Two of America’s blue chip corporations were hit with corporate debt downgrades amid Monday’s market mayhem as Covid-19 shut down U.S. bars, sporting events, McDonald’s dining rooms, flights and even the city of San Francisco.
ExxonMobil, the nation’s biggest oil and gas company, and its fortress balance sheet, were downgraded on Monday. With commodities prices plunging, Standard & Poor’s Global Ratings downgraded ExxonMobil to AA from AA+. The rating agency said ExxonMobil’s cash flow and leverage measures fell well below its expectations and kept a negative outlook on ExxonMobil, warning the oil behemoth had not taken adequate steps to improve cash flow.
ExxonMobil immediately responded by saying it was looking to significantly reduce spending and conserve cash. “Based on this unprecedented environment, we are evaluating all appropriate steps to significantly reduce capital and operating expenses in the near term,” Darren Woods, ExxonMobil’s chief, said in a statement.
Boeing, which has been mired in problems associated with the grounding of its 737 Max aircraft, moved last week to tap a $13.8 billion credit line. On Monday, S&P downgraded Boeing’s debt by two notches to BBB from A-, one step away from junk territory. Boeing, which JPMorgan says is poised to burn through $5 billion in 2020, is reportedly requesting short-term financial help from the federal government for itself and its suppliers.
“Boeing’s cash flows for the next two years are going to be much weaker than we had expected, due to the 737 Max grounding, resulting in worse credit ratios than we had forecast,” S&P said. “The significant reduction in global air travel due to the coronavirus will likely result in an increase in aircraft order deferrals, further pressuring cash flows.”
The Covid-19 pandemic comes at a time of mounting corporate debt. Non-financial companies owe $9.6 trillion of debt in the U.S., double the amount those companies owed 10 years ago. Now, the debts those companies accumulated have become much harder to manage and that is being reflected by rating agency action, further spooking financial markets.
Investors are anticipating the credit downgrades and sending down the price of many corporate bonds, pushing up the yields of $320 billion of investment grade corporate debt rated one notch above junk above 6%, according to Ice Data Services. Fitch Ratings has said that about a quarter of the corporate bonds it rates in Europe are tied to companies with businesses impacted by government efforts to deal with the virus.
On Tuesday, ratings agency Moody’s cut German airline Lufthansa’s debt to junk and said the rating might be cut further, citing “the rapid and widening spread…