Trump team faces hurdles getting Fed to help battered oil companies

Bloomberg

The Trump administration faces significant hurdles in getting the Federal Reserve to help rescue an oil industry squeezed by plunging crude prices given the central bank’s aversion to helping specific industries and its lack of authority to help businesses that are insolvent.
The Fed regards loan programmes aimed at a specific industry as credit allocation — something Chairman Jerome Powell specifically rejected in an April 9 speech. But Treasury Secretary Steven Mnuchin told Bloomberg News that the administration was looking to help battered oil companies by “providing a lending facility for the industry.”
Fed officials have given no indication that they have departed from the view that direct financial support “falls to elected officials,” as Powell said.
A Federal Reserve spokesperson declined to comment.
Oil companies that were investment grade as of March 22, or that were downgraded just below that level as of that date, are eligible for Fed corporate lending facilities. The Fed has given no indication that it intends to change the cutoff date.
Oil prices have crashed globally, down about 70% this year after benchmark West Texas Intermediate (WTI) futures went negative earlier this week.
Disagreements among oil-producing nations and rising stockpiles since demand collapsed amid the coronavirus outbreak have put oil companies at risk of shutting down. Earlier this week, President Donald Trump said he’d asked Mnuchin and Energy Secretary Dan Brouillette to find a way to help those companies.
Many highly leveraged oil producers were already in peril before coronavirus-related closures caused an unprecedented collapse in demand. And across the industry, producers saw their ratings pummeled by dropping crude prices tied to Russia and Saudi Arabia’s decision to bolster output in early March as they fought a price war.
Their tenuous position makes many of them largely ineligible for aid from the lending facilities created by the $2.2 trillion stimulus package. Under term sheets released on April 9, Fed loans were restricted to firms that had credit ratings of at least BBB-/Baa3 as of March 22.
That cutoff date could be too late for some oil producers, such as Occidental Petroleum Corp, which had its debt cut to junk by Moody’s on March 18, with Fitch and S&P following on March 20 and March 25, respectively.