Moody's says downgrades BP's credit rating three notches

International ratings agency Moody's downgraded the creditworthiness of BP by three notches on Friday, reflecting "the worsening impact" of the Gulf of Mexico oil spill on the group's finances.

An oil-soaked bird struggles against the side of an Iron Horse supply vessel at the site of the oil spill off Louisiana on May 9.

"Moody's Investors Service has today downgraded the senior unsecured ratings of BP and of all long-term debt securities issued by its subsidiaries and guaranteed by BP by three notches to A2 from Aa2," said a statement.

The downgrades, which follow similar moves this week by Fitch and Standard & Poor's, will increase the cost of BP's borrowing as investors demand higher returns for taking greater risk.

Moody's said that its downgrade "reflects the worsening impact expected from the oil pouring into the Gulf of Mexico from BP's subsea Macondo well".

It added: "Moody's updated assessment is that the spill will have a sustained negative impact on the group's free cash flow generation and overall financial profile for a number of years.

"This assessment reflects a substantial upward revision of the estimated size of the leak, the continued failure to bring the leaking Macondo well under control, and the mounting costs and claims for damages.

"Moody's believes that costs for containment, clean-up, litigation and fines are likely to be higher than the rating agency had previously expected in view of the widespread and continuing physical and economic damage."

Source: AFP

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