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Moody's Junks Anadarko, Downgrades From Baa3 To Ba1, On Further Downgrade Review
Update: For all those who like to ridicule the rating agencies, here is a little primer. Moody's and S&P are so hated right now for the same reason they were loved during the boom: portfolio managers are the laziest people in the world (and when it comes to credit, you can also add dumbest). There are a few multi-billionaire exceptions, but the vast majority would merely cut and paste from rating agency reports, pass it off to the investment committee as their own work, and then work the phones to get as many of their friends on the same side of the trade as they could. Eventually Goldman et al would have their sales force work the trade all the way down to retail, at which point the original buysiders would dump. It was, and has always been, merely a game of who got on the trade (and offloaded) first. At this point the rating agency bashing is merely a successful ruse by credit pension and mutual funds to deflect attention from their own worthlessness and laziness. Nearly 80% of all funds still rely exclusively on rating agencies as they simply do not have the manpower to focus on all the credits already in their portfolios. Deep down, asset managers would positive hate to see Moody's and S&P unwound, because they would immediately have to go out and hire thousands of $1mm a year credit analysts to keep tracks of all their holdings, which would dramatically cut the equity to partners.
So now you know why rating agency moves are so critical even as everyone says they are worthless and should be ignored.
Amidst all the soccer, we missed this one:
Approximately $12.9 billion of rated debt securities affected
New York, June 18, 2010 -- Moody's Investors Service downgraded Anadarko Petroleum Corporation's and its guaranteed subsidiaries' (Anadarko) long-term debt rating to Ba1 from Baa3 and placed the long-term ratings under review for further possible downgrade. Moody's also assigned a Ba1 Corporate Family Rating.
Moody's action reflects the considerable uncertainty around Anadarko's potential 25% share of the cleanup costs and the associated financial liabilities and fines stemming from the April 20 Deepwater Horizon rig explosion and subsequent oil spill in the Gulf of Mexico. Moody's expects the consequences of the spill will negatively impact Anadarko's credit profile over the medium term, reflecting BP's continued inability to stop the leak, the increasing revisions in the magnitude of the spill, and mounting claims.
Moody's anticipates Anadarko, as BP's partner in the well, will meet its responsibilities through some allocation of some portion of the liability from the accident. Moody's believes the ongoing uncontrolled flow from the well will result in higher containment and clean-up costs than initially expected, as well as potential further increases in litigation costs and fines in view of the widespread damage caused to the economies of the coastal regions affected by the oil spill.
The review for downgrade reflects the considerable uncertainty relating to the size of future financial liabilities facing Anadarko. At this time it is not known how much of the continuing accruing costs will be offset by contractual rights or will have to be met by the company, and to what extent this will impact its financial and liquidity profiles. Anadarko's financial position has recently benefited from robust operating results and cash flow generation, which provides some cushion against the potential financial impact of the incident; albeit management may have to take additional actions to ensure the company has adequate flexibility.
Anadarko holds insurance to cover the first $178 million of its share of clean-up costs and another $1.6 billion is available from the Federal Oil Spill Liability Trust Fund. Additionally, the company has approximately $3.5 billion of cash on hand, $1.3 billion of available revolving credit, and no debt due through the rest of 2010. Over the next two years, debt due totals $707 million in 2011, and $170 million in 2012. In addition, the company has other levers which it could use, including re-allocating capital spending, selling assets, delaying other spending, and the farm-out of assets, as necessary.
To date in 2010 Anadarko has experienced robust growth from production. While the US Government-mandated moratorium on deepwater drilling is likely to affect the company's near-term capital plans, near-term production growth should not be affected as it can potentially shift exploration and development plans to other parts of the world for the next two-to-three year horizon.
The last rating action on Anadarko was June 4, 2010, at which time Moody's changed the company's outlook to negative from stable.
The principal methodology used in rating Anadarko was Moody's Global Independent Exploration and Production Industry rating methodology published in December 2008. The methodology is available on 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.
Anadarko Petroleum Corporation, a large independent exploration and production company, is headquartered in The Woodlands, Texas
It may seem that Moody's assumption that APC will "meet its responsibilities" may have been a little short sighted. With APC taking a book straight out of the European bailout negotiations handbook, and blasting BP as responsible for everything gone horribly wrong in the world, additionally threatening to sue BP, perhaps Barclays jumped the gun a little too early with its bump of APC and the $76 price target.
h/t Cheeky
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Blue Horseshoe loves Anadarko Petroleum....
Seriously, who cares what Moody's thinks? In he real desicion making world they are irelavent and have lost all their credibility. Waste of time posting this crap.....
Well over 50% of mutual and pension funds base all their asset allocation decisions solely on whether a given Moody's rating is Investment Grade or High Yield.
I'm fully aware that a great deal of financial institutions continue to use credit rating agencies. My point simply is, they shouldnt. By you posting these types of articles you continue to perpetuate and reinforce their importance in the system and this I thik we can all agree is not a good thing.
Yeah, fuck them, who cares about what they have to say about anything. *que collateral calls to AIG, LEH, BS, WaMU etc etc*
Idiot.
I understand that ratings are bogus and piece of crap but you have to realize the whole freaking structure DEPENDS on these ratings [credit models, for ex]. The structure is the issue, not the 'alphabet soups'.
It reminds me of the asbestos claims situation. Plaintiffs will go to which ever court gives the most lucrative settlements (Louisiana and Alabama are always good for this) and they will go after whoever has any link to the disaster, those most directly involved and with the deepest pockets first, but they will keep going until there is no one left to sue.
With asbestos, first they went after those that made the asbestos, then those that made products using it, then after those who used those products as part of the production. Some companies ended up being sued who didn't even realize they were using asbestos...
So, when are the downgrades to Haliburton in the offing? My guess: 3 years after the world has died from lack of oxygen or 2017, whichever comes first.
Hate to say this but most asset / fund managers don't even attempt to comprehend and rationalize the ratings behind any securities [you could call it lazy, let alone understanding the rating methodology behind these ratings]
Deep Horizon-Shah.
funny Anadarko....sounds so close to Andarraka...
Now the cornered rats are turning on each other... this could get interesting.
http://www.guardian.co.uk/environment/2010/jun/19/gulf-oil-spill-anarkdo-petroleum-blames-bp
APC is NOT an operational partner. It is an investor in a joint venture. BP is a sole operational partner.
It is absolutely clear that BP criminal negligence and actions are exclusively responsible for the catastrophe. Therefore.
- APC is NOT liable for the catastrophe and following consequences
- APC must sue BP for damages due to the BP created disaster including the lost income from the well.
PS
Do you sue retail investors for the WallStreet criminal activities? Do you sue bank depositors for bank unsafe lending practices and outright fraud?
Hey they said it, not me. I'm just passing it on. But I do expect interesting revelations when the various parties involved, whatever their business relationship, start to roll over on each other in public.
Edit: From the WSJ, "Embattled oil company BP PLC (BP) said Sunday that it hasn't decided whether to sue Anadarko Petroleum Corp. (APC) for shirking responsibility for its share of the liabilites resulting from the Gulf of Mexico oil spill."
Apparently the situation is somewhat murkier, so to speak, from BP's standpoint. Me, I don't know, just following the mutual trash talk.
BP should allow itself to be taken over by Iran and let Net'nYahoo broker the deal. They they could rename it the Anglo-Iranian Oil Company in a throwback/down to the beginning à la Finngan's Wake and suck all the blame back into the Persian Gulf from bend of bay to swerve of shore ....by a commodius vicus of recirculation The only Nation State to have never attacked another for hegemony or lebestraum.
Barclays analysis is a total POS. There is no substance. There are just guesses and insinuations.
This envirornmental debacle has the potential to be the single biggest man-made catastrophe in the history of the U.S. (not to mention the obvious fact that it is ongoing.) It also will certainly be the biggest tort case. The plaintiff's bar in at least five states is licking its chops, knowing that decades' worth of E-class lease payments and private school tuitions are dangling temptingly within in arm's reach. These guys will be motivated.
There is simply no way that anybody can get a handle on what this is going to cost BP or any other firm, such as APC. Cannot be done, so the potential impact on any one firm is unknowable as well.
DOW chart update :
http://stockmarket618.wordpress.com
http://www.zerohedge.com/forum/latest-market-outlook-1
Both Goldman and Barclays told clients to buy APC bonds. Then the trigger happy hedge funds bought the stock. Now Barron's is saying buy RIG and BP bonds.
Bankers need love too. Time to do some deals. BP is already out there raising more debt. Cha ching.
Let's see how much flesh the administration can take out of The New but better Philip Moris. BP is a cash cow, GOP sponsored, and in the eyes of the American plebs, a non-US evil behemoth. CEOs with British accents make good cannon fodder for Congressmen. If used properly, this is the Crisis the ObamaNation has been waiting for.
It is time to see how smart The Spin Doctors in DC really are. With James Cameron and Kevin Cosnter ready to do their fair share of Hollywood Liberal spin.
When does Wall Street Part II come out?
The greatest tragedy of America is that the other major political party is totally corrupt and intellectually bankrupt and the third political party is out of question.
Consequently, regardless of any spin by any parties, the present American decay and disintegration will continue to accelerate prior to smashing into a brick wall. The only questions are
- How long will it continue?
- How bad will it become before "America reality show" start to burn?
Max Keiser said it best yesterday:
The BP oil geyser and the Wall St. risk geyser (in the form of HFT trading and algo trading) put enormous power into the hands of lethal psychopaths. Their message is simple, don’t try and stop us or we’ll kill and bankrupt all of you. Obama, the ‘Patty Hearst’ President, basically picks his nose and hopes for the best.
So why was HS Big Sis Janet talking about SWAT Teams after the explosion?
http://www.theshanksdimension.com/2010/05/deepwater-horizon-target-of-no...
Was this an Iranian False Flag Special Op with North Korean mini subs on a RIG Korean built and financed Rig to keep oil prices high to ram through uneconomic alternative Cap&Trade energy by ramping oil profits for the majors?
http://directorblue.blogspot.com/2010/05/obamas-katrina-illustrated-time...
PS Has anyone done a timeline on APC?
APC traded at least two points higher from the explosion on Tu 20 April 2010 to
74.19 six days later.
APC traded down to 34.54 Wed 9 June 2010, 50 days later, and now trades at 43.
There are better shorts beside APC, HAL and RIG that somehow escaped notice.
Hint: XON Valdez cleanup hires who used one of the products died of liver failure before 50, and the failure of the other product led to cracks in the seabed floor releasing up to 125,000 barrels up to eight miles away said energy insider Matt Simmons.
He and T Boone might be eager to fund their uneconomic windmills at consumer taxpayer expense.
So much for rational free markets...