BP Plans $3.5 Billion Bond Sale, First Since Spill
BP Plans $3.5 Billion Bond Sale, First Since Spill
Jason Alden/Bloomberg
BP has regained its investment-grade status in the eyes of credit investors more than two months after containing the leak, which was caused by an April 20 explosion on a rig in the Gulf.
BP has regained its investment-grade status in the eyes of credit investors more than two months after containing the leak, which was caused by an April 20 explosion on a rig in the Gulf. Photographer: Jason Alden/Bloomberg
BP Plc is planning its first bond sale since a rig explosion caused an estimated 4.9 million barrels of crude oil to spew into the Gulf of Mexico in the largest offshore U.S. spill in history.
The energy company may sell as much as $3.5 billion of debt as soon as today, according to a person familiar with the offering. London-based BP plans to issue 5- and 10-year notes through BP Capital Markets Plc, it said today in a regulatory filing that didn’t specify the sale’s size or timing.
BP has regained its investment-grade status in the eyes of credit investors more than two months after containing the leak, which was caused by an April 20 explosion on a rig in the Gulf. Credit-default swap prices, which soared to levels implying the debt was junk-rated after the explosion, last week declined to imply a rating of Baa3 by Moody’s Investors Service, the lowest step of investment-grade.
“It obviously proves access,” said Jason Brady, a managing director at Thornburg Investment Management in Santa Fe, New Mexico, which oversees more than $65 billion, including BP bonds. It shows, “‘Look, we can come to the debt markets and get money, we’re going to be able to work our way through this thing,’” he said.
Credit-default swaps protecting against losses on BP debt for five years have declined to 191.6 basis points as of 8:37 a.m. in New York, from at least 631 basis points on June 16, according to data provider CMA.
Credit Swaps
Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point, 0.01 percentage point, equals $1,000 annually on a contract protecting $10 million of debt.
The sale is part of BP’s regular accessing of credit markets and the timing isn’t related to the Gulf spill, BP spokesman Robert Wine said. He earlier indicated the offering would be about $2 billion, similar in size to a sale in August 2009.
BP’s $2 billion of 5-year notes may yield 195 basis points more than similar-maturity Treasuries, and its $1.5 billion of 10-year debt may pay a spread of 210 basis points, said the person, who declined to be identified because terms aren’t public. A basis point is 0.01 percentage point.
“From a pricing perspective, they’re certainly not being priced as a single A industrial,” Brady said. “They’re coming to market at a price which I would say is indicative of a mid-to low BBB company.”
Restrictive Covenants
Spreads on BBB rated company debt were 235 basis points yesterday, compared with the 166 basis-point spread on A rated company bonds, according to Bank of America Merrill Lynch index data. Yields on investment-grade corporate bonds fell to 3.69 percent yesterday, according to Bank of America Merrill Lynch’s U.S. Corporate Master index, the lowest in data going back to Oct. 31, 1986.
BP last sold five-year, U.S. dollar-denominated notes in May 2009 at a spread of 165 basis points over benchmarks, according to data compiled by Bloomberg. The company last issued debt on March 3, denominated in Australian dollars, the data show.
Its last U.S. dollar-denominated sale was in August 2009, when the company sold $750 million of 2-year, 1.55 percent notes that priced to yield 40 basis points more than similar-maturity Treasuries, and $1.25 billion of debt in a reopening of 3.875 percent notes due in 2015, the data show.
The terms on the debt being offered don’t include change of control protection or “meaningful” restrictive covenants, Alexander Diaz-Matos, an analyst at Covenant Review wrote in a note today. Covenant Review is a research firm that analyzes corporate bonds’ investor safeguards.
It makes “it seem as if the Macondo accident never happened,” he said, referring to the name of the well.
Moody’s grades the company’s debt A2, four levels above the implied rating from its capital markets research group.
To contact the reporters on this story: Sapna Maheshwari in New York at sapnam@bloomberg.net; Caroline Hyde at chyde3@bloomberg.net
To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net
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