Mnuchin weighs lending program for struggling oil companies

Bloomberg News reports that Treasury Secretary Steven Mnuchin has 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.

Lead paragraphs

“One of the components we’re looking at is providing a lending facility for the industry,” Mnuchin said in a Bloomberg News interview on 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.”

Key notes

• 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.
• 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.

In markets at the end of the week, the signs of further production cuts helped push crude oil prices higher. WTI is currently trading at $17.22, 36% higher than yesterday. However, there are still signs of stress in the market with tanker rates have been skyrocketing in recent weeks. Inventories at Cushing, the pricing point for WTI crude, are nearing the capacity of around 76mbbls.