BP bonds have now fallen in cost significantly following the leak in the Gulf of Mexico
. The downturn is giving a sign that BP will soon default on its debts according to many analysts. Although shares are beginning to show signs of recovery the bonds are still falling steadily.
Corporate ratings agencies are threatening to cut BP's credit rating further and more downgrades are expected. The true extent of the financial implications will not be known until the full effects of the spill in the Gulf of Mexico are known.
Some of BP's investors are restricted from owning lower grade bonds and therefore if BP suffers any more cuts the investors could be forces to sell their shares.
BP revealed last week that it had cut a faulty pipe from the leaking source which will hopefully make a big difference to the spill.
Even though recent happenings have shown a lot of negativity surrounding BP it is clear that the company still has a good investment grade credit rating. The current AA rating was described as being 'a very strong rating,' by BP spokesman Mark Salt this week.
BP owes 14bn in total debts, whereas stock markets currently value the company at 84bn which means its debt levels are very low currently.
Investors in BP shares such as many UK pension funds now fear that BP will now cut their dividend. The next dividend meeting is set for July 27th, which means a nervous wait for many.
Further downgrades are expected and among the many risks are the following;
The current attempts at controlling the leak may actually increase the amount of leakage.
That the relief well that BP are currently making may not work.
The total clean up may cost a lot more than first thought.
The US government are looking to press criminal charges and claim compensation for people affected by the spill such as fishermen.
The drilling in the Gulf Of Mexico may have to stopped permanently as a result of the leak.