BP Bonds Rally For 2nd Straight Day On Earnings, Asset Sales News

27th Jul 2010 22:52

By Chris Dieterich Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Bonds issued by BP PLC (BP.LN, BP) rallied Tuesday for a second day in a row and the cost of protecting against default fell after the British oil giant reported earnings and announced a plan to sell billions in assets. Short-term bonds were most active in the secondary market. BP's 5.25% notes due November 2013 were most in demand. Traders pushed up the average trade price 3/4 points to yield 4.994%, or 400 basis points over comparable Treasurys, according to MarketAxess. BP reported a $17.15 billion loss for the second quarter and said it will sell about $30 billion in assets. The company also confirmed reports that its current chief executive Tony Hayward will step down on Oct. 1. In contrast to activity seen Monday, when BP shares joined the bond rally as reports of Hayward's departure circulated, BP shares declined on the earnings and asset sales news Tuesday. BP's American depository receipts closed down 1.68% at $38.00 as stock investors digested the prospect of a smaller company. Bondholders are taking heart from the BP's efforts to address its leadership issues and the progress it has made in putting a stop to the oil gushing from its well in the U.S. Gulf of Mexico. But Kevin Giddis, president of fixed-income capital markets at Morgan Keegan, said in an email that there remain substantial risks. "BP likely has the resources to cover the direct liabilities associated with the spill, but the indirect liabilities are incalculable," Giddis said. "This isn't to say that bondholders will necessarily lose money," he noted. Morgan Keegan isn't very active in distressed securities such as BP, Giddis said. Insurance-like credit-default swaps on BP improved for the seventh consecutive day. The cost to insure $10 million in BP debt for five years fell to $320,000 from $340,000 on Monday, according to Markit. Credit swaps on BP debt are trading at the tightest levels since early June. Still, the company's bonds have recovered a lot of ground lost, similar to its shares. In mid-June, BP's 2013 notes traded at just under 90 cents on the dollar as investors feared for company's solvency in the near term. The company at that time agreed to set up a $20 billion fund to meet claims in connection with the oil spill and suspended its dividend for this year. At the time, the company warned it wouldn't have clarity on its ultimate liabilities from the spill until it was capped. BP remains poised to generate cash, said Andrew Brenner, managing director at Guggenheim Securities, and the fears that drove traders to sell off BP debt over the past two months look overblown in retrospect. "A lot of it was emotional," Brenner said. "I think people were just panicking way too much." -By Chris Dieterich, Dow Jones Newswires; 212-416-2611; [email protected] (END) Dow Jones Newswires July 27, 2010 17:52 ET (21:52 GMT)