Please ensure Javascript is enabled for purposes of website accessibility

Moody's Cuts Occidental Petroleum's Debt to Junk

By Matthew DiLallo - Mar 19, 2020 at 10:21AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The oil giant's acquisition of Anadarko Petroleum continues to haunt it.

Credit rating agency Moody's (MCO -0.01%) announced today that it has downgraded Occidental Petroleum's (OXY 0.22%) senior unsecured debt from Baa3 to Ba1. That pushed Occidental's bond rating into junk territory. 

Occidental's credit profile has been under pressure since it acquired Anadarko Petroleum last year. The company took on $40 billion in debt to finance that transaction. That debt is now "significantly compromising its financial flexibility to confront the collapse in oil prices," according to Andrew Brooks, a vice president at Moody's.

An oil pump with an orange sky in the background.

Image source: Getty Images.

Occidental had targeted to sell $15 billion in assets so that it could pay off some of its acquisition-related debt. However, it has had trouble meeting that goal due to delays and other issues. Those headwinds will become even worse with the crash in crude prices. That's "leaving OXY with a significantly weakened credit profile whose prospects for near-term improvement are uncertain," according to Brooks.

This downgrade follows several moves Occidental has made to shore up its financial profile amid the crash in crude prices. Occidental not only reduced its capital spending budget range from $5.2 billion-$5.4 billion to $3.5 billion-$3.7 billion but also slashed its dividend by 86%. These moves have reduced Occidental's oil price break-even level to the low $30s. However, with crude prices recently touching $20 a barrel, it's on track to tack on more debt. As such, it might need to slash spending further or sell assets at fire-sale prices if oil prices don't improve in the coming months.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Occidental Petroleum Corporation Stock Quote
Occidental Petroleum Corporation
OXY
$59.01 (0.22%) $0.13
Moody's Corporation Stock Quote
Moody's Corporation
MCO
$271.94 (-0.01%) $0.03

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
311%
 
S&P 500 Returns
110%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.