/Market Extra: Exxon borrows $9.5 billion as investment-grade companies race to fill war chests ahead of earnings

Market Extra: Exxon borrows $9.5 billion as investment-grade companies race to fill war chests ahead of earnings

Exxon Mobil Corp., undeterred by sinking oil prices, borrowed another $9.5 billion in the U.S. corporate bond market on Monday, adding to the rush of companies building up a war chest of cash amid the coronavirus pandemic.

The oil and gas giant sold a five-part package of bonds, with the shortest parcel due April 2023 fetching a yield of 1.571%, while its 30-year slug of bonds cleared at a yield of 3.452%, according to a person with direct knowledge of the deal.


in mid-March was among a slew of major corporations that were able to pry open the U.S. bond market as the pandemic bore down on American shores, paying investors a higher 3.482% yield on a 10-year block of bonds.

See: Bank of America, Exxon, Verizon among a rash of companies prying open corporate bond spigot for funding

U.S. investment-grade corporate bonds have since staged a powerful rally, in no small part due to the Federal Reserve’s up-to-$2.3 trillion lifeline to keep credit flowing through financial markets.

The Fed last week beefed up its support for corporate borrowers, including adding speculative-grade (or junk-rated) corporate debt to a series of emergency lending facilities that will help smooth a path for borrowers battered by the pandemic.

This BofA Global Research chart shows the last several weeks of record U.S. investment-grade corporate bond issuance.

The hope is that companies will take a more sober approach to borrowing than in the past decade, while preserving cash for what could be several dire quarters of earnings.

“While this segment spent 2012-2019 levering up, the COVID-19 shock will lead to more conservative and liquid balance sheets for several years,” wrote Michael Kelly, global head of multiasset at PineBridge Investments, in a client note Monday that called investment-grade credit “the new sweet spot.”

“We begin this period with elevated spreads, ensuing conservatism, and the Federal Reserve joining the European Central Bank (ECB) in extending balance sheet growth into IG credit.”

U.S. stocks ended Monday’s session mixed, with the Dow Jones Industrial Average

slumping more than 300 points, despite signs that parts of the economy could start to reopen sooner than expected.

General Electric Co.

also issued $6 billion of investment-grade bonds on Monday to pay down some debt and to push back maturities, while also repaying some of its intercompany loan to its GE Capital subsidiary. Its shares settled 1.7% lower, while Exxon’s were down 0.9%.

Exxon’s debt deal comes less than two weeks after Moody’s Investors Service cut the oil giant’s top credit ratings to Aa1 from Aaa with a negative outlook, due to collapsing oil prices, its “sizable negative free cash flow funded through debt in 2020” and the uncertainty unleashed by the pandemic.

On Monday, the U.S. benchmark West Texas Intermediate crude for May delivery
lost 35 cents, or 1.5%, to settle at $22.41 a barrel on the New York Mercantile Exchange, after gaining 4% early in the session after a landmark weekend agreement was struck by Saudi Arabia, Russia and other key oil-producing nations to cut production by 9.7 million barrels a day starting May 1.

S&P Global Ratings dropped Exxon’s top AAA ratings in 2016, and again cut its grades one notch to AA from AA+ in March, saying the oil giant’s cash flow had fallen well below expectations.

Exxon last week announced plans to slash its capital spending this year by 30% to about $23 billion, in large part by pulling back in the Permian Basin, and to reduce its cash operating expenses by 15% to help offset slumping commodity prices due to the pandemic.

The company said in a statement to MarketWatch that new bonds issued on Monday will be used for general corporate purposes.

Exxon reported $46.9 billion in debt at the end of 2019. In March, the company also issued $8.5 billion worth of corporate bonds and had a $14.9 billion credit facility, per Moody’s.

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