Word went out Friday that BP is considering offering $5 billion in bonds paying 8-10% with 5-10 year maturities. These bonds will likely also be unsecured. Given the real risk this company may not be around to see another birthday, I have to assume only the most yield-hungry investors will paw at this offering.
I have not heard any scuttlebutt on this offering, but if it goes through as planned, I am duly noting the muted reaction to paying yield on bonds as opposed to stock. As is typical, debt-holders get much better treatment than equity-holders. BP was forced to suspend its dividend payment on its stock for at least the next three quarters to help pay for a $20B compensation fund and to satisfy political pressures.
BP has plenty of two things: cash and oil (ok – if you count emotive assets, you can throw animosity in the mix). Cash is going to become much more dear, so I propose that BP pay dividends in oil instead. There should be no scuttlebutt on such payments given BP currently has more oil on its hands (literally) than it could ever want. Fellow British company Hotel Chocolat is setting the potential precedent by offering the world’s first chocolate bond. For $2800, investors get a gross annual return of 6.72%. The return increases a bit to 7.29% for a $5800 investment. Hotel Chocolat will pay the dividends in chocolate, roughly the equivalent of one box of chocolates every month. I could see BP delivering barrels specially-crafted to survive travel via air, land, or, yes, even sea.
Meanwhile, BP’s stock had its best week since the gulf spill tragedy began. After gapping down on Monday, it held its ground. The stock has now held its 52-week (and 14-year) lows for seven days. I would dare to guess that the stock has reached a bottom if it were not for the extreme liabilities and headline risks BP continues to carry.
Chart created using TeleChart:
Be careful out there!
Full disclosure: long BP stock, calls, and puts