BP hit by new blow to its credit standing over oil disaster

18th June 2010, Comments 0 comments

A top credit agency hit BP with a steep cut in its creditworthiness on Friday because of the "worsening impact" of the cost of oil spill damage in the Gulf of Mexico on the oil giant's finances.

The costs could weigh on BP's finances for years, international ratings agency Moody's said, as it cut down BP's credit rating by three notches, following similar moves this week by Fitch and Standard & Poor's.

This is likely to raise the cost of borrowing for BP because investors will demand an increased return for lending to the company which faces finding billion of dollars to cover costs of the disaster.

"Moody's Investors Service has today downgraded the senior unsecured ratings of BP and of all long-term debt securities issued by its subsidiaries and guaranteed by BP by three notches to A2 from Aa2," said a statement.

Moody's said that its downgrade "reflects the worsening impact expected from the oil pouring into the Gulf of Mexico from BP's subsea Macondo well".

It added: "Moody's updated assssment is that the spill will have a sustained negative impact on the group's free cash flow generation and overall financial profile for a number of years.

"This assessment reflects a substantial upward revision of the estimated size of the leak, the continued failure to bring the leaking Macondo well under control, and the mounting costs and claims for damages.

"Moody's believes that costs for containment, clean-up, litigation and fines are likely to be higher than the rating agency had previously expected in view of the widespread and continuing physical and economic damage."

This week, BP bowed to White House demands to create a 20-billion-dollar fund to pay spill-related compensation claims, and agreed to scrap its shareholder dividends this year. BP also agreed to sell 10 billion dollars of none-core assets.

Moody's warned that "the agreement over the 20-billion-dollar claims fund does not in any way cap BP's potential liabilities.

"Indeed, the rating agency believes that uncertainty over the ultimate cost for massive litigation claims and other contingent liabilities will be an overhang on BP's creditworthiness that will persist for years to come."

© 2010 AFP

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