Fitch Ratings Downgrades BP (NYSE:BP) Close to Junk Status

Fitch Ratings downgraded BP (NYSE:BP) notches, from AA to BBB, not far from junk status.

The reasons given by Fitch were:

“The indication late last week from US government scientists of a significantly higher spill rate than previously announced by all parties, which Fitch expects will materially increase BP’s exposure to Justice Department fines payable in the near to medium-term.”

and ...

“The significant step-up in action from the U.S. government surrounding calls for pre-emptive escrowing of damage claims. Both of these events have a direct bearing on BP’s fundamental financial flexibility.”

As Fitch mentioned, the amount of money to be paid out is increasing for BP, while the timeframe within which to pay it is decreasing.

That could result in more multi-notch downgrades in the near future, said the ratings agency.

Alcoa (NYSE:AA) Debt Going Junk?

Alcoa (NYSE:AA) is skating on thin ice with its debt rating, as the struggling maker of aluminum is, in the eyes of many onlookers, close to being downgraded to junk status on its debt.

This of course would make it even more difficult for the company as the cost of borrowing would rise, and in some cases lock them out from access to capital.

Those following the company say there is nothing in the earnings of Alcoa to justify them being designated as investment-grade on their debt, and so it's possible we could hear that they're downgraded sometime soon.

It probably won't be until sometime in 2011 or 2012 before that changes for them.

The company is trying to make a public case for its strong cash flow, which they say they will use to pay down the debt, but it remains to be seen if they've made their case or not.

An additional $50 million could be added to the cost of doing business for Alcoa if they are downgraded to junk status.