Moody’s Investors Service on Friday said the Gulf of Mexico (GOM) oil spill could have a negative impact on BP plc’s prospects in the United States and worldwide for “a number of years.”

Joining other major credit ratings agencies, Moody’s analysts downgraded the senior unsecured ratings of the London-based producer and all of its long-term debt securities by three notches to “A2” from “Aa2.” Moody’s also downgraded BP Finance plc by three notches to “A3” from “Aa3” and cut BP Corp. North America Inc. by four notches to “Baa1” from “Aa3.”

All of the revised ratings remain under review for more downgrades, Moody’s warned. Analysts also placed on review for possible downgrade the “Prime-1” short-term rating for BP and its subsidiary debt obligations guaranteed by the corporation.

Moody’s downgrades follow similar downgrades in the past few days by Fitch Ratings and Standard & Poor’s Ratings Services (see Daily GPI, June 18; June 17).

“The downgrade of BP’s long-term ratings reflects the worsening impact expected from the oil pouring into the Gulf of Mexico from BP’s subsea Macondo well,” said Moody’s. The “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…

“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.”

Recognizing that BP is the largest operator and producer in the GOM, analysts said they would attempt to determine how the spill may affect:

Uncertainty over the “ultimate cost for massive litigation claims and other contingent liabilities will be an overhang on BP’s creditworthiness that will persist for years to come,” said Moody’s.

IHS Herold said Friday BP has taken “clear steps in the right direction for all constituents,” in announcing it would cut its dividend and reduce spending to finance a $20 billion escrow fund and a $100 million unemployment fund for the Gulf Coast. However, BP’s decision to reduce its spending could hamper the company’s long-term growth potential.

“From a public relations standpoint, news that BP will set up a $20 billion escrow fund helps in rebuilding the company’s image, especially in light of the speed at which the agreement was reached,” said IHS Herold Senior Equity Analyst Matti Teittinen.

The $7.5 billion dividend savings, reduced organic capital spending levels and a “three-fold increase in planned asset sales will essentially cover the $20 billion price tag,” Teittinen said.

However, the lower capital spending “will hamper long-term growth and the company will be at an operational disadvantage relative to its peers. As a result, we may see BP exploring a range of strategic alternatives to raise further capital to fund growth.”

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