Fluor Asks Sale of Bonds, but Its Ratings Go Down
The Fluor Corp. has filed a shelf registration statement with the Securities and Exchange Commission for the sale of up to $250 million in bonds that will be used to pay a back tax bill estimated at more than $140 million.
Within hours of that announcement Thursday, Standard & Poor’s Corp. downgraded Fluor’s senior debt and industrial revenue bond ratings and issued a relatively low rating on the proposed new bond offering. The S&P; action, following by a week Moody’s Investors Service’s downgrading of Fluor’s senior debt and commercial paper, is almost sure to force Fluor to pay an interest premium to market any new bonds.
Fluor officials said Thursday that proceeds from the proposed bond offering would be used primarily to pay federal income taxes and accrued interest under a 1984 agreement with the Internal Revenue Service. Fluor officials added that the IRS still is conducting an audit of the company’s books for the 1983 and 1984 fiscal years.
Fluor’s decision to issue new debt to pay its back taxes apparently prompted Standard & Poor’s action. The bond issue, S&P; said, would boost Fluor’s ratio of debt to capitalization to 32% from 25%.
Fluor’s senior debt and industrial revenue bond ratings were dropped to BBB+ from A-. S&P; also issued a preliminary BBB+ rating to the shelf registration.
A BBB+ means that S&P; considers the bonds to be of investment grade but at the low end of the spectrum.
Moody’s Investors Service last week also downgraded Fluor’s senior debt and commercial paper. Moody’s cut the rating for senior long-term debt to BAA-3 from BAA-2 and dropped its rating for Fluor’s commercial paper to Prime-3 from Prime-2.
Both the Moody’s and the Standard and Poor’s actions were taken in large part, the rating companies said, because of the poor performance of Fluor’s mining subsidiary--St. Joe Minerals Corp.
S&P; said it expects Fluor’s earnings to be held back because of “excess capacity and weak pricing levels” in both the mining and engineering segments of the company’s business. Moody’s said it expects continued “pressure on earnings and cash flow” because of the below-par performance of St. Joe.
Fluor officials said Thursday that they were disappointed in the S&P; action. The company said the same thing last week about Moody’s ratings downgrade. “We have made significant progress in the last year in turning ourself around,” a spokesman said Thursday. Fluor lost $633.3 million in fiscal 1985 and posted a loss of $5 million for the first half of its fiscal 1986, contrasted with a $72-million loss for the same period in fiscal 1985.
Fluor said in a prepared statement that any surplus funds from the bond offering, if it is approved by the SEC, will be used to repay other interest-bearing obligations and for general corporate purposes.
