Exxon Mobil's Credit Rating Downgraded a Notch By S&P

S&P Global (NYSE: SPGI) has cut the credit rating of oil giant ExxonMobil (NYSE: XOM) from AA+ to AA. The credit rating agency also maintained its negative outlook on Exxon's credit, with it warning of another downgrade if the company doesn't address its financial issues in the next 12-24 months. Exxon lost its long-held AAA rating in 2016 due to lower oil prices.

S&P downgraded Exxon's credit because of its higher leverage metrics, weaker 2020 outlook, and large deficit between cash flow and outflows to fund its dividend and capital spending program. This move comes not that long after Exxon reaffirmed its long-term spending plans even though oil prices have weakened considerably due to the COVID-19 outbreak. Because of that, the company is on track to significantly outspend its cash flow in the coming years. According an estimate by RBC Capital, Exxon needs oil to average $77 a barrel this year -- and $68 a barrel in 2021 -- to generate enough cash flow to cover its dividend and capital spending program. That's well above the current price point in the low $30s. As such, Exxon will need to either borrow a significant amount of money to bridge the gap or make some substantial spending cuts.

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Source Fool.com