BP ratings downgraded by Moody's, Fitch

By Aaron Smith, CNNMoney.com staff writer


NEW YORK (CNNMoney.com) -- BP's debt rating, a key indication of the corporate world's outlook for the company, was downgraded Thursday by two of the three major credit ratings agencies for the failure to plug a massive oil leak in the Gulf of Mexico.

Fitch Ratings downgraded two key BP debt ratings to "AA" from "AA-plus" and placed the company on watch for further cuts. Later in the morning, Moody's Investors Service also cut its ratings on two of the oil giant's corporate bonds, to a lower investment grade level.

Fitch, a rating agency headquartered in New York and London, said the economic and environmental damage from the sunken Deepwater Horizon rig is expected to continue, and the leak is unlikely to be plugged any time soon.

The agency estimated that BP's cleanup costs could total $2 billion to $3 billion in 2010 "depending on how much oil reaches the U.S. shoreline."

"The company has so far repeatedly failed to stop the oil leak and has instead reverted to containment methods that are yet to be fully implemented and are subject to potential weather-related disruption," said Fitch, in a written statement.

Moody's also cited the significant containment, clean-up and litigation costs BP faces related to the Gulf Oil spill as reasons for its downgrade of the company's debt.

"Moody's expects these costs to weigh significantly on BP's free cash flow generating capacity and to constrain its ability to focus on other key areas of the company's business in the near to intermediate term," the ratings agency said in a statement.

Fitch said "the drilling of relief wells also poses risks and additional time may be required for them to be fully effective." A criminal and civil investigation announced Tuesday by Attorney General Eric Holder puts further pressure on BP, the rating agency said.

As a result, said Fitch, "risks to both BP's business and financial profile continue to increase."

After the Fitch downgrade early Thursday morning, BP spokesman Mark Salt said the cut "reflects the uncertainty concerning the potential impacts of the oil spill" but that the AA rating "is still a very strong rating."

"We look to maintain a strong balance sheet as set out in our financial framework," said Salt. "We regard the framework as prudent and have no plans to change it."

Another BP spokesman, Toby Odone, said his company has "very strong and ongoing operating performance" and that it remains "one of the strongest companies, with huge cash generation."

The Deepwater Horizon rig that exploded and sank off the Louisiana coast in April, killing 11 workers, is 65% owned by BP. Originating from the ocean floor nearly a mile below the surface, the leak is spilling up to 19,000 barrels per day into the Gulf.

Since the April 20 accident, BP (BP) shares have plummeted more than 40%.

In its most recent press release, BP said it would fund the estimated $360 million cost of building six "sections" to protect Louisiana's barrier islands from the oil spill. This is in addition to providing $170 million to Louisiana, Alabama, Mississippi and Florida to help cover response costs and promote their tourism industries, said BP.

The company also said it has paid out $42 million in compensation to people and businesses affected by the spill. To top of page

Just the hot list include
Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 32,627.97 -234.33 -0.71%
Nasdaq 13,215.24 99.07 0.76%
S&P 500 3,913.10 -2.36 -0.06%
Treasuries 1.73 0.00 0.12%
Data as of 6:29am ET
Company Price Change % Change
Ford Motor Co 8.29 0.05 0.61%
Advanced Micro Devic... 54.59 0.70 1.30%
Cisco Systems Inc 47.49 -2.44 -4.89%
General Electric Co 13.00 -0.16 -1.22%
Kraft Heinz Co 27.84 -2.20 -7.32%
Data as of 2:44pm ET
Sponsors

Sections

Bankrupt toy retailer tells bankruptcy court it is looking at possibly reviving the Toys 'R' Us and Babies 'R' Us brands. More

Land O'Lakes CEO Beth Ford charts her career path, from her first job to becoming the first openly gay CEO at a Fortune 500 company in an interview with CNN's Boss Files. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.