Wednesday, July 28, 2010

BP's (NYSE:BP) Bonds Up as Market Likes Strategy to Raise Capital

The market liked what they heard from BP (NYSE:BP) on plans to raise capital to deal with the oil spill by selling billions in assets, rather than primarily go the debt route, although they have billions in credit lined up from about a dozen banks to go that route if they have to.

As a result, bonds from BP have went up for two days in a row while the cost of credit default swaps fell, which is insurance used to protect investors against default by a company.

This of course precludes bonds, which are debt after all.

MarketAxess reports that traders were primarily targeting short term bonds of BP, which they pushed up by 3/4 point to a 4.994 percent yield. In comparison to Treasurys, that's 400 basis points above their yield.

Notes due November 2013 which stood at 5.25 percent were the most active.

The progress of BP in stopping the oil from flowing into the Gulf, along with being close to permanently plugging the well has generated optimism.

Fixed-income managers said BP is still a very risky company, even though things have the appearance of settling down.

It won't really be until a firmer grip on overall liabilities emerge, that a more accurate picture of the health of the company in the years ahead will be really known.

And all those assets they're being forced to sell, will also be lost revenue and earnings.

So while a leaner BP with new leadership sounds more attractive than what they've been, it presents a entire new set of problems that can't be dismissed out of hand.

3 comments:

Anonymous said...

We've had BP stock since the 1950's when it was still Standard Oil. They have never disappointed us yet. They will clean this mess up and come back stronger than ever. You have to have a little FAITH. Dispite the fact that it has not been proven that it's BP fault, they're doing their best to clean it up. Where are the other companies involved?

Keith Hibbard said...

go bp!

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