[THS] BP Oil Spill Lawsuits Spread to States Beyond Gulf Coast

[The Harder Stuff in news and commentary]

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BP Oil Spill Lawsuits Spread to States Beyond Gulf Coast

By Laurel Brubaker Calkins and Margaret Cronin Fisk

June 16 (Bloomberg) -- BP Plc faces more than 225 lawsuits in 11 states as litigation
from businesses, individuals and investors continues to increase almost two months
after the Deepwater Horizon oil rig exploded.

In addition to scores of claims brought in five states along the Gulf shore, coastal
businesses and property owners in Georgia and South Carolina have sued for
damages from the drifting oil, which has yet to round the southern tip of Florida and
enter the Atlantic Ocean.

Investors in three states, including Louisiana and Alaska, have sued BP’s board of
directors for allegedly causing more than $50 billion in shareholder losses by failing to
implement safety policies that would have prevented the spill. In a separate class-
action lawsuit in Florida, the company is accused of “a pattern” of criminal acts
including fraud. That suit seeks triple damages under federal civil racketeering law.

“The damage is not just suffered at ground zero along the Gulf Coast,” said Mark
Lanier, a Houston lawyer representing dozens of fishermen and property owners
against BP. “The shock waves reverberate across state lines and across occupational
lines.”

A judge may decide there isn’t a strong enough connection between some damage
claims and the spill itself and those claims will be thrown out, Lanier said yesterday in
a phone interview. “But we’re not at that point yet,” he said.

Primary Liability

BP, as owner of the underwater lease, has primary liability for damages caused by
the tens of millions of gallons of crude oil that have spewed from the damaged well
since the April explosion and sinking of the Deepwater Horizon. Almost all the lawsuits
also name Transocean Ltd., which owned the rig, along with Cameron International
Corp. and Halliburton Energy Services Inc., which provided the rig’s blowout
prevention equipment and cementing services, respectively.

David Nicholas, a BP spokesman, didn’t immediately return a call seeking comment
yesterday.

BP America Inc. Chairman Lamar McKay told Congress in May that the company will
pay all “legitimate” claims related to the spill. On June 2, Credit Suisse estimated the
combined cleanup, restoration and litigation costs of the spill could top $37 billion.

President Barack Obama said yesterday in a televised speech that he will tell BP
Chairman Carl-Henric Svanberg in a White House meeting today that the London-
based company must set aside “whatever resources are required to compensate the
workers and business owners who have been harmed as a result of his company’s
recklessness.”

Securities Lawsuits

Three lawsuits claiming securities fraud were filed by BP investors in federal courts in
Louisiana. The lawsuits, each seeking to represent buyers of BP American depositary
receipts in a class action, claim the company and its officials inflated share values by
issuing “materially false and misleading statements” about BP’s safety record and
protocols.

“BP’s procedures for minimizing its financial losses from drilling rig problems were no
more than fantasies,” said lawyers for the Johnson Investment Counsel in a June 7
filing in Lafayette, Louisiana. “BP was simply not the enterprise that its public
communications pictured.”

The lawsuit claims BP’s actions cost investors more than $56 billion in share value by
May 25. The plaintiff is an investment holding company, said its attorney Stanley M.
Chesley at Waite, Schneider, Bayless & Chesley in Cincinnati.

Directors Targeted

At least five so-called derivative lawsuits brought by shareholders on behalf of BP
were filed against current and former officers and directors of the company. These
lawsuits, filed in state and federal courts in Alaska, Delaware and Louisiana, contend
that company mismanagement led to the April 20 explosion.

The spill “is a catastrophe of epic proportions brought by the greed and fraudulent
conduct of BP,” according to a civil racketeering lawsuit filed June 12 in Florida that
names as defendants the company, various corporate entities, and Chief Executive
Officer Tony Hayward.

The lawsuit alleges that BP “successfully infiltrated” the Minerals Management
Service, the federal regulatory agency overseeing off-shore drilling, and
“systematically submitted unsubstantiated and erroneous exploration and oil spill
response plans and lease agreements.”

Although oil has yet to leave the Gulf of Mexico, three proposed class-action lawsuits
were filed last week in federal court in Charleston, South Carolina, on behalf of
property owners, tourism-related businesses, real estate companies and other
businesses in six coastal counties. Lawyers involved in those cases say fears the slick
will foul beaches later this summer already have caused tourists to cancel trips and
vacation rentals.

‘Already Hurting Us’

“The actual spill may not have reached our shores but the effects have,” attorney
Aaron Jophlin of the Bell Legal Group LLC in Georgetown, South Carolina, said in an
interview. “We hear the effects from our friends and neighbors that, man, it’s already
hurting us.”

Owners of condominiums and hotels in Alabama and the Florida Panhandle, where oil
is now washing ashore on beaches regularly listed among those with the world’s
whitest sand, have filed dozens of lawsuits over lost business. Charter boat operators,
fishing guides, marinas, souvenir vendors and watercraft-rental shops as far south as
the Florida Keys are suing.

Some of New Orleans’s largest convention hotels, including the Marriott Convention
Center and Wyndham Riverfront, have sued over bookings they claim they will lose
now and into the future. Meeting planners, who work years in advance, may avoid
booking conventions in coastal resorts just as they did after Hurricane Katrina
devastated much of the central Gulf Coast in 2005, lawyers for the hotels say.

Katrina Effect

While most New Orleans hotels and restaurants reopened fairly quickly after Katrina,
“We still had a tail of lost business for a couple of years” as meeting planners avoided
the region, said Steve Herman, a lawyer for the hotels.

Restaurant owners throughout the Gulf Coast are suing over higher seafood prices
and the reduced supply of fresh shrimp, oysters and fish, as the National Oceanic
and Atmospheric Administration has closed 32 percent of the Gulf to commercial
fishing. About 75 percent of shrimp and 20 percent of all seafood consumed in the
U.S. comes from the Gulf, according to papers filed in multiple lawsuits.

Restaurateurs also are suing over lost income, claiming customers are avoiding
seafood altogether over fears of contamination.

Fishing Fleet

Whole fleets of fishing industry workers have arrived at Gulf courthouses, including
11,700 individually named Vietnamese-American commercial fishermen who filed six
lawsuits against BP and Transocean in federal court in Houston.

Thirty-three Mexican citizens who own or work on fishing boats or in seafood
processing plants along the U.S. Gulf coast have sued BP and Transocean over lost
income from the closure of Gulf waters.

Residents in Kentucky and Tennessee, who own Gulf beachfront properties, have
sued over lost income from rental cancellations as well as the lost enjoyment of their
own vacation homes.

“BP has grievously injured the entire country, not simply a city, parish, county or
state,” Houston attorney Michael Holley, who represents multiple spill victims, said
yesterday in an interview. “Hundreds of thousands -- soon to be millions -- of
Americans are seeking redress anywhere it can be obtained, and the litigation will
continue to spread as the oil and the harm continues to flow.”

BP shares have dropped 48 percent since the spill. They fell 3.8 percent to 342 pence
in London trading yesterday, the lowest price since April 1997.

To contact the reporters on this story: Laurel Brubaker Calkins in Houston at
laurel at calkins.us.com; Margaret Cronin Fisk in Southfield, Michigan, at
mcfisk at bloomberg.net.
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BP Swaps Rise to Record at 39% Odds of Default: Credit Markets

By John Detrixhe and Shannon D. Harrington

June 16 (Bloomberg) -- Credit investors are pricing in a more than 39 percent chance
BP Plc will default within five years as it tangles with the Obama administration over
cleanup costs and claims for the biggest oil spill in U.S. history.

The risk implied by credit-default swaps is up from 7 percent a month ago, according
to CMA DataVision. BP swaps climbed 112 basis points today to a record 618.
Investors are demanding 800 basis points more in yield to own BP debt due next year
rather than Treasuries.

President Barack Obama is increasing the pressure on BP, criticizing its “recklessness”
in an address from the Oval Office yesterday, before Chairman Carl-Henric Svanberg
is called to a White House meeting today to discuss paying damages to Gulf of Mexico
residents. BP, which had $27.7 billion in cash flow from operations in 2009, was cut
six levels to BBB from AA by Fitch Ratings because of mounting costs from the well
that’s spewed crude into the water for eight weeks.

“There’s still so much uncertainty as to what ultimately the liability is and what the
government is going to do,” said Jason Chen, a partner and head of research at
hedge fund Sancus Capital Management in New York, founded in August by former
JPMorgan Chase & Co. traders.

BP’s $750 million of 1.55 percent notes due in 2011 dropped 2.1 cents to 92.25 cents
on the dollar yesterday, the lowest on record, according to Trace, the bond-price
reporting system of the Financial Industry Regulatory Authority. The bonds traded
the most ever, according to data compiled by Bloomberg.

Approaching Distressed

The securities, which rose as high as 101.2 cents in February, pay a spread of 804
basis points. That’s approaching distressed levels, which refers to companies in
default or with relative yields of more than 1,000 basis points, or 10 percentage
points.

Tristan Vanhegan, a spokesman for London-based BP, declined to comment on
default-swap and bond prices.

BP’s stock, which was little changed today at 341.75 pence as of 12:07 p.m. in
London, has lost 48 percent since the oil rig explosion on April 20.

In his first address to the nation from the Oval Office, Obama said he’ll force BP’s
Svanberg to set aside “whatever resources are required to compensate the workers
and business owners who have been harmed as a result of his company’s
recklessness.” As they prepare for today’s meeting, the two sides have so far failed to
agree on the conditions of an escrow fund to cover cleanup costs, according to
people familiar with the negotiations who asked not to be identified.

Inverted Yield Curve

BP’s shorter-term borrowing costs are rising in a signal lenders are increasingly
concerned they may face losses. BP notes due in 2011 yield 154 basis points more
than the company’s 4.75 percent bonds due in 2019, Trace data show. The shorter-
maturity debt yielded 326 basis points less as of April 29.

Investors typically demand additional yield on shorter- maturity debt when risk is
concentrated in the nearer term, causing the so-called yield curve to invert.

BP’s cost to clean up the spill may escalate enough to threaten the oil company’s
future, said former Shell Oil Co. President John Hofmeister, who now runs the
advocacy group Citizens for Affordable Energy.

“The current political movement by the U.S. government is basically an unlimited
liability,” Hofmeister, who ran the U.S. operations of Royal Dutch Shell Plc, Europe’s
largest oil company by market value, from early 2005 through mid-2008, said
yesterday at a Bloomberg Link Boards & Risk Conference in Washington. “At some
point the entity will have to defend itself.”

60,000 Barrels

The BP well is gushing as much as 60,000 barrels of oil a day, the government said,
raising for the fifth time an official estimate that had begun at 1,000 barrels a day in
April.

BP had $6.84 billion in cash and near-cash as of the end of the first quarter,
according to a regulatory filing. It has spent $1.6 billion to stop the leak, clean it up
and compensate local businesses and residents, according to figures posted on the
company’s website. Liabilities may reach $37 billion, Credit Suisse Group AG
estimated in a June 2 report.

Interest rates on some floating-rate municipal bonds guaranteed by BP have surged
to as much as 10 percent on concern the costs of the cleanup and litigation are
spiraling higher.

Yields on short-term bonds backed by BP to build sewage and solid-waste disposal
facilities at a chemical plant in Will County, Illinois, and a refinery in Texas City,
Texas, were as low as 0.5 percent at the beginning of the month. BP backs more
than $3.5 billion of U.S. municipal obligations, according to Bloomberg data.

Bonds Decline

BP bonds have lost 14.6 percent this month, after declining 2.62 percent in May,
according to Bank of America Merrill Lynch index data. The overall U.S. energy
company index has fallen 1.3 percent in June.

The fall in BP’s bond prices has to be seen in the “context of the asset values and the
earnings capability of this company,” said Joel Levington, managing director of
corporate credit at Brookfield Investment Management Inc. in New York. “When
you’re talking about a company that can earn $20 billion in 2011, before its dividend,
that’s significant flexibility.”

Bonds of some companies associated with drilling and the spill may be attractive
because their liabilities are more easily understood than BP’s, according to Chen. The
leak began after an explosion on the Deepwater Horizon rig owned by Transocean
Ltd. Anadarko Petroleum Corp. owns 25 percent of the well.

Anadarko Debt

Anadarko’s $750 million of 6.2 percent bonds due in 2040 climbed 1.75 cents to 83
cents on the dollar, the fourth straight daily rise, Trace data show. The debt traded
as low as 75 cents on June 9. Transocean’s $1 billion of 6 percent debt due in 2018
increased 1.56 cents to 88.1 on the dollar, the third consecutive daily increase.

Elsewhere in credit markets, Teva Pharmaceutical Industries Ltd., the world’s biggest
maker of generic drugs, tapped the bond market for the first time in more than four
years, selling $2.5 billion of debt in three parts.

Proceeds from the offering by the Petah Tikvah, Israel- based drugmaker may be
used to repay $800 million drawn from a line of credit in connection with its 2008
purchase of Barr Pharmaceuticals Inc. and to finance the acquisition of Ratiopharm
GmbH, according to a prospectus filed with the U.S. Securities and Exchange
Commission.

Phoenix Debt

Phoenix Group, the indebted drug wholesaler started by deceased billionaire Adolf
Merckle, is close to obtaining as much as 3.6 billion euros ($4.4 billion) in financing,
according to two people familiar with the negotiations.

Phoenix, based in Mannheim, Germany, may reach an agreement with banks by
early next month on 2.6 billion euros in syndicated loans to refinance existing debt,
said the people, who spoke on condition of anonymity. The company also has plans
to sell as much as 1 billion euros in hybrid bonds, they said.

Bank of America Corp. plans to sell $1 billion of bonds backed by automobile loans as
soon as this week, according to a person familiar with the offering, who declined to
be identified because terms aren’t public.

Benchmark measures of corporate credit risk fell in Europe, with the Markit iTraxx
Crossover Index of 50 mostly junk-rated companies declining 12.1 basis points to
560.2, according to Markit Group Ltd.

The index typically falls as investor confidence improves and rises as it deteriorates.
Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less
the value of the defaulted debt. A basis point equals $1,000 annually on a contract
protecting $10 million of debt.

Greece Debt Swaps

Credit-default swaps on Greece, which has the second- largest budget deficit in the
euro region after Ireland, signal an almost 50 percent probability of default within
five years. The country’s credit rating was cut four steps to below investment grade
on June 14 by Moody’s Investors Service, which cited “substantial” risks to growth
from austerity measures tied to European Union and International Monetary Fund
aid.

The cost of insuring $10 million of Greece’s bonds for five years jumped $19,500 to
$830,500 a year today, making the nation’s debt the third most expensive to protect
after Venezuela and Argentina, according to CMA. The Markit iTraxx SovX Western
Europe Index of credit-default swaps on 15 governments climbed 1 basis point to
147, CMA prices show.

To contact the reporter on this story: John Detrixhe in New York at
jdetrixhe1 at bloomberg.net