S&P Strips ExxonMobil of Coveted Triple A Rating

ExxonMobil was stripped of its long-held triple A rating by credit agency Standard & Poor’s on Tuesday as the precipitous crude price rout adds strain to the US oil major’s balance sheet.

The downgrade to double A plus reflected the ballooning of Exxon’s debt and analyst views that the largest US oil group and fourth-largest publicly traded American company would have to increase capital expenditures in the coming years to maintain production.

The move is the latest cut to an industry that has undergone sweeping change since crude prices began to slip, prompting the expected partial flotation of Saudi Arabia’s state-owned oil company and a deluge of defaults by US shale companies.

The downgrade from S&P leaves just two publicly traded US companies with pristine triple A ratings:  Microsoft and Johnson & Johnson.

Exxon, which had held its triple A status since at least the 1940s, has issued debt rapidly over the past two years as the price of oil tumbled to fund its dividend program and capital spending.  The company, which sold $12bn of bonds earlier this year, counted roughly $35bn of net debt at the end of 2015. In 2012, the figure stood at $2bn.

Last year the company nearly covered the entirety of its $31bn in capital expenses with cash it generated from operations, but had to borrow to fund its $15bn dividend and share buyback programs.

“The company’s debt level has 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,” Ben Tsocanos, an analyst with S&P, said.

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