Cost To Insure Anadarko Debt Rises On Downgrade,Sparring With BP

21st Jun 2010 15:51

By Katy Burne Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--The cost of protecting Anadarko Petroleum Corp. (APC) debt from nonpayment rose Monday after the company accused BP PLC (BP, BP.LN), its partner in the leaking Gulf of Mexico oil well, of gross negligence and saw its long-term debt rating from Moody's Investors Service cut to junk. Protection in the form of credit default swaps rose to 4 points upfront from 3 points Friday, meaning someone buying insurance on $10 million of Anadarko debt for five years would have to pay $400,000 upfront on top of annual payments of $500,000. The upfront payment Monday was $100,000 more than it was on Friday. Moody's downgraded Anadarko on Friday to Ba1 from Baa3, citing its nonoperating stake in the well and therefore its share in the escalating cleanup costs and potential fines. Anadarko hit back that it was "too early" for ratings action. Responding to BP Chief Executive Tony Hayward's statement that its partners in the well should bear some of the costs and blame, Anadarko said the spill was preventable and BP failed to heed successive safety warnings. Mitsui & Co. (MITSY, 8031.TO) had a 10% stake in the joint venture behind Deepwater Horizon, Anadarko had 25%, and BP had 65%. Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott, said in a note that Anadarko could afford a spill that cost $30 billion, assuming it were on the hook for 25%. Credit default swaps on BP were quoted Monday morning at 460 basis points, equivalent to $460,000 a year to cover $10 million in debt, with no upfront fees. That was $2,000 a year more than where it was quoted at Friday's close, according to Markit. CDS on Anadarko started trading upfront around June 9, signaling it was viewed as a riskier credit because sellers of protection wanted extra payments at the outset for providing coverage. The cost of protecting the debt of Halliburton Co. (HAL), which was in charge of cementing in the well, was unchanged, and CDS on Transocean Ltd. (RIG, RIGN.EB), which owned and operated the drilling rig, was 3 basis points more expensive. Meanwhile, risk premiums on BP's 5.25% note due 2013, its most actively traded paper, rose 2 basis points to 609 basis points, and premiums on Anadarko's 6.45% bonds due 2036 rose 26 basis points to 371 basis points at 9.51 a.m. EDT. -By Katy Burne, Dow Jones Newswires; 212-416-3084; [email protected] (END) Dow Jones Newswires June 21, 2010 10:51 ET (14:51 GMT)