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DCR Places Phelps Dodge's Debt on Rating Watch -- Down

24 September 1999

DCR Places Phelps Dodge's Debt on Rating Watch -- Down

    CHICAGO, Sept. 22 -- Duff & Phelps Credit Rating Co. (DCR)
has placed the senior debt and commercial paper ratings of Phelps Dodge
Corporation on Rating Watch -- Down following today's announcement
that Phelps Dodge has increased its offers to acquire Asarco Incorporated
and Cyprus Amax Minerals Company and has added an
almost $1 billion cash component to the combined offers.  The rating on Phelps
Dodge's notes and debentures is 'A' (Single-A), and the rating on the
company's commercial paper is 'D-1' (D-One).
    The offer announced today is to acquire Asarco shares for $9.00 in cash
and 0.2880 Phelps Dodge shares per Asarco share, and Cyprus Amax shares for
$6.89 in cash and 0.2203 Phelps Dodge shares per Cyprus Amax share.  Based on
the amount of Asarco and Cyprus Amax shares outstanding, the cash component of
the new offer comes to approximately $980 million.
    The Rating Watch-Down action conveys the likelihood that the Phelps Dodge
credit rating would be downgraded if the company succeeds in acquiring Asarco
and Cyprus Amax under the terms outlined above.  The rating change would
reflect the substantial increase in leverage that Phelps Dodge would incur in
doing the proposed transactions.
    Phelps Dodge has stated that all or close to all of the financing of the
cash portion of the offers will come from increased borrowing.  A pro forma
Phelps Dodge post-acquisition balance sheet would include this added borrowing
plus assumed Asarco and Cyprus Amax debt less planned reductions in debt
through the use of Cyprus Amax's substantial cash balance and the application
of proceeds from planned sales of non-core assets.  Such a balance sheet would
be significantly more leveraged than Phelps Dodge's current balance sheet,
especially if the asset sales do not occur as planned.  The speed with which
Phelps Dodge could reduce debt further would depend largely on future copper
prices and the extent to which it can extract synergies from the acquisitions.
    The rating will remain on Rating Watch until the acquisitions are
completed as currently contemplated or the offers are withdrawn or the terms
of the acquisitions change in such a way as to alter our view of Phelps
Dodge's likely rating following the transactions.