has no borrowing plans. He also said he was pleased that the rating remained at the A level.

The New York-based debt rating service said it changed Fluor’s rating because “Fluor’s principal business segments are not expected to experience a strong recovery in profitability for several years. The weak earnings projection more than offsets the significant reduction in leverage.”

S&P; said Fluor’s “success at rebuilding new awards from a low point of $1.2 billion for fiscal 1983 to $4.2 billion for fiscal 1984, and $2.85 billion for the first half of 1985 is impressive.”

However, the ratings service said fierce competition in the industry, and weak metals prices will continue to depress Fluor’s profit margins.

Mefferd said “Fluor has reduced its long-term debt by more than $300 million,” so far this fiscal year. He said borrowed funds are now less than 20% of Fluor’s total capitalization.

He said Fluor expects to further reduce its debt this fiscal year with cash from selling assets, “as well as positive cash flow from operations.”

(On July 31, Fluor completed the sale of its Irvine corporate headquarters site to Trammell Crow Co. for $340 million.)

Mefferd said since Fluor acquired St. Joe Minerals in 1981, Fluor has repaid more than $800 million, reducing debt from $1.2 billion, to less than $400 million.