UPDATE: Anadarko, BP Bonds Tumble On Concern Over Spill Cost

25th Jun 2010 22:39

(Updates bond levels) By Chris Dieterich Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Credit markets on Friday hammered the oil companies most closely tied to the two-month-old spill in the Gulf of Mexico, as BP PLC's (BP, BP.LN) bond yields soared to all-time highs and the cost to insure Anadarko Petroleum Corp. (APC) bonds nearly touched record highs set earlier this month. Debt traders sold off BP bonds as the oil giant's stock nose-dived over concerns BP might need to consider selling additional shares to maintain financial health, a move that could further dilute outstanding share prices. Also weighing on investors' minds were BP's announcement that the company so far has paid out $2.35 billion in clean-up and compensation costs for the spill, as well as fears that powerful storms brewing in the Gulf could further complicate clean-up efforts there. Risk premiums, or spreads, on BP's 4.750% notes due March 2019 rose to 4.78 percentage points over comparable Treasurys, the highest spread ever, and 4.49 percentage points higher than the bond traded on April 21, the day after the Deepwater Horizon rig exploded in the Gulf of Mexico. The bond market has priced in BP's short-term default risk: Yields for debt maturing in the next several years are wider than longer-term debt, an inversion that implies that investors fear for the short-term health of the company. The risk premium for BP's 3.125% notes due March 2012 rose 0.85 percentage point to 8.47 percentage points over much safer Treasurys with a comparable maturity. Meanwhile, bonds issued by Anadarko, which owns a 25% stake in the leaking well, also suffered, a day after shareholders filed a lawsuit against the company alleging that executives made false and misleading statements relating to the company's role in the disaster. "Anadarko's risks are a lot less certain than those of BP," said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott. "We know that BP is going to be paying for a large portion of the spill, but the full share of the liability would be pretty expensive for [Anadarko]." Anadarko's 5.950% notes due September 2016 were by far the day's most actively traded issue, according to data provider MarketAxess. The risk premium on these notes ticked up to 7.19 percentage points over Treasurys, a full 5.79 percentage points wider than on April 26. The cost of insuring against default by the companies involved in the spill also rose Friday. The price of protection, in the form of credit-default swaps, rose as high as 7.00 percentage points of the value being insured for Anadarko, which was near the record high of 7.11 percentage points reached June 11, according to Markit. The price later settled back to 6.83 percentage points, meaning it would cost $683,000 a year to insure $10 million of Anadarko debt for five years. The cost of protecting against default by BP and Transocean Ltd. (RIG, RIGN.VX) also jumped. The fee to insure the debt of Transocean, which owned the Deepwater Horizon rig operated by BP, rose to 5.55 percentage points of face value insured, while credit default swaps for BP climbed to 5.80 percentage points. -By Chris Dieterich, Dow Jones Newswires; 212-416-2611; [email protected] (END) Dow Jones Newswires June 25, 2010 17:39 ET (21:39 GMT)