Occidental Petroleum to repay residual 2021 notes through asset sales

By Devika Patel

Knoxville, Tenn., Nov. 10 – Occidental Petroleum Corp. plans to keep strengthening its balance sheet by paying down debt, after extending the maturity of $5 billion of debt due in 2021 and 2023 by five to 10 years last quarter.

The company has reduced outstanding debt by $1.3 billion year-to-date and will use funds from expected asset sales to pay down debt, with $1.1 billion of debt due 2021 still outstanding.

“The proceeds from our expected asset sales will continue to be applied towards debt reduction,” president and chief executive officer Vicki Hollub said on the company’s third quarter ended Sept. 30 earnings conference call on Tuesday.

“These additional asset divestitures will be impactful in reducing debt and strengthening our balance sheet.

“We do recognize we must go further in reducing debt.

“Once our large-scale divestiture program is complete, debt reduction will be primarily driven by the utilization of free cash flow to meet debt maturities,” Hollub said.

The company pushed some maturities out by as much as 10 years.

“The process we began in July to smooth out our debt maturity profile provides us with the running room necessary to maximize value from our divestiture program at a pace that reflects current market conditions,” senior vice president and chief financial officer Robert L. Peterson said on the call.

“To date, we have extended $5 billion of maturities due in 2021 and 2023 by five to 10 years,” Peterson said.

In total, the company has extended $5.2 billion of 2021 maturities, $721 million of 2022 maturities and $52 million of 2023 maturities.

It still has $1.1 billion of 2021 notes outstanding, which will be paid down from the asset sales.

“We have also resumed our deleveraging efforts, starting with the exchange of a percentage of our West LP units in return for the retirement of $260 million note,” Peterson said.

“In early October, we called an August 2021 floating-rate note and repaid more than $1 billion of the term loan.

“In summary, including the term loan repayment, we have moved up $5.2 billion of 2021 maturities, $721 million of 2022 maturities and $52 million of 2023 maturities.

“This leaves us with $1.1 billion of remaining 2021 maturities, of which only $350 million will remain non-callable by early next year, as we allocate proceeds from asset sales to retiring debt,” Peterson said.

The company generated $1.4 billion of free cash flow and ended the third quarter with $1.9 billion of unrestricted cash on the balance sheet.

“This represents our highest level of free cash flow in a quarter since 2011,” Peterson said.

The company’s liquidity and extension of its debt maturity profile last quarter were to such an extent that management felt comfortable paying the preferred dividend in cash.

“Our ample liquidity position, ability to generate cash [and] success in leveling our debt maturity profile have resulted in our improved financial position.

“As a result, our debt maturity profile has been de-risked to the point that we made a decision to pay the preferred dividend in cash on Oct. 15,” Peterson said.

On Aug. 12, Occidental priced an upsized $3 billion of senior notes (Ba2/BB+/BB) in three bullet tranches.

The deal included:

• $900 million of five-year notes, which priced at par to yield 5 7/8%. The yield printed at the tight end of yield talk and initial guidance in the 6% area;

• $600 million of eight-year notes, which priced at par to yield 6 3/8%, in the middle of yield talk and initial guidance in the 6 3/8% area; and

• $1.5 billion of 10-year notes, which priced at par to yield 6 5/8%, in the middle of yield talk and initial guidance in the 6 5/8% area.

The overall issuance doubled from the announced size of $1.5 billion.

J.P. Morgan Securities LLC, RBC Capital Markets Corp., MUFG, SMBC Nikko Securities America Inc., BofA Securities Inc., Barclays, Citigroup Global Markets Inc., HSBC Securities (USA) Inc., SG Americas Securities LLC and Wells Fargo Securities LLC were the bookrunners.

The Houston-based energy company earmarked the proceeds to fund a concurrent tender offer for its near-term maturities.

Also on Aug. 12, the company launched offers to purchase for cash up to $3 billion of eight series its outstanding senior notes and launched related consent solicitations.

The following notes were included in the offers, listed in order of acceptance priority level:

• $305,294,000 of 4.1% senior notes due 2021 (Cusip: 674599BY0) for a total consideration of $1,007.50 per $1,000 of notes;

• $1,449,371,000 2.6% senior notes due 2021 (Cusip: 674599CU7) for a total consideration of $1,005 per $1,000 of notes;

• $500 million floating-rate notes due August 2021 (Cusip: 674599CV5) for a total consideration of $980 per $1,000 of notes;

• $813.69 million of 3.125% senior notes due 2022 (Cusip: 674599CC7) for a total consideration of $1,000 per $1,000 of notes;

• $400 million of 2.6% senior notes due 2022 (Cusip: 674599CK9) for a total consideration of $987.50 per $1,000 of notes;

• $2 billion of 2.7% senior notes due 2022 (Cusip: 674599CP8) for a total consideration of $992.50 per $1,000 of notes;

• $1.5 billion of floating-rate notes due August 2022 (Cusip: 674599CQ6) for a total consideration of $960 per $1,000 of notes;

• $1,190,720,000 of 2.7% senior notes due 2023 (Cusip: 674599CE3) for a total consideration of $967.50 per $1,000 of notes.

Holders also received accrued interest.

The total consideration for each series of notes included an early tender premium of $50 per $1,000 of notes. Holders of notes that were validly tendered at or prior to 5 p.m. ET on Aug. 25 and accepted for purchase received the early tender premium.

The maximum purchase price to be paid by Occidental for the 2022 notes, excluding accrued interest, was limited to $700 million (upsized from an initial $200 million), and the maximum purchase price for the 2.7% 2023 notes, excluding accrued interest, was limited to $50 million.

As part of the tender offers, Occidental also solicited consents from the holders of the 2.6% 2021 notes, floating-rate August 2021 notes, 3.125% 2022 notes, 2.6% 2022 notes, 2.7% 2022 notes, floating-rate August 2022 notes and 2.7% 2023 notes for certain proposed amendments that would, among other things, remove some covenants contained in the indentures governing the consent notes.

Each holder tendering consent notes under the tender offers also had to deliver a consent to the proposed amendments. Holders could not deliver consents without also tendering their consent notes.

The tender offers expired at 11:59 p.m. ET on Sept. 9.

On Aug. 25, the company announced early results of its 2021 notes. All early tendered notes with 2021 maturities were accepted for purchase, purchased on Aug. 27 and subsequently canceled.

The following principal amounts of notes were tendered by the early deadline for the three series of notes listed below:

• $138,555,000 of the $305,294,000 of 4.1% notes due 2021;

• $1,099,276,000 of the $1,449,371,000 2.6% senior notes due 2021; and

• $122,523,000 of the $500 million floating-rate notes due August 2021.

On Aug. 28, Occidental announced the early tender results for its 2022 and 2023 notes.

As of the early tender deadline, 5 p.m. ET on Aug. 28, for the five series of notes listed below the respective amounts below were tendered for each series of notes listed in priority order with the total consideration, starting with priority level four:

• $447,909,000 tendered of the $1.5 billion of floating-rate notes due August 2022, all of which were accepted;

• $171,355,000 tendered of the $400 million of 2.6% notes due 2022, all of which were accepted;

• $1,187,901,000 tendered of the $2 billion of 2.7% notes due 2022, $101,550,000 or 8.6% of which were accepted;

• $493,426,000 tendered of the $813.69 million of 3 1/8% notes due 2022, none of which were accepted;

• $530,005,000 of the $1,190,720,000 of 2.7% notes due 2023, $51,678,000 or 9.8% of which were accepted.

On Sept. 10, Occidental took in an additional $95,000 principal amount of its 4.1% notes due 2021 after the early deadline and prior the final deadline.

No other additional tenders were received after the early deadline.

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