BP Stands for BankruPcty or Break uP

The New York Times reports that Wall Street bankers and lawyers are already eyeing potential deals ("and counting their potential fees") on BP's bankrupty or breakup. This train has left the station.

"It seems unthinkable, even now, that the disastrous spill in the Gulf of Mexico could bring down the mighty BP. But investment bankers get paid to think the unthinkable — and that is just what they are doing."

BP’s share price plunge make its look like "takeover bait. The question is, who would buy BP, given its enormous potential liabilities?"



The reports comments on the usual suspects:

Shell and XOM are "licking their chops. And already, flinty legal minds are dreaming up scenarios in which BP would file a prepackaged bankruptcy and separate the costs of the cleanup — and potentially billions of dollars in legal claims — into a separate corporate entity".

This is Bear Stearns all over. This time, I am not selling my puts too early.

Credit Suisse says BP’s costs for the cleanup could run as high as $23 billion. On top of that there may be another $14B in claims from gulf fishermen and the tourism industry.

The company only has about $12B in cash and short-term investments, hence the talk whether it should cut its dividend - for fear that it could run out of money.

The greatest possible threat: a jury verdict against BP.

"Such a verdict might push the cost of the spill into the hundreds of billions. If that happened, even BP might buckle.

This outcome might seem far-fetched right now. But on Wall Street bankers have already coined a term for it: “the Texaco scenario.”

Texaco had to file for Chapter 11 back in 1987 because it could not afford to pay a jury award worth $1B to Pennzoil.

“Instead, BP will spend the coming decades circling the drain, mired in endless litigation, its reputation irreparably damaged, and its finances weakened,” That, if you believe the bankers, is the optimistic outcome.