(Alliance News) - Moody's Investors Service on Monday assigned an A3 rating to BP PLC's proposed junior subordinated notes.
The A3 rating for the proposed hybrid notes is two notches below the oil major's A1 senior unsecured rating, as the proposed notes are senior only to BP's ordinary shares. As the notes are perpetual, no events of default will occur and BP can choose to defer coupon payments no a cumulative basis.
The company's existing ratings remaining unchanged.
Moody's explained that: "Despite the expected benchmark material issuance size, the transaction will have only a very limited impact on BP's leverage and cash flow metrics mainly owing to BP substantial Moody's adjusted gross debt level of around USD98 billion and Moody's adjusted net debt of around USD82 billion at the end of March 2020.
"The 50% equity treatment leads to a USD500 million increase of BP's Moody's adjusted gross debt and a USD500 million decrease of the company's Moody's adjusted net debt for every USD1 billion of junior subordinated notes issued. Accordingly, BP's A1 senior unsecured rating remains unchanged.
Moody's said BP's outlook remains negative, which reflects "the current uncertainty of the timing of the recovery of BP's operating performance" as well as whether BP will prioritise restoration of its credit profit in the next one to two years.
The negative outlook is also intended to reflect the threat to oil and gas companies in terms of both profitability and cash flow due to climate change measures such as tax and regulation to shift demand towards cleaner energy sources.
"The outlook could be stabilised if BP introduces measures to safeguard its financial strength and if such measures will be executed successfully. A stabilisation of the outlook would also require that improving financial flexibility as a result of recovering oil prices will be used to restore previously strong credit metrics," Moody's said.
A change in BP's A1 senior unsecured rating or re-evaluation of its active notching could impact the A3 rating. An upgrade is not likely "in the medium term" under "the current market environment".
Shares in BP were up 1.9% at 322.10 pence each in London on Tuesday morning.
By Anna Farley; annafarley@alliancenews.com
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