BP Finalizing 5-10 Year, $5 Billion Unsecured Bond Offering, 8-10% Yield

Tyler Durden's picture

Just reported on CNBC. The yield on the issue is massive and is certainly a means to encourage basis traders to cover their naked CDS positions at a profit. Look for 5 year CDS to widen to the neighborhood of the new issue spread. BP better hope this is all the liquidity it will need, as the next bond offering will have to come at  10-15%, the third even wider, etc. By then, of course, there would be no equity value left.

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ZeroPower's picture

Don't wanna stay short over the weekend with news like this that could give it a quick rise of a few (irrational) points.

BTW - how about getting some senior secured notes? Go figure.

Tyler Durden's picture

All assets will soon be pledged to the US government. Joking aside, would be very interesting if Obama told the firm to leave everything currently unencumbered that way (for future pledging).

Cursive's picture

All assets will soon be pledged to the US government. 

Joking?  Seems like the natural progression of things from here.

Bearish News's picture

The political pressure on Obama by key U.S. senators in Gulf states will be tremendous. Maybe even big enough to topple to default-kleptocracy instincts of D.C.

QQQBall's picture

Keep dreaming Bearish News. They are already talking about raiding the $20B trust account for health care.

Hephasteus's picture

The military needs 14 billion to fund afghanistan in july. If by health care you mean land mines, gasoline, and toy airplanes 1/2 the size of real airplanes you can fly 8000 miles and crash into people and blow them up.

Jace0228's picture

Noob question: Why would this cause the stock to rise? Aren't they diluting value?

Cheeky Bastard's picture

Unless its a convertible bond or some sort of a hybrid, it has not effect on the stock price. This is just "normal" debt offering; plain vanilla.

etrader's picture

Standard Chartered is believed to be drawing up the $15b+ BP assets dump plan.

BlackBeard's picture


ghostpirate's picture

8% shouldn't be too hard for underwriters to sell to the "stupid money" ...  

Rainman's picture

CalPers will gobble up the whole load with a skimmer.

downwiththebanks's picture

No joke.  And the Church of England.

AxiosAdv's picture

I got tempted and put on a small call spread.  If they can cap that leak this sucker will pop 10pts over the following week.

papaswamp's picture

The ocean bed is becoming saturated due to the core pipe being cracked..hence the reason they couldn't force drilling mud down the hole. I'm sure at this point horizontal fractures are occuring throughout the substrate with oil soaking into and breaking down the salt layers...I would stay far away from BP...but that is me.

jkruffin's picture

Unsecured huh?  at 8%?  No thanks!!!  Only way anyone touches a unsecured bond is if they are getting mega interest on their money.  Like 15-20%, otherwise don't waste my time.  Isn't that how the banks do consumers?  That's what I thought.

Cleanclog's picture

Starting to get the sense that real investors (not the HFT machine in and outs) are figuring out that there is too much debt floating around out there.  Some day, perhaps soon, poof will go the willingness to lend - to California, Greece, BP, and most everything else unless there is a demonstrable ability to service the debt.

And then abracadabra . . . poof again as equity evaporates in plunging values - of homes, cuz if it must be 100% cash down prices will sink- and stocks cuz what retained earnings will service dividends?

poorold's picture

Why doesn't the Fed print the money for BP and turn the interest over to those making claims?

Kurtieboy's picture

Who here would lend BP money for 10 years for 8%???? Insane??? The hole hasn't even been plugged yet!

Careless Whisper's picture

The Federal Reserve Bank will buy the paper if necessary through one of its straw man banks.  BP is a very powerful company in world politics. They aren't going out of business. One of the relief wells will work sooner or later. The media is hyping this spill. Every time we see a dead gold fish someone will propose cap and trade.

Kurtieboy's picture

I agree, in the short term it is in the US government's best interest for BP to remain a viable going concern. In the short term BP is not going anywhere. But in 10 years I'm not so sure.....

PlausibleDenial's picture

Newbie:  In the dark...While I understand the spread issue and basis points and whole the whole macro-government take-over, I would like to understand how to make enough money to buy physical amongst other items (Cakebread Cab & AK).  I come from the now apparently defunct buy & hold MPT area.  God rest Mr. Markowitz? So, the question, is the real money (yes, I know there is a debate raging on that issue) in options, futures, FX or all of the above?  Please don't ass rape me as I am just trying to learn.  Incidentally, those in favor of guns and ammo, you will really need more things like claymore mines, M21-land mines, trip-wires, trembler switches, mercury switches, collapseable circuits,and finally gas and ivory snow flakes.  Thanks to those with some suggestions.

SamThomas's picture

Dude...options, futures and FX are simply the trading mechanisms you employ to execute a particular strategy.   You are more likely to lose money using these tools--since they involve a lot of leverage--than make money unless you are skilled and experienced.  This is a treacherous market, too, one that will devour all but the best, amoung which I do not include myself, by the way;  since I can't figure it out, I am mostly in cash and gold.    

So my humble suggestion would be to stay away till you figure out what you are doing.


PeterB's picture

'So my humble suggestion would be to stay away till you figure out what you are doing'

Sage advice & in my best thick Balkan accent 'stay away dis one is da dunja mate'

eddybaby's picture

Guys, cynicism is healthy up to a point, after which it starts to sound like you are part of some far right movement from Oklahoma.

downwiththebanks's picture

No, seriously:  this company continues to destroy, in realtime, the whole Gulf of Mexico.  

And how much does that cost?  

How many dollars will buy another Gulf of Mexico?

Jack H Barnes's picture

Summer Break 2010, coming to a Gulf Near You

myshadow's picture

People should keep their powder dry.  Wait till the hurricanes form.

If the oil and dispersants are atomized in significant amounts and rain all over cities, suburbs,crop land, let alone dams, water storage and resevoirs.  How hazmat will that be, and if it occurs in multiples how much contamination will that be visiting. 

If it is, there is clean up and serious liability.  This country is still sailing down denial about relief wells. 

When barry was talking about praying, I'm sure he was thinking about that fractured seafloor.  The reason bp ponied up so fast is to give a cushion against the oncoming chemical apocalypse.  Any deal they may have cut about criminal liability will be off the table when it rains benzene.

Monkey Craig's picture

Contact with benzene is even more dangerous than smoking cigarettes. With the benzene, people won't swim in the Gulf for decades. Of course, that assumes that the leaks stop in the next decade.

downwiththebanks's picture

The costs can't be calculated, but one thing is certain:  the damage BP has done exceeds the worth of BP. 

This will create a refugee crisis, as millions of people leave the coastline because their lives have been destroyed by capitalism.

AbbeBrel's picture

On the upside, BP should get some cash flow leasing out all that newly-asphalted beach parking in Florida!!

Cheeky Bastard's picture

Today 5y CDS was a steal. It has fallen something like 105 bps. If indeed the yield is between 8%-10% someone is going to make a killing selling the 5y after the pricing is announced.

800 bps - 1100 bps not an impossibility; more so if the rating agencies take the signs of a liquidity crunch more seriously and "junk" the debt. BP will have the mother of all inverted yield curves.

If you thought 1000bps on 6m1y was wild, wait till you see 3000bps and Bill Gross buying up [if he hasn't already] the CDS like it was a 50% yielding t-bill.

I need more asshats's picture

"the mother of all inverted yield curves".

Cheeky Bastard's picture

Yep, with 6mths1y spread of 3000bps and 10y at 800. Good luck with that.

ZackAttack's picture

If you own a bond fund, call your fund company; let them know if you see any of this on the sheets, you're out of there.


Same for your 401K. If they don't comply, pressure your plan administrator to drop that bond fund.

Monkey Craig's picture

Good call. I bought some of these unsecured issues in the late 90s (Ford, GM, various airlines). The companies went bankrupt and now my bonds are worthless.

After I woke up and learned about credit analysis and false flag attacks, I decided the game was rigged. Now 15% of my net worth is in gold - purchased in 2004 -2006.

I need more asshats's picture

I'd load up some unsecured paper from BP at this point, but not at 8%-10%. They will be forced to nuke the well deep below the ocean floor to fuse the rock or casing. This will cause negligible environmental damage but the damage has already been allowed to happen by Obama.

The beach cleaners will add to the employment numbers, and unleaded will be allowed to spike to $7/gallon to pay for the bullshit once again forced down our throats by the Obama administration.

Hope and change....

downwiththebanks's picture

"Negligible environmental damage", eh?  

According to whom?  By what measure 'negligible'?

tempo's picture

It will be nuked in secret and covered up.   IMO plans are already underway.   BP will claim success and pay $50 billion is claims over 10 years.   Thats the best case.   The worse case, the nuke just opens more erosion channels and radioactive oil comes onshore.

ZackAttack's picture

I really don't think they'll nuke it. Parts of this field are covered by a salt dome, as thin as 2cm thick in some places.


Problem statement: calculate the size of a nuclear device that will fuse that volume of sediment without collapsing the dome. Secondary problem: model the wave distribution and amplification in crystalline structures in subaquatic and aquatic environments.

Better set HAL9000 chewing on that one right away. Ooops, we meant feet, not meters.

You could just as easily wind up with the well completely unsealed and a tsunami.

tempo's picture

Until the blowout well is capped (stops leaking) the ultimate liability is completely a wide ass guess.  IMO Matt Simmons (40 year expert in the oil industry) must be taken seriously until proven otherwise.  Matt claims the chance the relief well will work is zero because there is no steel casing left in the blowout well.  W/O casing it is impossible to tie into the well.   Matt believes there are erosion channel being cut by the oil/sand under at least 15000PSI outside any casing through the sandy subsea formation from the reservoir 10,000 feet from the ocean floor and the well is flowing at larger and larger rates (maybe 80,000bbls/d) in multiple locations away from the TV cameras.   These uncontrolled leeks will flow hundreds of millions of bbls of toxic oil/benezene/methane for many years and poison both offshore marine life and onshore people.   There may have to be an evacation of many Gulf cities due to the toxic fumes.   Until the well is capped, the cost could be trillions not billions.   Remember President Obama spoke in Oval office that oil spill was as danagerous to Americans as the start of WWII.  Many think he was pushing cap and trade.   IMO he is warning that the well/leaks will never be capped.  Note that BP is not trying to contain the blowout because the mud they tried to inject just leaked outside the formation (because there is no casing).  Also the blow out preventor/riser you see on TV is very unstable (because there is no casing) and BP is concerned it may topple over.   This is a very dangerous, serious issue.

TuesdayBen's picture

AlQaeda must be bummed that they didn't figure this bust-an-oil-well tactic out.

Broken_Trades's picture

IMO Matt Simmons is talking BS when he says a relief well wont work.  It's the only that that DOES WORK.

The reason they are drilling the relief well so deep is  get around the casing.  If you pump heavy mud into a reservoir from 1000 ft above in open hole, it is exactly the same as pumping heavy mud at 10000 ft.  Once you displace the reservoir fluid with heavier mud the flow stops.

If there are fractures and invasion in the salt zones of oil, it will stop leaking once it loses the pressure of the reservoir.  It will be at equilibrium with the surrounding formation.


titatu's picture

Another link would give you even some more perspective.


It is no fun to say, but this spill (Deep Horizon)could be a "blessing" for the rest of the world. Year over year you hear the same stories about oil, but you have to listen to it, media in USA in general are so much cntrolled(by shareholders)

After the last spill nothing happened, because it did not damage enough of the USA coasts.

But just think of the delta in Nigeria, where Shell does do "developmental" work, or what about Alaska, all over the world you find the same spill(of nature)

Better dump massive shares of oilcompanies, that would be a better political statement, then just complaining about what they do the single coast of the south of USA.


PeterB's picture

Out of curiosity where's Greenpeace? Anyone

TuesdayBen's picture

Probably in their boy Obama's back pocket, next to the $20B bill.