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BP debt to be rated as junk? Bond and derivatives market say yes.
Some interesting tidbits coming from the credit markets about BP longterm debt prospects. As reported by Bloomberg, across-the-board downgrades of BP debt are almost imminent.
BP’s $3 billion of 5.25 percent notes due in 2013 fell as low as a record 89.94 cents yesterday, pushing the yield to 7.57 percentage points more than Treasuries. The spread compares with an average of 7.26 percentage points for junk bonds, Bank of America Merrill Lynch indexes show. The cost to protect $10 million of BP debt for a year with credit-default swaps almost doubled to $512,000, according to CMA DataVision. It was $29,000 on April 30.
My personal belief is that the market is pricing in the risk of cash reserve depletion due to the run up in costs of GoM spill service. Credit Suisse had this to say regarding BP debt:
Debt investors are losing confidence in London-based BP as the company fails to contain the oil leak in the Gulf of Mexico. BP said June 7 it has spent $1.25 billion so far, or about $27 million a day, related to the accident. Credit Suisse Group AG estimated the total cost may reach $37 billion.
Here is the ballance sheet [end of 2009] summarization of BPs assets and liabilities:
The alarming metric here is the rate of cash holding deterioration; which now runs at a whooping 15% of total cash and cash equivalent holdings as of end of 2009.
And let us not forget that little has been achieved so far regarding the problem. Even if BPs estimates as to how much oil is now being recovered with their latest effort are true [I personally doubt any and all "official" figures]; there still exist the question of whether or not there is another, far bigger and more damaging leak located 5-6 miles from the acknowledged one.
Matt Simmons, one of the most regarded experts in the oil industry, says that yes; there is a much bigger, and more damaging leak:
This means that if/when BP acknowledges the existence of this leak the costs to service the damage will not only exceed cash and cash equivalent holdings, but will require of BP to either resort to liquidation of some of its assets or to sell new debt [which will solely serve the purpose of financing the services required to dent the impact of the leak] in the open market.
That debt will surely be priced as junk since the current debt ratings are nowhere near as representative of the gravity of the situation as are the price movements in the derivatives and bond market.
Credit-default swaps on BP implied a Ba2 rating for the company as of June 8, nine steps lower than its actual Aa2 grade at Moody’s Investors Service, based on data from the ratings firm’s capital markets research group. The implied rating was as high as A3 on May 28, the data show. Junk bonds are rated below Baa3 by Moody’s and lower than BBB- by Standard & Poor’s.
As mentioned above; both derivatives and the bond market price BP debt as junk. Yields and spread signal that another wave of downgrades is but a certainty.
These are the movements in BP CDS spread as of 8:30 am GMT:
Spread has widened to 538.23 bps for 5 year debt, or 152.31 basis points from yesterdays close which is an increase of 39.47%
We will monitor the situation closely all through the day. Market expects downgrades before weekend and those could happen today. If anything new emerges relevant to this situation during the day, you will be fully updated in the comments section.
OT: Worthy of a read is the article Tyler posted yesterday and in which he discusses potential counterparty risk regarding the OTC derivatives which reside on BPs balance sheet.
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Well I don't remember anything about this second leak. I wonder how many other there are/were. And I wonder when the next one will happen.
Container Gardening
I checked on line yesterday and Credit Suisse had a "Buy" recommendation on BP. I'm no lawyer but some VIP pronounced BP guilty before the trial, causing extreme financial damages to many pension holders (i.e. and consequently more lawsuits). Between governement expansion, staffs for czars and lawsuits in general, I would say there's a jobs recovery program in at least one field ("Barristers Are Us").
Looking back at TARP and the financial meltdown, the damages were many times what we're seeing in the GoM, yet no one was convicted of a crime. It's just a gut feeling, but I think this is more smoke & mirrors to serve the purpose of passing cap & trade ... and BP will come out fine in the end.
That there are smoke and mirrors being deployed all over the place is quite true (if a bit obvious). Why you would equate that with BP coming out fine in the end is not so clear. You think the administration would not toss BP under the bus (or diving bell headed to 5000 ft below, as it were) if it felt itself in jeopardy?
There may be a shocking 'revelation' that the DH accident was in fact sabotage perpetrated by --- whoever will be the next target of regime change. Or perhaps the administration needs BP equipment/expertise for some other special project, besides passing carbon tax/credit trading system. The beauty of it is that the possibilities are endless and not nearly as implausible as one might think. Or as they would have seemed a few years ago.
Whether or not BP is 'guilty' is really far beside the point.
I'm sure The common stock holders will be remembered as it's sold off to China. One thing we have gotten good at since 2001 is tracking down financial assets. The company may go to strange places to get the oil but ultimately the cash from the sell of it will be transmitted via computer. In other words despite there worldly presence, none of the major owners of BP are going to go live where they get their product.
Once leins are put on all their corporate accounts all over the world for damaging a good part of the US, it will be very difficult for GB to appeal to good will to others to save their investments when the livelihood of millions are ruined down here at the same time a huge hit the GDP is felt across the country.
If the govt won't do shit, the private Lawyers will put hundreds of millions into this recovery. Remember how many of the TBTFs were spitting money out over tiny little Enron years after it went belly up. China may own the assets of BP but the owners of BP won't see any of the money from that transaction.
You are right. BP is no longer a "corporate" play... it's a bet on the behavior of sovereigns: USA, UK, and China. Even the best case scenario (China takes over BP)... common stock will go to effective ZERO, baby.
The bottom line is that there is no way to accurately asses all the aggregate risks to BP as a going concern right now and every security ever issued by the company is now a sell.
Even if BP permanently capped the leak tomorrow they are still at the mercy of the political whims of the Obama administration and indirectly, the public. Obama is not afraid to crush corporate debt holders by executive fiat (see Chrysler) and he is no friend to the investor class or Great Britain. He is also desperate for any kind of political "win" in general and with this fiasco in particular. Clean up costs and law suits could drag on forever and even if everything happens to break BP's way the administration and/or Congress could leverage public outrage and fine away any profits above life support levels.
There are a million different ways to play this unfolding situation via other oil, energy and related service, environment and tech companies but BP is just toxic.
That said, BP's ex-US business and operations will survive in some form. There's lots of cash flow out there and they're good at what they do. Obama will fuck this up (more) though...just you watch. Probably in the end the US will be left with crippling new regulations, a massive environmental disaster, lots of ruined debt and share holders and little recourse after BP sells it's non-US operations off to the Chinese who will own a great new integrated giant just as oil runs up over $100.
Cameron is going to sell his soul to "protect the pensioners". There's no way he can bail out the evil banks but screw the constituents. At least not this blatantly. The queen's bloomers will be negotiable.
http://blogs.wsj.com/deals/2010/06/10/analyst-makes-the-case-for-why-bp-is-now-a-screaming-buy/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+wsj%2Fdeals%2Ffeed+%28WSJ.com%3A+Deal+Journal+-+WSJ.com%29
BP operates all over the world and very successfully at that. XOM. Shell and all the other majors all have their skeletons I am sure. It's part and parcel of working in emerging markets and working in hazardous conditions.
Nevertheless, even if BP doesn't have any friends in political circles in the USA, it has friends in the Russia, the Middle East and China and if there is sustained doubt that BP won't be able to pay it's bills (bills related to the moratorium look legally weak to me), then BP will either sell part of its business to the SWFs or even just raise a chunk of cash from them. The Chinese would love to get their hands on 4 million barrels/day or production.
BP will survive. It's too politically important to the UK not to do so. If the US does try and squash it in the USA, then it'll just take those funds into Canada or elsewhere and continue doing business.
BP is not a Citi, a GE or a Lehmans. It is a cash machine.
"It's part and parcel of working in emerging markets..."
BP has been in "emerging markets" for about 100 years now. You need to be familiar with their background, dood!
The oil multinationals, such as BP, Royal/Dutch Shell, Total, etc., are part of the bank-oil cartel, and therefore are involved with various leveraged speculation schemes we have witnessed over the past decade.
BP is heavily financially interlocked with Goldman Sachs, Morgan Stanley, and probably Deutsche Bank, as well. The selling of GS's BP stock, as well as stock sold by BP's CEO shortly before the Deepwater Horizon catastrophe is indicative of that.
As your attorney I recommend that you rent a convertable...
...with a lot of coke.
http://www.mark-it.com/markit.jsp?jsppage=indices.jsp
5C769NAC3
good on ya for the ambitious move, but get yourself some good breathing equipment. if you can smell it, you are being poisoned, and the limit for benzene (broadly constituent in oil) is 1 ppb in the air. also google a good detoxification protocol and utilise it daily. this is a KNOWN carcinogen which could ultimately cause coastal evacuation, but the govy will only admit that after millions of people have been exposed.
You're confusing crude with refined gasoline. Aromatics like benzene aren't a significant component of crude. This is why crude needs to be cracked, cyclized, and dehydrogenated before its useful. Its mostly long chain aliphatic hydrocarbons (which are likely to be carcinogens too, however)
How does a retailer buy CDS? I'm interested in sovereign Easter Europe issues.
Voice broker.You need to have a personal broker to execute that trade for you.
iTraxx SovX CEEMEA is what you want to buy. And discuss with your broker the various ways he can keep you updated on your position. CDS market is very volatile [indexes are far less than single names] and you can lose your shirt; so be careful. You can trade index options if you want a more equity-like trading.
Much appreciated.
Media doesnt respect Matt Simmons because media is not into truth and facts. This place is Narnia.
I signed up for BP's Vessles of Opportunities (google it) and drove my two center console fishing boats to Alabama. I am getting $1,000 per boat per day to check oil booms, water samples, etc. To see it is crazy and depressing.
When I get home, i turn on the blender to render that frozen concotion that helps me hang on.....
http://www.msnbc.msn.com/id/21134540/vp/37560013#37560013
Matt Simmonds is being underplayed on media, even K Denninger doubts his veracity, or perhaps suspects his alterior financial motives.(shorting BP?)
I think Simmonds is THE voice we should be hearing, I wonder in Obama administration is secretly readying the nuke to caturize this unstopable massive leak.
So poop a nuke, what if THAT doesn't work? - Ned
+100
Nice catch. That scenario with a hurricane is just too much too take. Imagine that guy's level of expertise who can see it all the way from nuts and bolts to economic catastrophy and they aren't bothering to talk to him.
It is just premature to make a judgement on where BP is going. a lot people say that this is a real company making real money, which is true. same can be said about GE which makes a lot shit also. GE got hit really hard during the crisis, and the stock went to $5. when they make a lot money, they start doing a lot other shitty stuff. Once the stock is taken to a certain level, it takes on a life of its own. someone famous said " its' never too low to short a stock, and it's never too high to buy a stock". of course this was a trader's voice.
I am staying a hell away from this one.
GE has been exposed a long time ago in (at least) Barrons. Killed Welch for tapping into the Re business (Swiss Re wanted Immelt to replace like $19BB that had been siphoned off to keep Welch's unbelievable string of quarterly good news going).
Immelt and Welch had some weak-assed responses. Immelt spent first three years trying to repay, then went "green" to suck up--still sucking.
- Ned
As we all know, GE belongs to Transparency International (Transparency International works globally against exploitation, bribery schemes---says them!!).
And from Corporate Responsibility Magazine (therefore, we know it can be believed!):
http://thecro.org/node/590
The U.S. chapter includes an entirely corporate roster of sponsors and members. Members of the U.S. board of directors include executives from General Electric, AIG, Pfizer and Goldman Sachs.
And we know what upstanding people those guys are -- OK, Pfizer did get hit with the largest criminal fine in history, probably lowballed, as well, but what's a little mass murder now and then, huh, Pfizer???
And, also from that same site we find:
"One of many tools available to all TI chapters, the Business Principles for Countering Bribery offers a map for companies implementing an anti-bribery program. A steering committee of corporations, academic institutions and NGOs that includes Shell, SAP and BP drew up the guide. The committee meets every six months to devise new anti-corruption strategies."
Not to worry, fellows and chums, we exist in a most honorable and honest world....
Nothing wrong with Goldman Sachs, BP, General Electric (OK, so their CEO did proclaim a "rest" was to take place --- and OK, so its business as usual: GE a major war profiteer and death profiteer and recipient of those TARP funds, otherwise they'd go belly up --- but they still don't pay federal taxes, huh?)!
GE is a financial services fuck show. No comparison to BP.
GE, is now the PERSONAL WHORE of the current regime.
Immelt saved his ass,and GE( by attaching itself to the Lead Squid).
"for the strong support of the government, thank you."
http://www.youtube.com/user/BPplc?v=KKcrDaiGE2s&feature=pyv&ad=595352929...
Don't worry. The cunts will find a way to capitalize the cleaning costs.
They thought of that long before this plan went into action. Halliburton bought the oil spill cleaning company, Boots & Coots, on April 12, 2010. How is that for market speculation?
If BP is lying about a second leak, the company will disappear in a quantum second.
Management will be tortured here http://www.pitodoble.com/imagenes/barad-dur.jpg
by this guy (not Obama)
http://rangersin08.files.wordpress.com/2008/01/sauron1.jpg
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
tin foil wraped around my head:
makes me wonder ........
really makes me wonder, the whisper is the piper meets the second piper in thge alley to split the proceeds of the worlds biggest poker bet yet,
12, or 15 zeros. Split between the two pipers . Ofcourse nopw they have to clean up the mess(job Security) and make a buck on the wall to the PeaK/Non Peak oil crisis?
Only 2, bubbles left top TRY to manlipute!!! Look full stream ahead through the BS gold trade and 2nd part of the oil drama trade ......
It almost doubled since yesterday. The $29K is for historical reference.
here's the deal. the approx 5 million bbls espaped oil at 75,000 psi oil whamming through the broken BOP have half worn the metal flow structures through. when they go the BoP blows up then the casings get blown up. the gusher hole instantly expands n-times diameter & the deep sea volcano does what volcanoes do. time goes by. sea water bearing down at multi-atmospheres floods the 400 degree giant oil chamber now a super high pressure boiler blowing out the seabed causing a motherfuck tsunami.
I think its only around 180 degrees and
at its peek pressure 17K to 28k PSI now @ 12K PSI.
BOP is only rated to 15K PSI.
BOP has been under so much presssure and wear it wouldnt take 10K PSI before "BOOM"
Regardless if anyone thinks that that one little wellhead is making this mess I have bridge.
It is also known that the casing 1000' below the well head is blownout.
We be in trouble here.
http://1.bp.blogspot.com/_edvxM1dkFlo/TBFUbkgb6nI/AAAAAAAAAgg/h52ekuO0CRQ/s1600/SkyTruth_dhrig_spill-modis-09jun10-terra-interp.jpg
Not looking good !!!!
Are you serious? 75,000 psi?
This article is by far the best i have read on the administration and the bp disaster:
http://www.rollingstone.com/politics/news/17390/111965?RS_show_page=0
some highlights:
-April 2nd, Obama commenting on his decision to dramatically expand off shore drilling in the Gulf of Mexico: "It turns out, by the way, that oil rigs today generally don't cause spills," the president said. "They are technologically very advanced." -NOAA emergency meeting within 24 hours of the spill drafted estimates (documented in writing on the board above) that the estimated spill was 64-100K barrels per day... instead, the obama administration let the press and the world for go for weeks with BPs estimate of 1K bpd... -Damningly, the whiteboard also documents the disconnect between what the government suspected to be the magnitude of the disaster and the far lower estimates it was feeding to the public. Written below the federal estimate are the words, "300,000 gal/day reported on CNN." Appearing on the network that same day on a video feed from the Gulf, Coast ... See MoreGuard Rear Adm. Mary Landry insisted that the government had no figure. "We do not have an estimate of the amount of crude emanating from the wellhead," she said. -The government, in short, knew from the start that surface measurements of the oil slick – on which it would premise its absurdly low estimate of 5,000 barrels a day – were likely to be unreliable. -"When you say the company is responsible and the government has oversight," a reporter asked Gibbs on May 3rd, "does that mean that the government is ultimately in charge of the cleanup?" Gibbs was blunt: "No," he insisted, "the responsible party is BP." In fact, the National Oil and Hazardous Substances Pollution Contingency Plan – the federal ... See Moreregulations that lay out the command-and-control responsibilities for cleaning up an oil spill – makes clear that an oil company like BP cannot be left in charge of such a serious disaster. The plan plainly states that the government must "direct all federal, state or private actions" to clean up a spill "where a discharge or threat of discharge poses a substantial threat to the public health or welfare of the United States."-Scientists were stunned that NOAA, an agency widely respected for its scientific integrity, appeared to have been co-opted by the White House spin machine. "NOAA has actively pushed back on every fact that has ever come out," says one ocean scientist who works with the agency. "They're denying until the facts are so overwhelming, they finally come ... See Moreout and issue an admittance." Others are furious at the agency for criticizing the work of scientists studying the oil plumes rather than leading them. "Why they didn't have vessels there right then and start to gather the scientific data on oil and what the impacts are to different organisms is inexcusable," says a former government marine biologist. "They should have been right on top of that." Only six weeks into the disaster did the agency finally deploy its own research vessel to investigate the plumes.
Excuse ME?
"The cost to protect $10 million of BP debt for a year with credit-default swaps almost doubled to $512,000, according to CMA DataVision. It was $29,000 on April 30."
Almost doubled???? to $0.5M from $0.029M. That's NOT a double! That's 20X.
As I said, Excuse me?
Doubled from last week, not from Apr. 30.
Jesus man; the chart of CDS spread movement IS attached.
But here you go; once more.
Let's get down to brass tacks. How much for the ape?
The response to the Gulf Catastrophe by the US Fed government is emblematic of the stupidity and incompetence endemic to this broken institution. The federal government has done nothing except send troops to guard BP employees (the Main Street Media spin is that the national guard was sent to, get this, help out claimants fill out forms. Imagine 19 year old ex gangbangers and illiterate rednecks preparing the financial damages statements. You just can´t make this stuff up)
I think James Carville is right: we need to declare a state of emergency in the gulf and deploy the Navy to start cleaning up this mess before it destroys the livelihood and homes of millions. God help us when the first hurricane reaches the gulf and goes inland.
I was the second leaker on the grassy knoll!
BP were plotting a journey to the centre of the earth and now is their share price. Intuition tells me that this will become more serious once there are weather disruptions. Although a complete novice, I think we could hit 260, 110 or 75p...depending on the doom.
US Navy submarines could easily detect the noise and motion associated with a secondary leak. You have to assume they have been used to do that. A greater problem to me is why isn't every available drill rig being used to drill into this leaking cavern in case the 2 intercept wells fail to shut off the oil. Do we wait 3 months for the intercept effort to fail before we start drilling wells to relieve the pressure in the cavern in a worst case scenario? Would this cost too much money? Should we continue to believe BP is capable of stopping this thing while the entire East Coast is what we're wagering?
I've been wondering why Scripps and Woods Hole deep submersibles and NOAA survey not involved? - Ned
Multiple rigs can't drill any faster than the two now on the job. More rigs do not provide a greater margin of sucess. You only say that because you don't know how drilling works.
Everyone is now a know-nothing expert and the BS is now deeper than that well.
Noah
I think he said to drill 10 wells incase it cannot be shutoff by the relief wells.
Have 10 production wells tap into the reservoir
to relieve the pressure on the leaking well.
BP is insolvent if Obama has nut One and puts an environmental lien on the company for the tens of billion cash for their wanton disregard of the GOM.
One big question...
Why is BP culpable for all the damage if the government and special interests forced them to drill in such deep water ?
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