Fitch downgrades BP ... again

By Aaron Smith, CNNMoney.com staff writer


NEW YORK (CNNMoney.com) -- Fitch Ratings downgraded BP for a second time this month to just above junk status, as the news just keeps getting worse for the oil giant.

Fitch said it lowered its senior unsecured rating to BBB from AA on Tuesday, in response to increasing estimates of spilled oil in the Gulf of Mexico and increasing pressure on the oil giant to establish an escrow account to pay for damages.

This action comes less than two weeks after Fitch downgraded BP to AA from AA-plus and placed the company on "watch negative."

The rating agency said there were two main reasons for the most recent downgrade.

The first reason, said Fitch, is "the indication late last week from U.S. government scientists of a significantly higher spill rate that previously announced by all parties," which could "materially increase BP's exposure to Justice Department fines."

Second, Fitch cited "the significant step-up in action from the U.S. government surrounding calls for pre-emptive escrowing of damage claims."

The rating agency said it has increased its estimates for clean-up and claim settlements to range of $3 billion to $6 billion, compared to its June 3 estimate of $2 billion to $3 billion.

Fitch also mentioned that U.S. government scientists might increase their estimates on the flow rate of the oil spill in the Gulf. Fitch based its estimates on a current rate of 25,000 barrels per day, which is at the low end of the government's scale. This is at the low end of government estimates, of up to 40,000 barrels per day. Fitch said that BP is capturing about 15,000 barrels per day.

The rating agency said the spill could result in civil fines ranging from $2 billion to $8 billion. Fitch said that BP also faces one-off costs related to the cleanup of $1.4 billion, but that figure could rise.

However, the rating still indicates that Fitch finds BP to have little risk of default and the "the capacity for payment of finical commitments is considered strong."

BP spokeswoman Sheila Williams declined to comment.

The spill has been ongoing since April 20, when the Deepwater Horizon oil rig exploded and sank off the coast of Louisiana, killing 11 workers.

On Monday, U.S. lawmakers, led by Senate majority leader Harry Reid, sent BP Chief Executive Tony Hayward a letter to set up an escrow account for $20 billion to pay damage claims.

Fitch announced its downgrade as BP executives prepared to appear before congressional committees on Tuesday and Wednesday to testify about the spill.

BP's stock plunged 10% on Monday, as executives held a board meeting. The company is weighing whether to issue its $2.4 billion second quarter dividend in August.

President Obama is visiting the Gulf region this week and plans to address the nation on Tuesday regarding the oil spill. To top of page

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

Search for Jobs

Index Last Change % Change
Dow 18,054.45 -81.27 -0.45%
Nasdaq 4,974.79 -8.02 -0.16%
S&P 500 2,093.65 -7.39 -0.35%
Treasuries 2.20 0.09 4.26%
Data as of 9:48am ET
Company Price Change % Change
Bank of America Corp... 16.33 0.33 2.06%
Apple Inc 128.02 1.61 1.27%
AT&T Inc 33.61 -0.39 -1.15%
Freeport-McMoRan Inc... 19.86 -0.34 -1.66%
General Electric Co 25.69 -0.13 -0.50%
Data as of 9:33am ET
Sponsors

Sections

The world's most valuable company is set to join the most exclusive market index in the world at last. More

The U.S. added 295,000 jobs in February and unemployment fell to 5.5%, the lowest level since May 2008. More

Frank & Oak, Airbnb, and Net-a-Porter are just a couple of companies investing in the antiquated medium. More

There's no end to the creative ways scammers will try to steal your identity and your money. And tax time is one of their favorite times of the year. Here's how to spot a top scam and protect yourself. More