Moody's hit ExxonMobil (XOM 0.51%) with a credit rating downgrade on April 2. The rating went down one rung from "Aaa" to "Aa1." This means Exxon's future debt offerings will be much more expensive. Among the reasons Moody's gave for the downgrade was falling oil prices. Of the hundreds of energy companies in the industry, how many of them are getting hit with credit ratings downgrades?
Credit ratings matter
Just like individuals, companies have credit ratings that are considered when it comes time to take on debt either as a bank loan or as a bigger bond offering. The credit ratings are provided by several companies, but the largest of them are Moody's (MCO 1.33%), S&P Global (SPGI 0.82%), and Fitch Ratings. Below is an example of how each agencies' ratings are structured.
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From time to time the companies that provide these ratings will review a companies financials and the industry's environment in order to gauge whether a change in these ratings is warranted. These periodic reviews can simply reiterate a credit rating an agency already has, or announce a change. With that change comes an explanation from the ratings agency. Investors would be wise to read this explanation as it is analysis coming from some of the most widely-respected opinions on such subjects.
These ratings are meant to be associated the companies' debt, but they consequently provide a bigger picture of how companies are best suited to weather upcoming bills. With plummeting oil prices and significant demand shocks, one can expect a wave of downgrades in the energy industry coming.
As another example, Moody's hit Occidental (OXY 1.41%) with a pretty harsh downgrade of "Ba1" on March 18, essentially rating its debt junk in the process. As a follow-up announcement April 23, 2020, Moody's plans to review the company's credit rating further, likely thanks to the oil prices we've seen lately.
Companies not getting downgrades
Total (TTE 0.73%) recently got its rating of "AA-" reiterated by Fitch in an announcement by the agency on May 11, 2020 . Some agencies even supplement ratings announcements with an outlook for the company such as "positive, stable, or negative." Total was fortunate enough to get an outlook of stable from Fitch.
Moody's recently reiterated Chevron's (CVX 0.78%) credit rating of "Aa2" and stated its outlook was stable as well. Though this rating reiteration was on April 2 of this year, nearly 3 weeks before oil prices went into negative, this credit rating may be reviewed by the agency in the near future.
Shell (RDS.A) & (RDS.B), too, saw a reiteration of its credit rating from Fitch on May 11, 2020. The company's debt was again rated "AA-" by Fitch and given a stable outlook.
Companies yet to be reviewed
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A ratings review is yet to be issued for several companies in the oil and gas industry. Companies that have operations heavily exposed to oil and gas prices will likely get a credit rating downgrade, or at the very least a change in outlook from stable to negative from the agencies.
Apache (APA 0.17%) was given a notice on April 13, 2020 by Moody's that its credit rating is currently being reviewed. Given the current climate in oil and gas as well as Apache's heavy exposure to upstream production, it's likely it will see a downgrade from its current Baa3 rating.
Investors may wish to add a review of a company's credit rating activity from the three agencies when doing research for new investments, or whether to hold existing investments. A good sign for companies can be sustaining its credit ratings in a torrent of downgrades to other companies.
These ratings changes can also be taken with a grain of salt as some may not have that much impact. Exxon still the highest-rated debt of the companies listed, even with the latest downgrade.
