Moody’s downgrades Phillips 66 Rating Amid acquisition-Fueled Debt Concerns
NEW YORK – Moody’s Ratings downgraded Phillips 66’s issuer and backed senior unsecured notes to Baa1 from A3 on Tuesday, citing a slower-than-expected pace of debt reduction following a series of meaningful acquisitions. The move reflects the company’s increased borrowing to fund recent purchases while simultaneously maintaining substantial shareholder returns.
The downgrade comes after Phillips 66 announced on Tuesday its agreement to acquire the remaining 50% stake in WRB Refining for $1.4 billion. This follows earlier investments this year, including the $2.2 billion purchase of liquefied natural gas company EPIC, and the $3.8 billion acquisition of DCP Midstream in 2023. While Moody’s acknowledges the potential for these acquisitions to drive earnings growth and improve returns on capital, the firm believes they will impede Phillips 66’s debt reduction efforts through 2025 and 2026.
“The downgrade reflects slower-than-expected debt reduction,” said Elena Nadtotchi,Moody’s ratings senior vice president.
Adding to the debt burden, Phillips 66 has committed to returning 50% of its cash flow from operations to shareholders over the next two years through dividends and share repurchases.The company spent $9 billion on share buybacks between 2022 and 2024 to meet its shareholder return goals.
phillips 66 has publicly stated its commitment to reducing its debt to $17 billion by the end of 2027.Moody’s indicated it could raise its rating if the company achieves this target. the ratings firm currently maintains a stable outlook for Phillips 66.
