BP credit rating cut

S&P cites the challenges of the Gulf oil spill and the difficult political environment. The company may seek to borrow up to $10 billion.

By Charley Blaine Jun 17, 2010 8:34PM
One more bit of bad news for BP (BP).

Late today, Standard & Poor's lowered BP's long-term credit rating to A from AA-. It kept BP on CreditWatch with negative implications, indicating that it can further downgrade the oil company in the future.

"The downgrade reflects our opinion of the challenges and uncertainties that BP continues to face in the aftermath of the explosion on the Deepwater Horizon rig in the Gulf of Mexico on April 20, 2010, and the subsea Macondo well blowout," said Simon Redmond, an S&P credit analyst.

"These challenges and uncertainties include the difficulties BP is experiencing in containing the spill as well as the ultimate extent of the pollution, the consequences for BP of ongoing official investigations, and the implications of these investigations for the magnitude and timing of further cash payments by BP," he added.

S&P also noted that BP is under intense political pressure in the U.S. Which may be the understatement of the year.

BP shares were off 0.4% to $31.71 in regular trading and dropped  to $31.53 after hours.

The company also is reportedly looking to raise some cash and may borrow money from banks or sell as much as $10 billion in bonds. A source told Reuters today that a decision on how to proceed may come as early as next week.

The likelihood of a BP bond offering was met with skepticism by some bankers and debt analysts on Thursday.

A source from a European bank told Reuters it would make sense for the company to go to the loan market, rather than issue bonds, because they are trading at relatively expensive levels.

Yield spreads on BP Capital Market's 5.25% notes due in 2013 narrowed 13 basis points on Thursday to 620 basis points over Treasurys, according to MarketAxess data, Reuters said. The yield on the notes was 6.815%.

"The loan market is BP's best bet to get any remaining funds they need. BP is a top investment-grade name with no true liability, and many top banks will want to hold loan assets of BP," another source told Reuters.

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