Pharma Co. Reduces Debt; Tesoro Calls Bonds

Pharmaceutical company Alpharma Operating Corp.'s (AOC) material debt reduction at a time when management is addressing operational challenges has led Moody's Investors Service to upgrade the company's bank debt ratings one notch to B1. The company's debt was $896 million at the end of 2002, but has since been reduced to $751 million. Potential asset sales could lead to further debt reduction, Moody's notes. In addition, leverage has decreased from 4.4 times to 4.2 times.

AOC is a subsidiary of Alpharma, which is controlled by A.L. Industrier. The upgraded facility comprises a $150 million revolver, $69.5 million "A" loan and $246.4 million "B" loan. The pro rata matures in 2007 while the "B" loan is due in 2008. In addition to the credit facility Alpharma has $220 million of 8 5/8% senior unsecured notes due 2011, which are rated B3 by Moody's.

The outlook is stable, reflecting the company's falling leverage, prospects for continued improvements in 2004 operating results and continued progress in resolving Food and Drug Administration issues at two of its operating sites. "Right now Alpharma needs to demonstrate a track record of sustainable improvements in operating earnings, but also resolve ongoing FDA inspection issues amongst other regulatory issues," said William Reed, v.p. senior credit officer at Moody's. In June 2002, the Securities and Exchange Commission began a formal investigation of the circumstances surrounding Alpharma's 2000 and 2001 restatements of its financial earnings statements. The SEC has made no allegation of wrongdoing, Moody's notes. Matthew Farrell, Alpharma's cfo, did not return calls.

* Fitch Ratings has placed Tesoro Petroleum Corp. on positive watch as a result of the company's intent to call its $297.5 million of outstanding senior subordinated notes due 2008. The company announced this on July 1, when the call premium dropped to 3%. Tesoro's credit facility was recently amended to increase its capacity to $650 million and allow for up to $100 million of borrowings to repay subordinated debt. The company's revolver and term loan are rated BB- by Fitch. With the note redemption and probability that further revolver borrowings would be minimal, Fitch will raise Tesoro's senior secured ratings to BB with a stable outlook. Gregory Wright, Tesoro's cfo, did not return calls.