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Rating Action:

Moody's downgrades BP to Aa2; on review for further possible downgrade

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 rating.

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.

London
David G. Staples
Managing Director
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Francois Lauras
VP - Senior Credit Officer
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
No Related Data.
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