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Examining ExxonMobil’s Latest Bond Issuance

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ExxonMobil’s bond issue

Amid tumbling crude oil and natural gas prices, ExxonMobil (XOM), an integrated energy giant, has raised $12 billion via a bond issue. Though it has been priced at a premium to risk-free US Treasuries, it shows the market’s appetite for a well-run energy company’s bond issue despite the subdued energy market scenario.

In this series, we’ll highlight the details of XOM’s latest bond issue. In the next couple of parts, we’ll examine the likely impact of rising debt on the company’s leverage position, and we’ll analyze its cash flow position. We’ll also discuss the latest updates on ExxonMobil’s capital expenditure, its projects in its upstream and downstream segments, and its operating performance in 4Q15. We’ll conclude the series by discussing valuations and analysts’ recommendations for the stock.

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XOM’s bond issue highlights

XOM has issued bonds amounting to $12 billion, of which $11 billion are fixed interest rate bonds and $1 billion are floating interest rates bonds linked to LIBOR (Intercontinental Exchange London Interbank Offered Rate). These bonds were sold in multiple tranches. The longest tranche of 30 years, $2.5 billion worth of notes, carries an interest rate of 4.1% per annum, which stands at a premium of 150 basis points to the benchmark Treasury yield.

XOM plans to use the proceeds of the bond issue for general corporate purposes. The issue can also likely be used for acquisitions, capital expenditure, to fund working capital requirements, and to refinance existing borrowings.

XOM’s stock performance

In the five days leading up to March 2, 2015, XOM rose 1.4%, closing at $82.7. XOM saw highs of $83.1 and lows of $80 during the period. XOM’s peers Chevron (CVX), Royal Dutch Shell (RDS.A), and BP (BP) rose 2.2%, 6.4%, and 5.9%, respectively, over the same period.

For exposure to energy sector stocks, you can consider the PowerShares Dynamic Large Cap Value ETF (PWV). The ETF has ~10% exposure to energy sector stocks.

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