UPDATE 4-BP considering debt financing options-sources

* BP considers range of debt financing options-sources

* Range of options includes bank loan, corporate bond sale

* Bond sale could be up to $10 bln
(Adds S&P downgrade, analyst quotes)

By Michael Erman, Dena Aubin and Walden Siew

NEW YORK, June 17 (BestGrowthStock) – BP Plc is considering various
debt financing options, including bank loans and a corporate
bond sale of up to $10 billion to raise cash as it battles a
huge oil spill, sources familiar with the matter said on
Thursday.

Complicating any efforts to raise funds, BP (BP.L: ) (BP.N: )
was downgraded by credit ratings agency Standard & Poor’s,
which said it may cut the British oil company’s credit rating
again.

BP is evaluating all alternatives, including a bank credit
facility, a source said. The timing of a bond sale could be as
early as next week, the person said.

The company is being advised by the Blackstone Group,
Goldman Sachs, Morgan Stanley, Credit Suisse and UBS, sources
said. The banks all declined to comment.

BP has faced widespread anger and climbing costs after an
April 20 explosion in deepwater Gulf of Mexico killed 11
workers and caused the largest oil spill in U.S. history. For
details click on [ID:nN17193426].

The company agreed on Wednesday to set up a $20 billion
spill fund, which eased pressure on the company and its bonds.
BP also said it would suspend its dividend for three quarters
and sell $10 billion of assets to help finance the spill fund.
[ID:nN16179441]

Still, S&P cut BP’s credit rating two notches to A, the
sixth-highest investment grade, from AA-minus. Further
downgrades are possible if costs from the oil spill grow, the
ratings agency said.

SKEPTICISM ON BOND OFFERING

The likelihood of a BP bond offering was met with
skepticism by some bankers and debt analysts on Thursday.

A source from a European bank said it would make sense for
the company to go to the loan market, rather than issue bonds,
because they are trading at expensive levels.

Yield spreads on BP Capital Market’s 5.25 percent notes
due in 2013 narrowed 13 basis points on Thursday to 620 basis
points over Treasuries, according to MarketAxess data.

“The loan market is BP’s best bet to get any remaining
funds they need. BP is a top investment grade name with no true
liability, and many top banks will want to hold loan assets of
BP,” another source said.

CNBC first reported earlier on Thursday that BP was
considering raising $5 billion to $10 billion through a
corporate debt offering.

Vivek Pal, senior analyst at Knight Libertas, a
broker-dealer in Greenwich, Connecticut, said the company would
be better served by asset sales.

“Demand for any bonds would depend on the specifics of a
deal, including whether the debt is backed by BP’s assets,” Pal
said. “Investors would demand a large level of protection; no
one wants to step in front of an open-ended liability claim.”

A bond offering would be mixed news for investors, said
Adam Cohen, founder of research firm Covenant Review in New
York.

“For shareholders, it means BP is going to be paying more
in interest each year and shareholders are going to be even
further back in the pecking order for their share of BP’s cash
flow,” he said. “On the other hand, a successful bond deal will
signal confidence in BP and mean that even more investors – new
bondholders – are committed to seeing BP survive – it makes
bankruptcy more politically unpalatable.”

PIMCO, the world’s largest bond fund, has been investing in
BP debt. The fund recently bought $100 million of short-dated
BP paper, its co-chief investment officer, Bill Gross, said on
Wednesday. For details, see [ID:nN16167902].

Asked on a conference call on Wednesday if BP planned any
external financing for its oil spill costs, Chief Financial
Officer Byron Grote said the company does external financing
“when it’s appropriate … But there’s nothing tied with that
explicitly in any form.”

UPDATE 4-BP considering debt financing options-sources