Oxy Begins Bond Sale to Fund Anadarko Deal

(Bloomberg) -- Occidental Petroleum Corp. is selling $13 billion of debt to help finance its acquisition of Anadarko Petroleum Corp. after receiving over $75 billion in orders for the deal at the peak, according to people familiar with the matter.

It’s the biggest demand for a debt sale since Saudi Arabia’s Aramco received more than $100 billion in orders in April, and a sign that investors are willing to take risk again just a day after the trade-war induced volatility shook global markets.

Occidental is selling bonds to fund the $38 billion takeover in 10 parts, a separate person with knowledge of the deal said. The longest portion of the offering, a 30-year security, may yield around 2.25 percentage points more than Treasuries, down from initial price talk of 2.7 percentage points, said the person, who asked not to be identified as the details are private.

Four other investment-grade borrowers are marketing debt deals today as issuers regained their confidence after the latest flareup in the U.S.-China trade war brought sales to a near halt on Monday. High-grade credit spreads jumped 6 basis points on Monday, the biggest single-day widening relative to risk premiums since June 2016’s U.K. Brexit decision.

The order book for Occidental’s offering swelled to above $75 billion before retreating to about $71 billion as the deal launched, according to the people familiar with the demand, The bond sale comes after the Houston-based company won the battle for the Anadarko assets. Chevron Corp. elected not to sweeten its $33 billion offer for Anadarko, walking away with a $1 billion breakup fee in May.

Activist investor Carl Icahn recently criticized Occidental for agreeing to take on a $10 billion investment from billionaire Warren Buffett in order to increase the cash portion of its bid.

The company has also agreed to sell Anadarko assets in four African countries to France’s Total SA for $8.8 billion, as part of a $10 billion to $15 billion divestment plan to help it pay down debt. Occidental is seeking a buyer to take majority control of Western Midstream Partners LP, the pipeline operator that it’s poised to inherit through the Anadarko takeover, people familiar with the matter said in June.

The acquisition, the largest seen in the oil and gas industry since Royal Dutch Shell Plc acquired BG Group Ltd. in 2016, adds over $40 billion of debt to Occidental’s capital structure, according to Moody’s Investors Service. That’s a significant increase that leaves the company “with less flexibility to confront commodity price volatility,” Andrew Brooks, Moody’s analyst, wrote in a statement last week.

The rating company downgraded Occidental’s senior unsecured rating three notches to Baa3, the lowest investment-grade level. S&P Global Ratings has the energy producer at A and said on Aug. 1 that it will likely cut that rating to BBB, its second-lowest high-grade level, after the Anadarko transaction closes.

Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. are managing the bond sale, the person said.

A representative for Occidental didn’t immediately respond to a request for comment on the bond sale.

--With assistance from Molly Smith, Michael Gambale, Brian Smith and Allan Lopez.

To contact the reporter on this story:
Caleb Mutua in New York at dmutua@bloomberg.net

To contact the editors responsible for this story:
Nikolaj Gammeltoft at ngammeltoft@bloomberg.net
Christopher DeReza