The low credit rating of BP (NYSE:BP) which makes debt expensive for them, along with increasing costs of doing business, as in the rising insurance rates.
One means of raising capital to deal with the cleanup costs and current and future liabilities would be to sell off assets, which they're looking at doing, but that takes time, and that doesn't change the need to negotiate to get the best deal they can.
If they don't do that, they could end up with far less to work with than they hoped, which would take away a lot from the purpose of divesting of the assets in the first place.
Equity financing would be out of the question concerning their stock, as share price continues to plummet, so some are thinking alternative equity-related financing, possibly via a sovereign wealth fund would be the way to go.
BP maintains it's on solid financial ground, but the numbers aren't making sense as time goes on, and they're sure to need some round of financing that they can afford, and equity would be the most healthy for the company, as well as the quickest way to do it.
Showing posts with label BP Debt. Show all posts
Showing posts with label BP Debt. Show all posts
Friday, June 25, 2010
Wednesday, June 23, 2010
BP (NYSE:BP) Credit Default Swaps Rise Again, This Time On Weather Concerns
Credit default swaps are used by a company like BP (NYSE:BP) to protect against the possibility of defaulting on bonds, and the costs to protect that debt has risen again, this time by 61 basis points, to 539.3 basis points for the oil giant.
Much of this is based upon the potential disruption of their Gulf oil spill cleanup efforts, now that the hurricane and storm season is upon us.
As early as next week the first Atlantic storm may enter the Gulf, with the worst storm season in history possibly happening this year, with up to three major storms projected to impact the Gulf, and consequently, the oil cleanup.
A buyer of bonds is paid the face value by the credit swaps if a borrower doesn't meet their obligations.
The basis point refers to what a company pays to protect $10 million in debt on an annual basis, with one basis point equaling $1,000. So the higher the basis points the higher the cost of protecting the debt.
Since April 20, the cost of protecting debt has risen 12 times what it was at the time, another element added to the costs associated with BP doing business.
Much of this is based upon the potential disruption of their Gulf oil spill cleanup efforts, now that the hurricane and storm season is upon us.
As early as next week the first Atlantic storm may enter the Gulf, with the worst storm season in history possibly happening this year, with up to three major storms projected to impact the Gulf, and consequently, the oil cleanup.
A buyer of bonds is paid the face value by the credit swaps if a borrower doesn't meet their obligations.
The basis point refers to what a company pays to protect $10 million in debt on an annual basis, with one basis point equaling $1,000. So the higher the basis points the higher the cost of protecting the debt.
Since April 20, the cost of protecting debt has risen 12 times what it was at the time, another element added to the costs associated with BP doing business.
Monday, June 21, 2010
BP (NYSE:BP) Facing Additional $500 Million in Interest Costs in Bond Market
With the yield on BP (NYS:BP) bond's rising to 539 basis points, or 5.39 percentage points, skyrocketing from the 41 basis points just before the April 20 accident on the Deepwater Horizon oil rig, the company may have to pay out up to $500 more a year in costs related to interest to raise the $10 billion they're attempting to secure.
Costs for the overall oil spill have already surpassed $2 billion, and the company is attempting to prepare for the worst case scenario, by raising money through a variety of means, including bonds.
But that doesn't mean they're going to be all over the place in raising the needed capital, as they're probably going to do it through a few outlets and deals, and not through a large number of them.
BP has been negotiating with banks over the first bond issuance since the accident happened, with their last bond issue being in March.
The initial bond offering is to offer $10 billion in notes, possibly as early as this week, in an effort to raise up to $50 billion, which will also include loans and selling off of some assets, according to the Sunday Times.
Costs for the overall oil spill have already surpassed $2 billion, and the company is attempting to prepare for the worst case scenario, by raising money through a variety of means, including bonds.
But that doesn't mean they're going to be all over the place in raising the needed capital, as they're probably going to do it through a few outlets and deals, and not through a large number of them.
BP has been negotiating with banks over the first bond issuance since the accident happened, with their last bond issue being in March.
The initial bond offering is to offer $10 billion in notes, possibly as early as this week, in an effort to raise up to $50 billion, which will also include loans and selling off of some assets, according to the Sunday Times.
Friday, June 18, 2010
Moody's (NYSE:MCO) Slashes BP (NYSE:BP) Debt Ratings
Moody's (NYSE:MCO) follows other ratings agencies in downgrading the debt of BP (NYSE:BP), cutting several of its credit ratings today.
The long-term debt rating of BP was cut from A2 to Aa2, their BP North America unsecured issuer rating dropped from Aa3 to Baa1, and for their BP Finance PLC unit, their senior unsecured issuer rating was slashed from Aa3 to A3.
Fitch Ratings and Standard & Poors recently downgraded the debt of BP as well.
The reasons for the cuts were solely on the uncertainty related to the Deepwater Horizon explosion which released the oil into the Gulf of Mexico.
BP's American Depository Receipts or ADR has fallen by 47.7 percent since the accident on April 20.
The long-term debt rating of BP was cut from A2 to Aa2, their BP North America unsecured issuer rating dropped from Aa3 to Baa1, and for their BP Finance PLC unit, their senior unsecured issuer rating was slashed from Aa3 to A3.
Fitch Ratings and Standard & Poors recently downgraded the debt of BP as well.
The reasons for the cuts were solely on the uncertainty related to the Deepwater Horizon explosion which released the oil into the Gulf of Mexico.
BP's American Depository Receipts or ADR has fallen by 47.7 percent since the accident on April 20.
Wednesday, June 16, 2010
Halliburton (NYSE:HAL) Ratings Secure Says Fitch
Fitch Ratings reiterated its rating on Halliburton (NYSE:HAL), explaining the cost of the oil spill in the Gulf of Mexico won't have any impact on the oil giant as it has had on BP (NYSE:BP).
The senior unsecured notes and senior unsecured bank facility remained rated at "A-" while the issuer default rating remained "A-" as well.
Included in the reasoning has been the comments by BP on what led up to the explosion on the Deepwater Horizon oil rig which led to the spill, along with the company receiving indemnity from BP on costs connected to the well.
Halliburton's part in the project was their cementing of well before it failed on April 20.
Finally, Halliburton doesn't have that much exposure to deepwater, offshore drilling and it is only a small part of their overall business.
The senior unsecured notes and senior unsecured bank facility remained rated at "A-" while the issuer default rating remained "A-" as well.
Included in the reasoning has been the comments by BP on what led up to the explosion on the Deepwater Horizon oil rig which led to the spill, along with the company receiving indemnity from BP on costs connected to the well.
Halliburton's part in the project was their cementing of well before it failed on April 20.
Finally, Halliburton doesn't have that much exposure to deepwater, offshore drilling and it is only a small part of their overall business.
$100 Million of BP (NYSE:BP) Debt Acquired by Bill Gross
PIMCO co-chief investment officer Bill Gross revealed on Wednesday that he has acquired $100 million in BP (NYSE:BP) debt, as well as some Anadarko Petroleum (NYSE:APC) paper as well.
The debt acquired by Gross is short-maturing notes.
Gross said, "At this point, if you can get 10 percent on one-year paper on BP, we think it's closer to double-A than triple-C. That's a significant (thing). We started to buy some."
The cost of BP insuring its debt has risen to over $600,000 for each $10 million protected over a five-year period.
The debt acquired by Gross is short-maturing notes.
Gross said, "At this point, if you can get 10 percent on one-year paper on BP, we think it's closer to double-A than triple-C. That's a significant (thing). We started to buy some."
The cost of BP insuring its debt has risen to over $600,000 for each $10 million protected over a five-year period.
Bank of America (NYSE:BAC) Limits BP (NYSE:BP) Trades
According to a source close to the situation, Bank of America (NYSE:BAC) has told its traders they can't participate in oil trades with BP (NYSE:BP) (LON:BP) which go beyond June 2011.
Under conditions like these, it's almost certain the directive was made because of the liability the oil giant faces, and which are unpredictable beyond that time period.
Normally a company does this in order to protect itself from taking a big hit over the long haul, which in this situation with BP, a year would represent.
There are no guarantees BP will be able to meet its obligations beyond that time, and this is a move by Bank of America to protect itself from potential fallout.
These concerns are also displayed with the growing cost of credit default swaps, which have increased to 515 basis points, and seem to rise every couple of days as the spectacle continues.
What this means is it costs BP $515,000 to insure every $10 million in debt over a five-year period. Just a little over a month ago CDS were at 40 basis points at BP, costing them only $40,000 for each $10 million.
Fitch Ratings downgraded the credit of BP by six notches today, from AA to BBB, placing them not too far away from being considered junk status.
All of this confirms BP is not a good bet over the long term, the reason for the orders from Bank of America concerning BP trades.
Under conditions like these, it's almost certain the directive was made because of the liability the oil giant faces, and which are unpredictable beyond that time period.
Normally a company does this in order to protect itself from taking a big hit over the long haul, which in this situation with BP, a year would represent.
There are no guarantees BP will be able to meet its obligations beyond that time, and this is a move by Bank of America to protect itself from potential fallout.
These concerns are also displayed with the growing cost of credit default swaps, which have increased to 515 basis points, and seem to rise every couple of days as the spectacle continues.
What this means is it costs BP $515,000 to insure every $10 million in debt over a five-year period. Just a little over a month ago CDS were at 40 basis points at BP, costing them only $40,000 for each $10 million.
Fitch Ratings downgraded the credit of BP by six notches today, from AA to BBB, placing them not too far away from being considered junk status.
All of this confirms BP is not a good bet over the long term, the reason for the orders from Bank of America concerning BP trades.
Monday, June 14, 2010
Citigroup (NYSE:C) on BP (NYSE:BP) Health
Citigroup (NYSE:C) said a large number of their clients has been inquiring about the financial health of BP (NYSE:BP), and so have given their input on where the company stands at this time.
The giant bank said from the start that they don't see the need for them to protect themselves by declaring bankruptcy, or that they have any intention of neglecting their liabilities related to the oil spill.
There have been stories circulating on the possibility BP could be removed as the major partner on oil projects located in the U.S, but there's also the other side of it, on whether or not BP would want to keep doing business with the U.S.
From that point of view, Citigroup said it wold be difficult for BP to completely break from the U.S., as it would be highly complicated, although not impossible, to accomplish.
BP is also considered to be in strong financial health at this time, and may generate over $70 billion in operating cashflow from 2010 to 2011, with approximately $25 billion in net debt on their books.
While there are still uncertainties until final costs, it does look like they can handle the costs of cleanup and other liabilities related to the accident.
Citigroup remains a buyer of BP, but note the share price will continue to gyrate up and down on the speculators betting on the direction the company will go in the short term.
As other institutions have noted about BP, the market seems to be taking into account the worst case scenario with BP, and not the most likely of outcomes.
The giant bank said from the start that they don't see the need for them to protect themselves by declaring bankruptcy, or that they have any intention of neglecting their liabilities related to the oil spill.
There have been stories circulating on the possibility BP could be removed as the major partner on oil projects located in the U.S, but there's also the other side of it, on whether or not BP would want to keep doing business with the U.S.
From that point of view, Citigroup said it wold be difficult for BP to completely break from the U.S., as it would be highly complicated, although not impossible, to accomplish.
BP is also considered to be in strong financial health at this time, and may generate over $70 billion in operating cashflow from 2010 to 2011, with approximately $25 billion in net debt on their books.
While there are still uncertainties until final costs, it does look like they can handle the costs of cleanup and other liabilities related to the accident.
Citigroup remains a buyer of BP, but note the share price will continue to gyrate up and down on the speculators betting on the direction the company will go in the short term.
As other institutions have noted about BP, the market seems to be taking into account the worst case scenario with BP, and not the most likely of outcomes.
Saturday, June 12, 2010
BP’s (NYSE:BP) Debt Insurance Better
BP (NYSE:BP) caught a break on its debt on Friday, as cost for insuring their debt dropped to about 390 basis points early in the day, a big difference from surpassing 500 on Thursday.
Share price of BP rose for the second day in a row, finishing the week at $33.97 in New York, after plummeting on Wednesday.
That didn't stop traders from making heavy bets in the options market though, which was still on fire on Friday.
Trading volume was far beyond the 3-month average of 34,354.200, surging to 132,861,873 shares.
Many think BP is going to cave, possibly as early as Monday, in announcing they're going to either temporarily eliminate or cut their dividend.
Share price of BP rose for the second day in a row, finishing the week at $33.97 in New York, after plummeting on Wednesday.
That didn't stop traders from making heavy bets in the options market though, which was still on fire on Friday.
Trading volume was far beyond the 3-month average of 34,354.200, surging to 132,861,873 shares.
Many think BP is going to cave, possibly as early as Monday, in announcing they're going to either temporarily eliminate or cut their dividend.
Thursday, June 3, 2010
Moody's (NYSE:MCO) Downgrades BP (NYSE:BP)
Moody's (NYSE:MCO) has joined Fitch Ratings in downgrading BP (NYSE:BP), dropping their senior unsecured ratings one, from Aa1 to Aa2.
While these ratings remain good ratings, it's a precursor to what could come if BP isn't able to turn things around in the Gulf by stopping or slowing down the oil leak soon.
The move by Moody's was made because of that very thing, where the costs of cleaning up the Gulf and the unknown legal ramifications the company will experience had concerns over debt high, as well as the increasing possibility BP could ultimately default on the debt.
Moody's said there could be further downgrades in the near future if the circumstances don't change.
While these ratings remain good ratings, it's a precursor to what could come if BP isn't able to turn things around in the Gulf by stopping or slowing down the oil leak soon.
The move by Moody's was made because of that very thing, where the costs of cleaning up the Gulf and the unknown legal ramifications the company will experience had concerns over debt high, as well as the increasing possibility BP could ultimately default on the debt.
Moody's said there could be further downgrades in the near future if the circumstances don't change.
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