(Recasts with bond placed, details of demand) MEXICO CITY, Oct 8 (Reuters) - Petroleos Mexicanos on Thursday placed a $1.5 billion bond to refinance debt, with bids more than six times oversubscribed, said a source with the Mexican state oil firm, the first such operation since it lost its investment grade rating. Total bids for the five-year bond, which carried a 6.875% coupon, were around $10 billion, the source said, speaking on condition of anonymity. “The placement is 100% refinancing, it will not be new debt or raise the balance of Pemex’s debt,” the person said. The source stressed that Pemex, as the company is known, is complying with instructions from President Andres Manuel Lopez Obrador that the government avoid incurring net debt during his term in office. The financial institutions involved with the transaction, which was first reported by IFR, are SMBC Nikko, Bank of America, Goldman Sachs, and Mizuho, according to the source. While Pemex’s budget is almost entirely financed by its operations, it has received some direct capital injections from the government in an effort to strengthen its balance sheet. The company has some $100 billion in financial debt, more than any other oil firm, plus years of declining crude output. The source said the latest transaction will not affect the availability of Pemex’s existing lines of revolving credit. Moody’s Investors Service said it assigned a Ba2 rating to the proposed notes while the existing corporate family rating and the negative outlook are unchanged. “Cash flow generation and credit metrics will remain weak... as the company grapples with low oil prices, high debt maturities and underinvestment in exploration and production in favor of an expansion of its refining business, which has generated losses for several years,” it said in a statement. In April, Moody’s became the second major rating agency to downgrade Pemex bonds to speculative grade, or junk, a major blow to Lopez Obrador’s bid to strengthen the firm. (Reporting by Ana Isabel Martinez and David Alire Garcia; Editing by Alistair Bell and Grant McCool)