Exxon Mobil Corp (NYSE:XOM) and corporate America suffered a blow to their prestige on Tuesday when ratings agency Standard & Poor's stripped the oil giant of its top-tier triple-A credit.
"We forecast that Exxon Mobil's credit measures, including free operating cash flow (FOCF) to debt and discretionary cash flow (DCF) to debt, will remain below our expectations for the 'AAA' rating through 2018. We are lowering our long-term corporate credit and issue-level ratings on the company's unsecured debt to 'AA+' from 'AAA'. Our short-term corporate credit and commercial paper rating remain unchanged 'A-1+'. The outlook is stable," S&P said in a statement.
"We believe Exxon Mobil's credit measures will be weak for our expectations for a 'AAA' rating due, in part, to low commodity prices, high reinvestment requirements, and large dividend payments. The company's debt level has more than doubled in recent years, reflecting high capital spending on major projects in a high commodity price environment and dividends and share repurchases that substantially exceeded internally generated cash flow," it added.
The loss of the rating was not a short-lived affair either. The oil giant had consistently held the triple-A rating for over six decades and was one of the last-remaining US companies to have retained theirs.
Analysts said it sent out a message to the oil world that not only smaller or higher-cost players were being squeezed by the depressed state of energy prices. The titans were becoming unstuck too.
The world’s largest publicly traded oil company, Exxon, was just one of three US companies - along with Microsoft Corp. and Johnson & Johnson - that had the triple-A rating. S&P said it first gave the company the triple-A mark in 1949. Counting its predecessor companies, Exxon had been triple-A since 1930.
After Exxon shares initially dipped they ended on Tuesday up 0.3% at $87.60 - on a day when oil prices helped support the wider bourse.