Occidental Sells $13 Billion of Debt to Fund Anadarko Purchase

(Bloomberg) -- Occidental Petroleum Corp. sold $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 was 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 were willing to take risk again just a day after the trade-war induced volatility shook global markets.

Occidental issued bonds to fund the $38 billion takeover in 10 parts, according to data compiled by Bloomberg. The longest portion of the offering, a 30-year security, yields 2.25 percentage points more than Treasuries, down from initial price talk of 2.7 percentage points, said a person familiar with the sale, who asked not to be identified as the details are private.

Four other investment-grade borrowers sold debt Tuesday as issuers regained their confidence after the latest flareup in the U.S.-China trade war brought sales to a near halt on Monday. The combined deals brought $16.05 billion of new debt to market, more than half of the projected $30 billion in high-grade supply expected to price this week.

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. Order books can overstate actual demand for a security. Saudi Aramco received $100 billion of orders for a $12 billion bond sale this year, but the notes sank soon after the bonds were sold, implying that at least some investors were looking to sell out fast.

The bond sale came 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. managed the bond sale, the person said.

A representative for Occidental declined to 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

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