Moody’s Ratings and the Oil Industry.

Moody’s is the bond credit rating business of Moody’s Corporation considered as one  of the big three credit rating agencies which ranks the credit worthiness of borrowers using a standardized ratings scale that measures expected investor loss in the event of default.

it’s credit rating is categorised into two denoting the ability to repay short-term debt;

Investment Grade:

  • Aaa – Best ability to repay short-term debt
  • Aa1
  • Aa2
  • Aa3
  • A1
  • A2
  • A3
  • Baa1
  • Baa2
  • Baa3 – Acceptable ability to repay shot term debt

Speculative Grade:

  • Ba1 – Significant credit risk
  • Ba2
  • Ba3
  • B1
  • B2
  • B3
  • Caa1
  • Caa2
  • Caa3
  • Ca
  • C – Lowest quality, and low likelihood of recovering principal or interest

As the collapse in crude oil prices persists and expectations that oil prices will stay low for longer and cause leverage concerns, oil companies big and small are having their credit ratings cut aas there would be reduction in cash flows which would limit the ability to sustain debt payments; see the industry top three ratings below.

Chevron Corporation

Chevron’s rating was lowered from Aa1 to Aa2 as per concerns that the company will generate negative cash flow amid rising debt for at least the next two years.

Royal Dutch Shell Plc

Shell’s rating was lowered  to Aa2 though expected to have more leverage following it’s acquisition of BG Group Plc.

Total SA

Total’s rating was brought drown to Aa3 from Aa1 while BP Plc‘s rating was confirmed at A2.

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