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BP Plc is considering various debt financing options, including bank loans and a corporate bond sale of up to $10 billion to raise cash as it battles a huge oil spill, sources familiar with the matter said on Thursday.Complicating any efforts to raise funds, BP was downgraded by credit ratings agency Standard & Poor's, which said it may cut the British oil company's credit rating again.BP is evaluating all alternatives, including a bank credit facility, a source said. The timing of a bond sale could be as early as next week, the person said.The company is being advised by the Blackstone Group, Goldman Sachs, Morgan Stanley, Credit Suisse and UBS, sources said. The banks all declined to comment.BP has faced widespread anger and climbing costs after an April 20 explosion in deepwater Gulf of Mexico killed 11 workers and caused the largest oil spill in U.S. history.The company agreed on Wednesday to set up a $20 billion spill fund, which eased pressure on the company and its bonds. BP also said it would suspend its dividend for three quarters and sell $10 billion of assets to help finance the spill fund.Still, S&P cut BP's credit rating two notches to A, the sixth-highest investment grade, from AA-minus. Further downgrades are possible if costs from the oil spill grow, the ratings agency said.SKEPTICISM ON BOND OFFERINGThe likelihood of a BP bond offering was met with skepticism by some bankers and debt analysts on Thursday.A source from a European bank said it would make sense for the company to go to the loan market, rather than issue bonds, because they are trading at expensive levels.Yield spreads on BP Capital Market's 5.25 percent notes due in 2013 narrowed 13 basis points on Thursday to 620 basis points over Treasuries, according to MarketAxess data."The loan market is BP's best bet to get any remaining funds they need. BP is a top investment grade name with no true liability, and many top banks will want to hold loan assets of BP," another source said.CNBC first reported earlier on Thursday that BP was considering raising $5 billion to $10 billion through a corporate debt offering.Vivek Pal, senior analyst at Knight Libertas, a broker-dealer in Greenwich, Connecticut, said the company would be better served by asset sales."Demand for any bonds would depend on the specifics of a deal, including whether the debt is backed by BP's assets," Pal said. "Investors would demand a large level of protection; no one wants to step in front of an open-ended liability claim."A bond offering would be mixed news for investors, said Adam Cohen, founder of research firm Covenant Review in New York."For shareholders, it means BP is going to be paying more in interest each year and shareholders are going to be even further back in the pecking order for their share of BP's cash flow," he said. "On the other hand, a successful bond deal will signal confidence in BP and mean that even more investors - new bondholders - are committed to seeing BP survive - it makes bankruptcy more politically unpalatable."PIMCO, the world's largest bond fund, has been investing in BP debt. The fund recently bought $100 million of short-dated BP paper, its co-chief investment officer, Bill Gross, said on Wednesday.Asked on a conference call on Wednesday if BP planned any external financing for its oil spill costs, Chief Financial Officer Byron Grote said the company does external financing "when it's appropriate ... But there's nothing tied with that explicitly in any form."
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