Transocean (NYSE:RIG) Bonds Surge After BP (NYSE:BP) Issue Generates Optimism

Transocean Ltd. bonds (NYSE:RIG) took off after the recent issuance by BP (NYSE:BP) engendered optimism in the oil companies connected to the oil spill in the Gulf of Mexico.

Trading on Transocean bonds was the highest in the U.S., which were valued at $900 million for the 6.5 percent securities, which are due in 2020.

BP issued $3.5 billion of bonds on September 28, which broke par since then, generating the interest in Transocean bonds, which were issued on September 16.

Transocean owned the Deepwater Horizon oil rig which went down, leasing it to BP.

Demand for BP (NYSE:BP) Bonds Increases Sales

BP's (NYSE:BP) funding unit BP Capital Markets surpassed original expectation of issuing between $2 billion and $3 billion in bonds, with large demand driving the total up to $3.5 billion.

That wasn't the entire story for the five- and 10-year bonds, as they were oversubscribed to $12 billion in orders.

A spokesman for BP said, "In recent years, we have had four issues of this scale, and this continues to be an effective means of raising cash which has repeatedly been attractive to the markets. This particular bond issue is part of routine management of the group's finances and is not specifically related to the costs of the Gulf of Mexico oil spill."

BP Plc will guarantee the bonds, whose sale was led by Citigroup (NYSE:C), Barclays (NYSE:BCS) BNP Paribas, Royal Bank of Scotland (NYSE:RBS) and Mizuho Securities USA Inc.

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.