Thursday, June 10, 2010

BP's Bonds and CDS Trading Like Junk; Class Action Lawsuit Launched

Bloomberg reports that BP's bonds and credit-default swaps are trading worse than junk bonds.

It's 2013 5.25% notes due now have a yield to 7.57% more than Treasuries, compared with an average of 7.26% for junk bonds.

The cost to protect $10M of debt for a year with credit-default swaps almost doubled yesterday to $512,000 and it is 17.6X higher than in April, when it was only $29,000.

According to Bloomberg, the market is pricing in now is increased regulatory oversight and heavy, heavy punitive damages.

CDSs on BP implied a 'Ba2' rating for the company, nine steps lower than its actual 'Aa2' grade at Moody’s Investors Service.

Class Action Lawsuit

Shareholders who purchased stock in BP have filed a class-action lawsuit based on claims that the company mislead investors prior to the Deepwater Horizon oil spill in the Gulf of Mexico. The suit cites the company's history of safety lapses, cost cutting, and workplace disasters.

The suit was filed in the U.S. District Court for the Eastern District of Louisiana and seeks to represent not only American investors, but also people around the world who bought shares in United Kingdom-based BP.

This morning, the shares are up 12% in pre-market. This may offer another fabulous chance to buy more puts.

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