Exxon Mobil Corp., the oil giant that still has pristine triple-A ratings, is selling $12 billion of new bonds on Monday, one of the biggest corporate-debt deals of the year and a sign that investors are still willing to lend to higher-quality companies despite concerns about global economic weakness.
Financial markets have been roiled this year by anxiety over the pace of economic growth in China, a prolonged bust in commodity prices and concerns that the U.S. could be headed toward recession. The debt market, even for highly rated companies, was largely shut in the first part of February as U.S. stocks were hit with a selloff.
But market tone has improved in recent weeks amid some more encouraging economic data about the strength of the U.S. consumer, a major driver of economic activity. Debt markets opened up again, allowing companies like Apple Inc. to sell new bonds, and the stock market has bounced back from its mid-February lows.
Exxon Mobil’s debt sale indicates the bond boom of recent years isn’t letting up yet, and that the debt markets are still available for highly rated companies that need to sell bonds to pay for debt refinancing, capital spending or share buybacks. Several other firms were selling bonds on Monday, including Hyatt Hotels Corp. and SunTrust Banks Inc., according to S&P Capital IQ LCD.
Still, the Exxon Mobil deal illustrates how the decline in energy prices since mid-2014 is hitting even the big multinational companies.
Exxon Mobil’s borrowing costs relative to market benchmarks have risen since it sold bonds last year. A 10-year bond, for example, offered on Monday is expected to yield 1.3 percentage points more than Treasurys, compared with 0.58 percentage point for a 10-year bond last year. A higher gap in yield means that investors are demanding additional compensation to own bonds from the company.
The company, which plans to use proceeds of its sale for general corporate purposes, is at risk of losing its triple-A rating. Standard & Poor’s on Feb. 2 said it was reviewing the company’s rating and could downgrade it by one notch within 90 days. On Feb. 25, Moody’s Investors Service changed its outlook on the company to negative from stable, saying it expects low oil and gas prices to persist for the next few years, though it still affirmed the triple-A rating for now.
