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Moody's downgrades Exxon on negative free cash flow, rising debt levels

Moody's on April 2 downgraded the issuer and senior unsecured ratings of U.S. supermajor Exxon Mobil Corp. and its guaranteed subsidiaries to Aa1 from Aaa.

The rating agency affirmed the supermajor's Prime-1 short-term ratings but noted that the rating outlook remains negative.

According to Moody's, Exxon's cash flow-based credit metrics "were already relatively weak entering 2020, as very high growth capital investment combined with muted oil and gas prices and low [earnings in its downstream and chemicals segments] resulted in substantial negative free cash flow and rising debt in 2019." In addition, "the large drop in oil prices and continued weakness in downstream and chemicals performance leaves the company poised to incur sizable negative free cash flow funded with debt."

As such, Moody's does not expect Exxon's credit metrics to improve sufficiently to regain the Aaa rating over the medium term. Even with large reductions in costs and investments, Exxon's negative free cash flow and increasing debt, particularly under the Moody's low commodity price case, could weaken the oil major's credit profile and result in a ratings downgrade, Moody's said.

On March 16, Exxon said it was evaluating ways to "significantly reduce" its capital and operating expenses in the near term. In a March 17 filing, the supermajor reported it inked a deal to raise $8.5 billion in new debt amid the collapse in oil prices and the economic downturn caused by the coronavirus pandemic.