HG Bonds: Occidental Petroleum Shops $1B Deal to Refi Debt Maturity

Following a recent debt maturity, Occidental Petroleum (NYSE: OXY) is shopping $1 billion of SEC-registered, 30-year senior bonds due March 15, 2048, with early whispers out in the T+120 area to initially suggest a reoffer yield near 4.35%, sources said. Bookrunners for the A/A3/A offering are Barclays, J.P. Morgan, and Wells Fargo.

The offering is the first for the issuer since Nov. 2, 2016, when it placed a $1.5 billion, two-part offering, across $750 million each of 3% notes due Feb. 15, 2027 at T+125, and 4.1% notes due Feb. 15, 2047 at T+155. The 4.1% 2047 issue changed hands last week near T+100, trade data show.

Proceeds of today’s “no-grow” offering will be used to refinance the repayment of the issuer’s $500 million aggregate principal amount of 1.50% senior notes due 2018 that matured on February 15, 2018, and for general corporate purposes, according to regulatory filings.

The issue is subject to a make-whole call provision and a par call from six months prior to maturity.

The single-A ratings profile reflects stable outlooks at S&P Global Ratings and Moody’s, and a negative outlook at Fitch. The Fitch outlook dates to a downward revision last July, and reflects “concerns about the impact of the company’s large dividend ($2.3 billion), which Fitch anticipates will result in prolonged negative FCF over the next few years, and above average execution risk in getting back to FCF neutrality, which is less typical for ‘A’ rated entities.”

Fitch also cited “moderate increases in OXY’s gross debt levels since the downturn began (rising from around $6.8 billion in 2014 to $9.9 billion at YE 2016), and the recent move by Saudi Arabia and allies UAE, Egypt, and Bahrain, to cut diplomatic and transport ties with Qatar, which has increased political risk surrounding OXY’s Qatari production.”

S&P Global Ratings last week noted in ratings rationale that, which the dividend is “sizable,” overall financial policy at the company is “modest,” supporting a view that financial measures would “remain strong, albeit significantly weaker than historical levels, with average funds from operations (FFO) to debt in excess of 60% and debt to EBITDAX below 1.5x.”

For reference, Occidental paid out roughly $2.4 billion in dividends last year, the most in its history after a steady increase from $1.6 billion in 2013, and less than $1 billion in 2008.

Houston-based Occidental Petroleum, together with its subsidiaries, engages in the acquisition, exploration, and development of oil and gas properties in the United States and internationally, via its Oil and Gas, Chemical, and Midstream and Marketing segments. — John Atkins

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