Occidental Seeks Ways to Reduce Roughly $40 Billion Debt Load -- WSJ
May 06 2020 - 3:02AM
Dow Jones News
By Cara Lombardo
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (May 6, 2020).
Occidental Petroleum Corp. is examining ways to lessen its
roughly $40 billion debt load following a historic plunge in oil
prices and an ill-timed acquisition, which have put the Texas
energy producer on shaky footing.
Occidental recently tapped boutique investment bank Moelis &
Co. for advice on how to ease the burden of its liabilities at a
time when its revenue is under severe pressure, according to people
familiar with the matter.
Actions under consideration include buying back some of the
company's roughly $35 billion in bonds at a discount, a move that
could lower its debt load, and launching an exchange offer that
could push maturities back, some of the people said.
Significant asset sales that have been considered, such as
unloading a chemicals business that accounts for roughly 20% of
Occidental's sales, are unlikely to be on the menu until oil prices
recover, some of the people said.
There is no guarantee the company will ultimately go forward
with a balance-sheet revamp. While hiring restructuring advisers
can be a precursor to exploring bankruptcy, that is not the case
with Occidental, which is seeking Moelis's help with so-called
liabilities management.
Occidental has been hobbled by the sharp decline in oil prices,
coming just months after the company completed its $38 billion
purchase of Anadarko Petroleum Corp. in August. Chief Executive
Vicki Hollub had pledged to sell $15 billion in assets to lighten
the company's debt load, but those plans have been stymied by a
drop-off in mergers-and-acquisitions activity due to the
coronavirus pandemic.
Occidental had about $39 billion of debt at year-end, much of it
assumed in the Anadarko deal. Bonds maturing after 2023 make up
more than $20 billion of that, and the bulk were recently trading
at between 60 cents and 80 cents on the dollar, according to
MarketAxess, while those maturing in the next few years were
trading at an average of roughly 90 cents. Occidental's market
value, meanwhile, has dropped to less than $15 billion from roughly
three times that a year ago.
To finance the Anadarko deal, Occidental sold $10 billion of
preferred shares to Warren Buffett that carry annual dividend
payments of $800 million. The company in April opted to pay its
quarterly obligation of $200 million in shares.
Occidental has taken other measures to conserve cash, slashing
capital spending by more than half, trimming salaries and cutting
the dividend it pays common shareholders by 86%.
The company reported a first-quarter loss of $2.2 billion
Tuesday, as it contended with a decline in oil prices and demand.
Occidental wrote down the value of its oil and gas assets by about
$580 million and took $1.4 billion in charges tied to its
investment in pipeline company Western Midstream Partners LP,
acquired as part of the Anadarko deal.
Moelis is expected to work hand-in-hand with a newly formed
advisory committee on Occidental's recently overhauled board. It is
led by Chairman Stephen Chazen and includes lieutenants of activist
investor Carl Icahn, who owns roughly 10% of the company's
shares.
Companies -- particularly in the retail and energy sectors --
have in recent weeks been racing to hire advisers to help them
manage their debt piles as the pandemic crimps business and, in
some cases, to prepare for possible bankruptcy.
Moelis has lately been one of the most active of the so-called
boutique banks that specialize in doling out advice rather than
capital.
Rebecca Elliott contributed to this article.
Write to Cara Lombardo at cara.lombardo@wsj.com
(END) Dow Jones Newswires
May 06, 2020 02:47 ET (06:47 GMT)
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