SEPTEMBER 28, 2010, 6:41 P.M. ET.

BP Sells $3.5 Billion in Bonds

By KATY BURNE

Investors lined up Tuesday for BP PLC's first U.S. bond since the Deepwater Horizon oil rig exploded in April, and demand for the debt was so robust that the U.K. energy giant increased the size of its offering to $3.5 billion.

Portfolio managers and others placed $12 billion in orders for the five- and 10-year bonds from BP Capital Markets PLC, the funding arm of company, according to people familiar with the deal. The sale was originally slated to be $2 billion to $3 billion in size, these people said.

BP sold $2 billion of the 5-year 3.125% notes at a discount to yield 3.187%, or 1.95 percentage points over comparable Treasurys, and $1.5 billion of the 10-year 4.5% notes at a discount to yield 4.569%, 2.10 percentage points over Treasurys. Official price guidance had been 2.00 and 2.15 percentage points, respectively, over the benchmarks.

Investors quickly bid up prices on both parts, driving down the yields, which move inversely, by 0.10 on the 5-year note and 0.20 percentage point on the 10-year.

Reuters

BP had been expected to raise between $2 billion and $3 billion.
.One debt syndicate official in New York unconnected to the deal said that now was an ideal time for BP to return to market because there is limited competing supply and little news to suggest investors might be able to earn money on other investments. "Nobody wants to be the last one to the dance," he said.

Still, there were skeptics. Greg Tornga, head of investment-grade strategy at Payden & Rygel, an independent investment management firm in Los Angeles that which has more than $55 billion under management, said he didn't buy the bonds "because of the uncertainty still around the long term cost of the cleanup."

A BP spokesman said the bond sale was "part of routine management of the group's finances" and was "not specifically related to the costs of the Gulf of Mexico oil spill." BP has already pledged $20 billion to claims related to the Deepwater Horizon blowout, the worst environmental disaster in U.S. history.

BP Capital Markets' last high-grade U.S. bond was in August 2009, when it sold $2 billion of notes split between 1.55% 2-year debt and 3.875% 5.6-year debt, according to data provider Dealogic.

Barclays PLC's Barclays Capital, BNP Paribas, Citigroup, Mizuho Securities USA Inc. and Royal Bank of Scotland led Tuesday's sale.

The bonds are guaranteed by the parent company and are expected to be rated A2 by Moody's Investors Service and A by Standard & Poor's.

The BP deal extends a particularly busy month for investment-grade corporate bond deals. Bankers forecast that high-grade companies may sell as much as $20 billion of bonds this week alone. A total of $11 billion sold on Monday.

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