Exxon Loses AAA Credit Rating From S&P

A rising debt level and dividends exceeding internally generated cash flow caused the downgrade.
Matthew HellerApril 26, 2016
Exxon Loses AAA Credit Rating From S&P

The oil price slump has claimed Exxon Mobil’s perfect credit rating as Standard & Poor’s on Tuesday downgraded the company from the lofty “AAA” perch it had occupied since 1949.

The downgrade to AA follows S&P’s move in February to place Exxon on a negative credit watch and reflects the strain on Exxon’s balance sheet from the oil price downturn that began in mid-2014.

S&P analysts noted that Exxon’s debt level had more than doubled in recent years, “reflecting high capital spending on major projects in a high commodity price environment and dividends and share repurchases that substantially exceeded internally generated cash flow.”

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Exxon’s “credit measures will be weak for our expectations for a AAA rating,” the rating agency said, although it maintained a stable outlook for the company, implying another downgrade was not imminent.

With Exxon’s slip, Johnson & Johnson and Microsoft are the only companies with a pristine rating from S&P. U.S. government debt is ranked at “AA+.”

“Although the ratings downgrade carries the possibility of higher borrowing costs for Exxon, the move has far greater symbolic ramifications,” USA Today said. “It illustrates that no one — not even the world’s largest non-state-owned oil company — is immune from the collapse in oil prices over the last 18 months.”

Exxon’s full-year profit for 2015 fell 50% to $16.15 billion and the company slashed capital expenditures by 29% in the fourth quarter to $7.4 billion. It is set to report quarterly results on Friday.

“Nothing has changed in terms of the company’s financial philosophy or prudent management of its balance sheet,” an Exxon spokesman said Tuesday. “Exxon Mobil places a high value on its strong credit position and continues to be focused on creating long-term shareholder value despite near-term market volatility.”

But as Reuters reports, Exxon executives said in the last quarter that the AAA rating was a sign of their superior business management amid the oil price fall. “We get value from the ‘AAA’ credit rating,” Jeff Woodbury, vice president of investor relations, said on a February conference call.

Exxon stock was up 7 cents at $87.40 in trading Tuesday.

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