BP Bondholders Pocket $54 Million as Debt Rallies

BP Plc’s $3.5 billion bond sale generated a profit of about $54 million for fixed-income investors as the energy company returned to the debt market for the first time since a rig explosion caused the largest offshore U.S. oil spill in history.

BP’s $1.5 billion of 10-year, 4.5 percent bonds increased 2.34 cents to 101.79 cents on the dollar, as of 1:10 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The London-based company’s $2 billion of five-year, 3.125 percent notes rose 0.92 cent to 100.64 cents on the dollar.

The offering, sold yesterday through its BP Capital Markets Plc unit, provided investors with better relative terms than other bonds in the new-issue market even as BP’s problems are “pretty much behind them,” said Mirko Mikelic, a money manager at Fifth Third Asset Management. Credit-default swaps on the company’s debt rallied before and after the sale to the lowest since June, according to CMA.

“BP actually offered a concession,” said Mikelic, who helps oversee $13 billion of fixed-income assets in Grand Rapids, Michigan. “You only get a concession when there’s hair on the issue,” he said, referring to the yield premium on new debt versus existing securities.

Credit-default swap prices on BP decreased 17.5 basis points to 168.6 basis points, the lowest since June 1, CMA data show. The contracts have declined 103.7 basis points this month.

BP should have “sufficient” liquid resources to meet likely spill-related cash costs of at least $20 billion this year and next, Standard & Poor’s said Sept. 24 in a statement.

‘Business as Usual’

The five-year notes issued at a spread of 195 basis points, about 5 basis points wider than the company’s outstanding 3.875 percent debt due in 2015 on Sept. 24, Trace data show. The 10- year bonds priced at a spread of 210 basis points, about 27 basis points wider than its 4.75 percent securities due in 2019. A basis point is 0.01 percentage point.

The five-year notes’ spread tightened today to 174.4 basis points, Trace data show, while the 10-year bonds narrowed to 179.9 basis points.

“We’re very pleased with the response to the issue yesterday,” said Andrew Gowers, a BP spokesman. “The market reception is an important sign that we’re returning to business as usual.”

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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