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03 Jun 2010
Short-term debt rating affirmed; approximately USD25.1 billion of rated debt securities affected
London, 03 June 2010 -- Moody's Investors Service has today downgraded the senior unsecured ratings
of BP plc (BP) and its guaranteed subsidiaries by one notch to Aa2 from
Aa1, and the long-term issuer ratings of BP Corporation North
America Inc. and BP Finance plc to Aa3 from Aa2. At the
same time, Moody's has also placed the above-mentioned
long-term debt ratings on review for further possible downgrade.
Concurrently, Moody's has affirmed the P-1 short-term
debt ratings of BP's subsidiaries, which are solely based
on the irrevocable and unconditional guarantee of BP.
Today's downgrade of BP's long-term debt ratings reflects
Moody's expectation that the protracted oil spill in the Gulf of
Mexico, caused by the explosion on the Transocean Deepwater Horizon
drilling rig, will result in significant containment and clean-up
costs as well as litigation costs. Moody's expects these
costs to weigh significantly on BP's free cash flow generating capacity
and to constrain its ability to focus on other key areas of the company's
business in the near to intermediate term.
Moody's also believes that the Macondo accident represents a further
setback to BP's ability to overcome past operational issues.
Additionally, the accident will hamper BP's ability to reposition
its financial metrics more solidly at the Aa1 rating level, including
an uplift in its Retained Cash Flow to Net Debt metric markedly above
the through-the-cycle minimum average of 40% --
a level that Moody's had previously given as guidance for the rating
category. Nevertheless, the affirmation of the P-1
short-term ratings also reflects BP's ample scope and flexibility
to adjust the allocation of its internally generated cash flow and absorb
oil-spill-related costs while maintaining a solid investment-grade
Moody's decision to place BP's long-term ratings under
review for possible further downgrade is intended to enable a more complete
assessment of the various scenarios the group may have to contend with
in terms of the ultimate containment and clean-up costs,
the allocation of liability for the Macondo accident, and mounting
litigation exposure. Moody's review will consider which steps
management is able and willing to take in order to protect BP's
financial profile and flexibility, particularly in view of the mounting
political pressures it faces from the US authorities, as well as
the significant overhang of litigation exposure and financial liability
that is likely to persist in the years to come.
In addition, while recognising that BP is the largest operator and
producer in the Gulf of Mexico, Moody's will also seek to
ascertain how the spill may affect (1) BP's long-term business
prospects in the US, particularly in the Gulf of Mexico; (2)
future drilling and producing costs in the US and other deepwater provinces
around the world; and (3) therefore also BP's business profile
and future financial performance.
Moody's previous rating action on BP was implemented on 5 May 2010,
when the rating agency revised the outlook on the company's ratings
to negative from stable.
For the assignment of this rating, Moody's has used its methodology
for the Global Integrated Oil & Gas Industry published in November
2009, which can be found at www.moodys.com in the
Rating Methodologies sub-directory under the Research & Ratings
tab. Other methodologies and factors that may have been considered
in the process of rating this issuer can also be found in the Rating Methodologies
sub-directory on Moody's website.
Headquartered in London, UK, BP is one of the largest integrated
oil & gas companies in the world with total proved hydrocarbons reserves
of 18 billion barrels of oil equivalent, reported production of
around 4 million barrels of oil equivalent per day, and operations
in over 80 countries.
David G. Staples
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades BP to Aa2; on review for further possible downgrade
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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