Pacific Enterprises on S&P; CreditWatch : Credit Rating Firm Says Low Oil Prices Hurt Profit Prospects

Stock and bond rating service Standard & Poor’s said Thursday that it will scrutinize Pacific Enterprise’s operations and financial plans to determine whether the investment rating of the company’s bonds and preferred stock should be lowered.

The Los Angeles-based firm--a diversified holding company that owns Southern California Gas Co., the Thrifty drugstore chain and oil and gas operations--has about $2.5 billion of consolidated debt and preferred stock outstanding, according to S&P.;

Pacific Enterprises’ commercial paper has a positive investment grade from S&P.; Lowering the rating could make investment in Pacific less attractive, forcing the company to pay more to lure investors.

S&P; said it has placed Pacific on its CreditWatch list for possible ratings review because relatively low oil prices are hurting the company’s earnings prospects. While the company’s ability to generate revenue is hampered by the price of oil, the company has created debt by spending heavily to complete recent acquisitions, the S&P; statement said.

Recent deals include the acquisition in March of mineral rights on 70,000 acres in King County, Tex., for $90 million; about $40 million of the total cost was financed. Pacific also purchased Sabine Corp, a Dallas-based oil and gas company, for $339 million in March. The total debt from the Sabine deal has not yet been determined because the company is beginning to complete the financing, according to Tom Sanger, a spokesman for Pacific.

Pacific, known as Pacific Lighting until February, also acquired 147 stores in the Seattle-based Pay ‘n Save Stores chain in May. However, Pacific used about $232 million in company stock to pay for the deal.

The impact of that deal and lower-than-expected earnings were cited as factors in the drop in the price of Pacific stock during heavy trading in October. The stock dropped $2.50 and closed at $39 a share on Oct. 26. On Thursday, the stock closed at $37, down about 62 cents.

“Obviously, the events of the past few weeks have seen the price of the stock drop,” said Sanger, “but we are very confident that our businesses are sound and that we are going to move forward in 1989 and meet our obligations.”

However, Pacific may have to sell some of its assets to maintain its current dividend, according to Steven McNamara, an analyst at Bateman Eichler, Hill Richards.

“The price of oil is not conducive to making a lot of money,” McNamara said. “The price is lower than they expected. . . . Debt is their other major problem.”