BP has raised $5 billion in new loans by pledging revenues from oil sales for the first time in a bid to bolster its liquidity in the wake of the Gulf of Mexico spill.
The new financing is the latest effort to diversify its sources of funding and shore up liquidity, people close to the process said.
The proceeds will be used for general corporate financing rather than as financing for a $20 billion escrow fund to pay for damages caused by the spill.
The UK oil group said it was taking a “prudent approach” to managing its balance sheet and its financial liquidity, including providing a liquidity buffer, to ensure that BP has the flexibility to meet all its future financial obligations.
“This form of financing creates further flexibility for BP as an alternative form of financing in addition to its more conventional debt financing such as corporate lending or project finance structures where appropriate,” BP said.
The oil company has been strengthening its liquidity levels since the costs of the spill threatened to spiral.
Since the accident on April 20 that killed 11 workers and led to roughly 4.9m barrels of oil spewing into the Gulf of Mexico, BP is estimated to have put in place about $20 billion in short-term bilateral loans and had $7.3 billion in cash at end of the second quarter.
The company had previously been more reliant on bond market funding.
BNP Paribas and Standard Chartered on Monday announced plans to syndicate a $3 billion loan due in 2015 backed by crude oil sales from BP’s interest in a number of licenses in offshore Angola held by three subsidiaries of the oil company, the banks said in a statement.
Société Générale and Royal Bank of Scotland are looking to syndicate a $2 billion loan backed by crude oil sales from BP’s interest in the Azeri-Chirag-Deepwater Gunashli field, off the shores of Azerbaijan.
The loans, which have been underwritten by the banks, are expected to offer lenders between 200 and 300 basis points over the London interbank offered rate (Libor) – a rate at which banks lend to each other – people close to the transactions said.
The perceived riskiness of BP as a borrower has fallen in recent weeks after it plugged the Gulf of Mexico leak.
The cost to investors of protecting against a default on BP debt over five years has fallen to 234 basis points from a record high of more than 600bp, according to the data provider Markit.
However, this is still more than quadruple the level before the spill.
“It is a positive sign that banks continue to support BP,” said Richard Birrer, analyst at BNP Paribas. “Two months ago, the idea of banks pulling funding to the company was among the many concerns surrounding BP.”