Fitch Sharply Downgrades BP’s Rating

BP Global's problems extend far beyond the Gulf. Fitch Ratings has downgraded the energy firm's Long-term Issuer Default Rating and senior unsecured rating to "BBB" from "AA", respectively, and downgraded the Short-term IDR from "F3" to "F1+".

June 16, 2010
By Allison Landa, News Editor

BP Global’s problems extend far beyond the Gulf. Fitch Ratings has downgraded the energy firm’s Long-term Issuer Default Rating and senior unsecured rating to “BBB” from “AA”, respectively, and downgraded the Short-term IDR from “F3” to “F1+”.

“The scale of today’s rating action has been partly driven by the increased risk that the balance between long-term and near-term cost payments may now be skewed much more heavily towards the near-term than previously anticipated by Fitch,” Fitch analysts Jeffrey Woodruff and Erwin Van Lumich wrote. “In particular, the recent claims by U.S. state and federal authorities that BP escrow significant sums pre-emptively, ahead of any agreed claims process, represent a material change in approach, should it ultimately prove a legally supportable move against the company.”

This leaves BP’s rating at just above junk status – severely limiting the company’s access to capital markets. This doesn’t necessarily mean the only liquidity BP may find is located off the coast of Louisiana, but it sure doesn’t portend well for the already-beleaguered company. With lower credit ratings, any new debt obligations BP takes on will cost more.

However, the Financial Times of London reports that the company insists it has more than $15 billion of available short-term liquidity, consisting of one-third cash, one-third in banking facilities and one-third in standby lines.

It of course behooves BP to put up a strong front in this, its major time of crisis. The proof will come when – not if – the company needs more capital. With the latest estimates on immediate clean-up and claim settlements ranging from $3 billion to $6 billion – and growing – that time could come soon.