The municipality of Exxon

May 12, 2011

Exxon Mobil is the third largest corporation in the world with 2010 revenues of $284 billion $383 billion and profits of $19 billion $30 billion. According to their 2010 annual report, they have returned $154 billion to their shareholders over the last five years through dividends and stock repurchases. (Exxon 2010 annual report –  page 14)

Now why would Exxon be issuing tax-exempt municipal revenue bonds? It’s simple. They want to pay a lower interest rate for the funds they borrowed for renovations at their Baton Rouge refinery, so they issued $500,000,000 worth of tax-exempt revenue bonds in 2010.

Here’s the description of the use of the proceeds from the Official Statement:

The proceeds of the Bonds will be used to finance the costs of

  • upgrading and improving the existing petrochemical facilities owned and operated by Exxon Mobil Corporation, a New Jersey corporation (“ExxonMobil”) located in the Parish of East Baton Rouge, State of Louisiana (the “Parish”)
  • upgrading and improving the existing refinery facilities owned and operated by ExxonMobil located in the Parish,
  • constructing an ultra-low sulfur diesel unit to be located at the existing refinery facilities owned and operated by ExxonMobil located in the Parish, including, in each case, all equipment, fixtures and facilities incidental or necessary in connection therewith that Breazeale, Sachse & Wilson, L.L.P, (“Bond Counsel”) has advised are allowed to be financed under the Gulf Opportunity Zone Act of 2005(the “GO Zone Act”) (collectively, the “Project”), and (iv) to pay for the cost of the issuance of the Bonds. ”

I don’t think that Exxon benefits directly on their income statement from a tax exemption, but they are certainly able to get a lower cost of borrowing by using tax-exempt municipal financing.

The loser here is the U.S. Treasury. If the debt was issued as corporate bonds, the interest earned would be subject to federal taxation. Exxon has plenty of cash to pay for these improvements without issuing any debt.

It’s another deal like the Formula One deal in Texas that I wrote about yesterday where big corporations have worked every angle to increase profits.

The public treasury is empty. Rich companies need to start paying up.

The Exxon Mobil revenue bond issue details:

  • CUSIP: 270777AD7
  • Issue amount – $200M
  • Maturity 12/01/2040
  • CUSIP: 270777AC9
  • Issue amount – $300M
  • Maturity 08/01/2035


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