The market has been running hot at the suggestion that BP is about to go broke.
In an interview with Fortune, investment banker Matt Simmons says: "They have about a month before they declare Chapter 11. They're going to run out of cash from lawsuits, cleanup and other expenses."
So we are talking here about BP going bust in the next few weeks.
The StreetInsider blog says bankruptcy is a real possibility with BP facing liabilities of as much as $400 billion. This is a company that had assets of $241 billion and liabilities of $136 billion before the spill, totaling net assets of $105 billion. The company has cash flow before capex and dividends of between $25-$40 billion per year. Now maybe if BP stopped paying dividends and froze all capital expenditure, it might get through, but then bankruptcy might seem a more feasible option.
Andrew Sorkin in the New York Times DealBook says Wall Street bankers are already talking about a "Texaco scenario". In 1987, Texaco was forced to file for Chapter 11 because it could not afford to pay a jury award worth $1 billion to Pennzoil which had successfully sued Texaco for "jumping" its planned merger with Getty Oil.
He says BP has about $12 billion of cash right now.
Another scenario is that BP gets taken over. With its share price tumbling to a 13 year low and the US government demanding that it pays the wages of thousands of US oil workers laid off since the Deepwater Horizon rig exploded, a takeover looks like a real possibility. BP stock has lost half its value in the six weeks since the spill, wiping out $90 billion in market value. Sorkin reminds us that Shell and Exxon have billions of cash in hand and are much bigger than BP.
He also quotes Robert Bryce, a senior fellow at the Manhattan Institute. Hughes says BP is financially sound now and is unlikely to go bust near term but it will pay the price in the long term,
"Instead, BP will spend the coming decades circling the drain, mired in endless litigation, its reputation irreparably damaged, and its finances weakened," Mr. Bryce said.
In which case, bankruptcy might be an easier scenario.
no comment untill now