American oil exploration company Occidental Petroleum (Oxy) was upgraded to BB+ from BB by Fitch. The rating agency cited Oxy’s decreasing debt YTD and recently concluded debt tenders as key reasons for the upgrade. Fitch updated its outlook on Oxy to stable in expectations of further debt reductions in the short-term. However, the rating agency is concerned with Oxy’s prior 12 months’ debt leverage metrics and high interest costs attributable to the Anadarko acquisition, including $800mn in preferred dividends. Further, Oxy hastened its deleveraging pace in Q4 through a $1.54bn debt reduction, on top of a cumulative debt reduction of ~$4.5bn from Q1 to Q3 2021. Oxy’s free cash flows (FCF) remain strong, rising sharply to $2.3bn in Q3 from $120mn and $2.4bn in Q1 and Q2 respectively and is expected to stay robust given low capex of ~$2.9bn and a reduced dividend. Fitch expects Oxy’s funds from operations interest coverage of 4.8x in 3Q21 to improve given recent debt repayments. Overall, Oxy’s healthy cash reserves and stable FCF projections will adequately address its near term debt maturities, including $453mn in 2022, $465mn in 2023, and $1.73bn in 2024.
Occidental’s dollar bonds traded stable with its 2.7% 2023s at 100.94, yielding 1.64% and its 6.125% 2031s at 119.21, yielding 3.5%.
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