Omv’s Leverage Hike to Test Ratings Resolve: Credit Video

The merger of OMV's Borealis chemicals subsidiary in 1Q will drive a step-change increase in leverage and narrow headroom to the 30% ceiling that frames its commitment to strong high grade ratings. A higher shareholder payout ratio following the merger, combined with softer oil prices, look set to crimp free cash flow and limit the scope for debt reduction- so the increase in leverage to about 22% could be permanent. A strategy to rejuvenate the oil and gas business with bolt-on acquisition adds further balance sheet risk, which could see OMV test the 30% leverage ceiling and its resolve to maintain credit ratings of A3/A- (Fitch). Paul Vickars, senior credit analyst at Bloomberg Intelligence, discusses the implications for bond and hybrid spreads in this short video to accompany the updated credit primer.