Wednesday, June 16, 2010

Cost of protecting beleaguered oil company $BP PLC's (BP, BP.LN) debt soared its highest level ever

RR Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--The cost of protecting beleaguered oil company BP PLC's (BP, BP.LN) debt soared Wednesday to its highest level ever after President Barack Obama's criticisms and Tuesday's ratings downgrades. Its credit default swaps, or CDS, are quoted at 620.3 basis points, up from a close of 495 basis points on Tuesday, according to CMA Datavision. This means the cost of protecting $10 million of the company's debt annually for five years is now $620,300, up from $515,000 on Tuesday and $424,000 on Monday. "This is a gut reaction to the situation the company is in," said Scott MacDonald, director of research at Aladdin Capital Holdings in Stamford, Conn. "It will be held responsible for the clean-up costs and it got whacked in terms of its ratings." On Tuesday, Fitch Ratings slashed BP's credit rating by six notches, to BBB from AA, as potential upfront costs from the oil spill in Gulf of Mexico escalated and the company faced criticism from fellow oil majors at a congressional hearing
. The concern was that the U.S. government would force it to pay billions of dollars up front into an escrow account to pay spill cleanup and compensation. On Wednesday, Fitch said BP is unlikely to have to sell assets to pay the costs of its oil spill in the Gulf of Mexico and the company will probably not be broken up as a consequence of the environmental disaster. "We expect BP to make it through the challenge of this," without being broken up, said Richard Hunter, Fitch's head of Europe, Middle East, Africa and Asia Pacific corporate finance. Fitch estimates BP's liability for containment, cleanup and compensation resulting from the oil spill will be around $6 billion, said Jeffrey Woodruff, senior director in Fitch's Europe, Middle East and Africa Energy team. Civil penalties for the spill could be between $2 billion and $8 billion, he said. BP could fund these costs from its balance sheet without needing to sell assets, he said. The CDS of other oil companies tied to the spill were also quoted at higher levels. Anadarko Petroleum Corp.'s (APC) CDS are at 706 basis points, 20 basis points wider than Tuesday's close; TransOcean Ltd.'s (RIG) CDS are 30 basis points wider at 649. Bond yields are higher across the board for BP and Anadarko Wednesday as traders sell off the troubled oil companies. One BP bond maturing in November 2013 is the most actively traded in the markets Tuesday. The price for that bond has fallen 2 1/4 to 88 3/4 for a 9.196% yield, according to MarketAxess. The yield on Anadarko's most actively traded bond, which matures in May 2011, is slightly higher so far. TransOcean bonds are trading at light volume, with yields on longer-term notes all edging slightly higher. -By Anusha Shrivastava, Dow Jones Newswires; 212-416-2227; (James Herron in London and Christopher Dieterich in New York contributed to this report) Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: You can use this link on the day this article is published and the following day. (END) Dow Jones Newswires 06-16-10 1054ET Copyright (c) 2010 Dow Jones & Company, Inc. 10:54 061610

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