Feb 16, 2001

Exxon Mobil Wants to Convert Fixed-Rate Muni Debt

Dallas,Exxon Mobil Corp. wants to save some money by buying back $327.84 million of fixed-rate municipal bonds and replacing them with bonds that carry variable rates.

The company issued a tender offer, or invitation to bid, for 13 fixed-rate pollution control bond issues initially sold through seven issuers for Mobil Corp.

Exxon Mobil is seeking to convert as much of the Mobil debt as possible to variable rate debt, said Joseph Fichera, principal and chief executive of Saber Partners, Exxon Mobil’s financial adviser.

Exxon Mobil is seeking to buy back the debt through a Dutch auction, in which holders of the securities submit offering prices for how much they will take in exchange for selling their securities back to an issuer. Under the tender offer announced Feb. 16, holders of the bonds will have until 5 p.m. Eastern time March 9 to submit an offering price for selling their bonds to the company.

“The Dutch auction is the most efficient way to buy back tax-exempt bonds,” said Fichera, who was an adviser on one of the first Dutch auctions in the municipal market in 1991.

The company has set minimum bid levels for how much it is willing to pay for each security, but those numbers also are not being disclosed. Though the company wants to convert as much of the debt as possible to variable rate, the company says it is going to limit how much of a premium it pays for tendered bonds.

Reset Regularly

According to Exxon Mobil, one condition for accepting offers to buy bonds is being able to issue variable rate debt to replace the tendered bonds it plans to buy. Exxon Mobil has about $800 million in outstanding variable rate municipal debt.

Before its Nov. 30, 1999, merger with Mobil Corp., Exxon historically sold variable rate debt, which keeps costs low because the borrower pays a short-term interest rate that can be reset on a monthly, weekly, or even daily basis.

In return, investors get the right to sell, or put back, the bonds to the issuer, if they are unwilling to accept the reset rate.

More often than not, short-term interest rates are lower than long-term rates. Historically, Exxon has paid 3 percent to 4 percent for its variable rate debt; the figure has dropped to as low as one-half of 1 percent and risen to as high as 12%.

Saber’s Fichera declined to say how much the company hoped to save through the tender offer.

Morgan Stanley Dean Witter is managing the tender offer for Exxon Mobil; the information agent is Bondholder
Communications Group.

Under federal law, corporations can sell some municipal debt through special government authorities to pay for equipment to remove pollutants from air and water near refineries or other manufacturing plants.

–Darrell Preston in Dallas at (214) 740-0874 or at dpreston@bloomberg.net or through the New York newsroom at (212) 318-2300/jm