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| BP's rating cut by Fitch to two levels above 'junk' |
| Bloomberg / London Jun 16, 2010, 00:53 IST |
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BP Plc’s credit rating was cut to two levels above ‘junk’ by Fitch Ratings on concern over the potential cost of cleaning up the Gulf of Mexico oil spill and meeting future liabilities.
BP’s long-term issuer default and senior unsecured ratings were lowered six levels to BBB from AA, Fitch said in a statement today. That follows a reduction from AA+ on June 3.
President Barack Obama and US lawmakers said this week that BP should suspend dividends and set aside funds now for legal claims against the company from the spill, the worst in US history. Fitch said it would be “surprised” if BP didn’t suspend the quarterly payout until the full costs are known. The cost of cleanup and liabilities may reach $40 billion, Standard Chartered estimated last week.
“The recent claims by US state and federal authorities that BP escrow significant sums preemptively, ahead of any agreed claims process, represent a material change in approach,” Fitch said in a statement.
BP pared gains in London trading after the downgrade. The shares were up 0.7 per cent at 358 pence as of 12:10 pm (local time), after earlier rising as much as 2 per cent.
The yield premium investors demand to hold BP’s 750 million euros of 4.25 per cent bonds due next year rather than similar- maturity government debt increased 143 basis points to 505 basis points, according to HSBC Holdings prices on Bloomberg.
BP credit-default swaps surged 39 basis points after today’s ratings downgrade to 476.5, according to CMA DataVision.
BP’s bonds and CDS have traded as if the company had lost its investment-grade rating. Senate Majority Leader Harry Reid yesterday requested that BP set aside $20 billion in a fund to be administered by an independent trustee to speed up the claims process for victims of the spill.
Fitch changed the rating watch on BP to ‘Evolving’ from ‘Negative’.
Moody’s Investors Service rates BP debt at Aa2, the third- highest investment grade, and Standard & Poor’s has it at AA-, seven grades above the highest non-investment ranking. S&P downgraded BP by one notch last week.
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