Oil companies may get loan program
Treasury Secretary Steven Mnuchin said he’s considering the creation of a government lending program for U.S. oil companies, who are looking for federal aid as they cope with a devastating plunge in prices.
“One of the components we’re looking at is providing a lending facility for the industry,” Mnuchin said in a Bloomberg News interview late Thursday. “We’re looking at a lot of different options, and we have not made any conclusions.”
He would not say whether the lending program would be housed at his agency or at the Federal Reserve, which has created a number of loan facilities for businesses suffering from the economic collapse brought on by the coronavirus outbreak.
The Treasury Department would need permission from Congress to loan funds directly from the $2.2 trillion coronavirus stimulus passed last month. Oil companies may already be able to access a loan program the Fed created for “main street” businesses, Mnuchin said.
“Investment-grade companies will be able to either access the normal capital markets or will be able to access the Fed’s investment-grade facility,” he said. “That’s the priority.”
For oil companies that aren’t credit-worthy enough to tap the Fed, Mnuchin said he is discussing “alternative structures with banks.”
“For them to fit into a Fed facility, they would have to fit into the normal constraints,” he said, rejecting the notion that the central bank would loan money to riskier companies.
Oil prices have crashed globally, down 73 percent this year after benchmark West Texas Intermediate futures went negative
earlier this week. Disagreements between oil-producing nations and rising stockpiles since demand collapsed amid the coronavirus outbreak have put oil companies at risk of closure.
The Trump administration has vowed to stem job losses and rescue the oil industry with stimulus funds and other measures as the U.S. responds to the global glut in crude. President Donald Trump has asked Mnuchin and Energy Secretary Dan Brouillette to work on ensuring that oil and gas companies can access lending programs created by the coronavirus rescue plan.
One key way the government could help rescue oil drillers’ finances would be to change a provision that requires a company’s debt to be investment-grade as of March 22 to qualify for the central bank’s bond-buying program. That requirement could prevent some drillers, including Occidental Petroleum, from taking advantage of the program, as many saw their ratings downgraded as oil prices crashed last month.
Oxy had its debt cut to junk by Moody’s on March 18. Two days earlier, Exxon Mobil had its credit rating lowered by Standard & Poor’s for the first time since the 2016 oil-price crash, with further downgrades possible unless the company changes its financial plans.