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Started by cervantes Sep 29 2010, 19:51

Forum

cervantes
Power Poster

Sep 29 2010, 19:51

Have just read in the paper today that BP are about to issue 2 to 3bn of bond sales.
I would be grateful to anyone who can explain this in simple terms.
Cervantes.


Posts: 136



Forum

raysor
Moderator, Team

Sep 29 2010, 21:00

They are basically borrowing money (from mainly US institutions). I don't know the exact details but let's say you lend BP £1000. They give you a piece of paper (a bond or bond certificate) saying they will repay the £1000 (maybe in 5 or 10years time) and in the meantime pay you interest of 5% or so every year. Of course the £1000 of debt may be bought for £1000 or more, or less. Sometimes the bond, or loan, is secured against something (like a property or an oil well). I read that the bond sale was 2x overscribed so lots of people tyhink BP is a good bet and want to lend it money (or the terms were very attractive)


Posts: 1001



Forum

raysor
Moderator, Team

Sep 29 2010, 21:05

There were two different BP bonds, five years and ten years. The rate of interest was about 200 basis points above US Treasury stock. I am guessing here but I suspect 5 year and 10 year US treasury (US Government Bond, or LOAN) yields about 1.5% and 2.5% respectively so the BP bonds will be yielding 3.5% and 4.5%.


Posts: 1001



Forum

raysor
Moderator, Team

Sep 29 2010, 21:12

Just looking on the internet I see the Investors Chronicle were tipping the BP 4% 2014 Bonds in June this year (for the brave), The price then fell to £90% on a credit rating downgrade. If you had bought then your yield would be 4.5% for the next 4 years plus a capital gain of 10% at the end


Posts: 1001



Forum

cervantes
Power Poster

Sep 29 2010, 22:08

Thank you.When I read it this morning,I thought it was just on the drawing board.It was later on I realised it was up and running.
Thanks.

Cervantes


Posts: 136







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