S&P Downgrades BP's Debt

S&P downgrades BP, even after the financial concessions made by BP on Wednesday to shore up equity and debt market confidence.
Publish date:



) -- Standard & Poor's has downgraded


(BP) - Get Report

long-term and short-term debt yet again on Thursday, moving the rating to A from AA-, the latest in a long line of equity and credit ratings cuts suffered by the U.K. oil giant.

BP's debt remains on CreditWatch, where both the long- and short-term bonds were placed by S&P with negative implications on June 4. The agency also downgraded the company's long-term debt for the first time on that day.

BP sought to shore up confidence in the equity and debt markets with its announcement Wednesday that it was creating a $20 billion escrow fund and that it would suspend dividend payments for the rest of 2010.

>>BP to Place $20 Billion in Escrow

"We believe certain near-term uncertainties have been addressed by the agreement with the U.S. government of June 16," S&P analysts said in a statement about the downgrade. "However, because of the rapidly developing situation, forthcoming hurricane season, and general uncertainty about the situation, we cannot rule out further rating adjustments at this point."

About the financial concessions made by BP, S&P said it believes the steps to increase cash resources will support the company's credit, but the benefit is less significant than the overall negative effect on its credit produced by the spill.

"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," S&P said

Potential BP liabilities will continue to mount as long as the pollution flow continues, S&P said.

The ratings agency also noted that BP is now subject to intense political pressure in the U.S., its largest market, something its peers certainly don't face.

On Thursday,


reported that BP is considering a debt sale of $5 billion to $10 billion, by as early as next week. BP has previously said that it is currently at the low end of a net debt ratio it wants to keep between 20% and 30%, so it has the flexibility to take on more debt.

On Wednesday's conference call with investors, BP CFO Byron Grote was asked if BP had any financing plans in the works tied to the cash commitments due the escrow fund. The BP CFO said the only financing plan that BP had at present was the agreement to make cash injections into the escrow fund. "External financing we do when appropriate, but there is nothing tied to the escrow fund explicitly in any form," Grote said.

BP is discussing the offering with five banks, including

Goldman Sachs

(GS) - Get Report


Morgan Stanley

(MS) - Get Report

, CNBC reported, though the banks had no immediate comment.

BP bonds rallied on Wednesday and Thursday as a result of the financial concessions made after the White House meeting, with yield spreads narrowing.

BP stock ended trading Thursday down marginally, as its CEO, Tony Hayward, endured more than five hours of questioning on Capitol Hill.

Anadarko Petroleum

(APC) - Get Report

which owns 25% of the BP well, again took the worst of the BP oil spill damage, down another 3.4% on Thursday.

--Reported by Eric Rosenbaum in New York.


>>Oil Spill in Pictures: Gulf of Mexico Impact

>>BP to Place $20 Billion in Escrow

>>Top 10 BP Logo Rebranding Ideas

>>BP's Global Assets: To Sell or not to Sell?

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