Moody's Downgrades BP, Following S&P

BP's (BP) debt was downgraded three notches by Moody's Investors Service Friday, citing the "worsening impact expected from the oil pouring into the Gulf of Mexico from BP's subsea Macondo well."

Ratings on the U.K. company and its subsidiaries were cut to
A2 from Aa2. BP Corporation North America's rating was cut by four notches to Baa1 from Aa3. Both ratings are well above junk status. The move follows a similar one by S&P yesterday.

The downgrades are the latest developments BP is facing as it struggles to get a handle on a massive Gulf oil spill. Bowing to pressure from the Obama administration, BP agreed earlier this week to fund a $20 billion escrow fund to compensate victims of the deadly April 20 explosion on the Deepwater Horizon rig. The oil company also agreed to suspend its dividend.

"Moody's updated assessment is that the spill will have a sustained negative impact on the group's free cash flow generation and overall financial profile for a number of years," the ratings agency said. "Moody's believes that costs for containment, clean-up, litigation and fines are likely to be higher than the rating agency had previously expected in view of the widespread and continuing physical and economic damage."

No kidding.

Despite the downgrade, BP's shares rose 2.4% in premarket trading.

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