Moody's on Aug. 1 downgraded Occidental Petroleum Corp.'s senior unsecured rating to Baa3 from A3 and its short-term rating to Prime-3 from Prime-2 with a stable outlook.
The rating agency also put Anadarko Petroleum Corp.'s ratings and the ratings of its guaranteed subsidiaries, which include its Ba1 corporate family rating, its Ba1 unsecured notes rating, its Ba1-PD probability of default rating and its Not-Prime short-term rating, under review for upgrade.
Moody's said the ratings actions follow an Aug. 1 announcement from Occidental about a planned debt offering. Moody's assigned a Baa3 rating to the offering, which is meant to finance a part of the cash portion of the company's $38 billion acquisition of Anadarko. The transaction is expected to close on or about Aug. 8.
"While the acquisition will strengthen and diversify [Occidental's] upstream and midstream asset base, adding further scale to its already large position in the Permian Basin, the significant increase in debt leaves the company with less flexibility to confront commodity price volatility," Moody's Vice President Andrew Brooks said. "Moreover, [Occidental] could be challenged to deliver the full complement of asset sales, capital and operating cost synergies and execution on the acquired assets to fund the debt reduction required to improve its materially weakened credit metrics."
During the company's second-quarter earnings call Aug. 1, Occidental CEO Vicki Hollub defended the merger. She said the company would raise its dividend for the 17th consecutive year even with the deal and would look to divest some assets to reduce debt.
Moody's said Occidental's outlook is stable under the assumption that it is successful in its effort to reduce debt through asset sale proceeds, and that it generates positive free cash flow.