By Mark Stein and James Herron Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--BP PLC (BP) bonds slumped and the cost of insuring the oil company's debt soared Tuesday after Fitch Ratings downgraded BP's long-term issuer default rating to just above junk. Fitch slashed BP's credit rating by six notches, to BBB from AA, as potential upfront costs from the oil spill in Gulf of Mexico escalated and the company faced criticism from fellow oil majors at a congressional hearing. The deterioration of BP's credit came even as the credit of its partners in the ill-fated Gulf of Mexico deep-sea platform steadied and improved. While the cost of credit-default swaps to protect against default by BP rose significantly Tuesday, the cost of similar protection against default by Anadarko Petroleum Corp. (APC) and Transocean Ltd. (RIG) fell slightly. It cost $515,000 a year to cover $10 million in BP debt on Tuesday afternoon. That was up more than 20% from $424,000 at the end of Monday. As default insurance rose, BP bonds fell in value. The yield on one BP bond, which matures next March, jumped to more than 10% at one point and held steady above 8.5%. Bond yields rise when the price of the bond falls. "Eight-and-a-half for a year?" Andy Brenner, head of global emerging markets fixed income at Guggenheim Securities, said in interview with the MarketBeat blog on WSJ.com, The Wall Street Journal's website. "How can you go wrong with that?" Brenner said he was recommending BP bonds to clients because the main risk to bond holders--bankruptcy--is unlikely. Others agreed that the chance of default is remote. "As a bondholder all you really care about is that they stay in business," said Keith Springer, president of Capital Financial Advisory Services in Sacramento, Calif., adding that he put the likelihood of a BP bankruptcy somewhere around 30%. "Once this is over, they're going to be a viable company." Fitch said it slashed its credit rating for BP over concern that government officials are pressing the company to deposit $20 billion into an escrow account to cover future cleanup and claims by tourism and fishing businesses harmed by the spill. "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. Fitch said the rating cut also was prompted by the increase of the top-end spill estimate to 40,000 barrels a day, from 25,000 barrels a day previously, because it "materially increases 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 to $8 billion. Questions about BP's creditworthiness were even felt in the municipal-bond market. Some tax-exempt bonds issued by local governments but backed by payments from BP also fell Tuesday, pushing their yields close to 10%. The bonds were used to finance public works associated with BP facilities, such as a solid-waste disposal facility at a BP Chemicals plant in Naperville, Ill. Separately, BP's peers in the oil industry sought to draw a line between their operations and the Deepwater Horizon disaster in testimony to the House Energy and Commerce subcommittee. "When you properly design wells for the range of risk anticipated," then "tragic incidents like the one we are witnessing in the Gulf of Mexico today should not occur," said Exxon Mobil Corp. (XOM) Chief Executive Rex Tillerson. "There were clearly a lot of indications of problems in the well going on for some period of time ... why they weren't dealt with differently I don't know," he said. Chevron Corp. (CVX) Chief Executive John Watson said his company would have used a different well casing design than that used on BP's Macondo well. -By Mark Stein and James Herron, Dow Jones Newswires; 212-416-2213; mark.stein@dowjones.com (Matt Phillips, Katy Burne and Christopher Dieterich also contributed to this story.) (END) Dow Jones Newswires June 15, 2010 15:15 ET (19:15 GMT)