British Petroleum Is Rumored To Be Offering A Bond Offering In The Near Future

Perhaps, British Petroleum (hereinafter BP) is reading its economic tea leaves because there are rumors that they will soon be offering a bond offering. Those who are versed in business know that one of the seminal reasons companies engage in a bond offering is mainly to raise funds and BP’s doing so now is tantamount to telegraphing that it is looking at the future… making sure that it has enough cash to operate in light of the 20 billion that was placed in an escrow account to compensate loses due to the spill.

Earlier in the week, BP put its stock holders on notice that it was not going to pay out the $10 billion dividends that was due. Foregoing the dividend, one might say, was done because it would have seemed callous on the part of BP and add to the PR blunders BP has been having since the crisis – but having a bond offering in tandem with foregoing the dividend is securing cash for the future. This is prudent because it is estimated that BP may need another $40 billion to add to the escrow account discussed earlier for compensation purposes.

Think of the daunting challenges on the near horizon for BP; there are going to be lawsuits and inspections of its operations in the Americas. Not only does BP has to worry about civil law suits, it may have to allocate monies for a criminal defense too if the authorities find that it was criminally negligent. The financial pundits will be making their bets on whether BP will survive; this will play out in the market by looking at whether the stock is being shorted; or if the stock is being sold off; or if the pensions and 401Ks dump it from their respective holdings.

The bond offering is expected to raise billions and if it is successful, this too is a clue that those who purchased the bonds have confidence in BP’s solvency and survival. Before the many issues surrounding the spill subside, BP’s share-holders will be feeling like they are riding a roller coaster.