UPDATE: BP Shares Rise Despite Severe Fitch Downgrade

15th Jun 2010 11:59

(Adds detail.) By James Herron Of DOW JONES NEWSWIRES LONDON (Dow Jones)--BP PLC (BP) shares rose slightly Tuesday despite Fitch Ratings downgrading its long-term issuer default rating to BBB from AA Tuesday, citing significantly higher estimates for the size of the oil spill in the Gulf of Mexico and demands from the U.S. authorities that the company pay a significant amount of the expected cleanup and compensation costs up front. Despite the severity of the six-notch cut in its rating--two notches above junk--BP remains at investment grade and the market shrugged off the announcement. At 1057 GMT BP shares were up 1.1%, or 4 pence, at 359p. Its shares closed down more than 9% Monday. The FTSE 100 index was up less than 1%. "The scale of today's rating action has been partly driven by the increased risk that the balance between long-term and near-term cost payments may now be skewed much more heavily towards the near-term than previously anticipated," Fitch said. A number of Senate Democrats, including Senate Majority Leader Harry Reid (D, Nev.), demanded Tuesday that BP deposit $20 billion into an escrow account to cover future cleanup and compensation costs. The figure dwarfs the $1.6 billion BP has spent since April 20 on containment, cleanup and compensation resulting from the oil spill and is at the high end of analysts' estimates of the ulitmate liability. The increase of the top-end spill estimate to 40,000 barrels a day, from 25,000 barrels a day previously, will also, "materially increase BP's exposure to Justice Department fines payable in the near to medium-term," it said. BP could face maximum civil penalties of $1,100 per barrel of oil spilled, rising to a maximum of $4,300 per barrel spilled if BP were to be proved negligent. Assuming oil continues to leak from BP's well until August, Fitch estimated BP's share of these maximum penalties at $2 billion and $8 billion respectively. These problems, and the "severely adverse" reaction in BP shares may put limitations on BP's ability to access capital markets, it said. "Fitch would be surprised if BP did not suspend quarterly cash dividend payments until the operational and financial impact of the incident is clearer." Fitch changed the outlook on BP's rating to "evolving", reflecting the high level of uncertainty surrounding the company, it said. "It is still possible that payments may either turn out to be much lower than Fitch's expectations, or that they may be skewed more to the longer-term, both of which would be favourable for BP's credit profile," it said. -By James Herron, Dow Jones Newswires; +44 (0)20 7842 9317; [email protected] (END) Dow Jones Newswires June 15, 2010 06:59 ET (10:59 GMT)