S&P;’s Lowers Its Ratings on Texaco’s Debt

Texaco came under increasing financial pressure on Friday as Standard & Poor’s sharply downgraded the rating on the oil company’s debt.

The investment rating agency lowered its grade on Texaco’s commercial paper from A-1 to C, which is below investment grade, and downgraded Texaco’s senior debt from A+ to B. Moody’s Investor Services, the other major rating agency, downgraded Texaco’s debt Wednesday.

Money-market fund managers said the actions mean that Texaco will be largely unable to issue new commercial paper and will have to turn to more expensive existing bank credit lines for short-term financing.

The downgradings result from the record $11.1-billion award against Texaco for luring Getty Oil away from Pennzoil, which said it had an agreement to buy Getty. Texaco has said it will ask for a new trial. Failing that, the oil company said it would appeal the decision, which would require Texaco to post a $12-billion bond.

Texaco, based in White Plains, N.Y., has about $2.5 billion in commercial paper outstanding. In a departure from normal practice, Texaco hasn’t quoted customers new rates for commercial paper, a form of short-term debt, as the securities matured.

Texaco has irritated money-market managers by refusing to buy back its commercial paper before it comes due. One money-market manager said the fund managers are trying to sell Texaco commercial paper so it doesn’t appear “on their books” by year-end and they don’t have to show investors in high-grade funds that they hold Texaco securities.