KBRA Assigns an A+ Rating to the State of Louisiana Economic Damages Revenue Bonds [LA 1/LA 415 Connector Project]; Affirms Rating for Parity Debt; Outlook is Stable

KBRA assigns a long-term rating of A+ to the State of Louisiana Economic Damages Revenue Bonds [LA 1/LA 415 Connector Project] (TIFIA), with a final maturity of September 1, 2033, and at the same time affirms the long-term rating of A+ for parity debt. The Outlook remains Stable.

The long-term rating reflects the business and financial risk profile of BP p.l.c. (“BP”, the “Company”), and the payment of Deepwater Horizon Economic Damages proceeds (“Damages”) by BP Exploration & Production Inc. (“BPXP”). Such Damages secure debt service on the State of Louisiana (“the State”) Deepwater Horizon Economic Damages Revenue Bonds and TIFIA Loans (the “Bonds”; TIFIA is the “Transportation Infrastructure Finance and Innovation Act of 1998”). BP guarantees these payments per the 2015 Settlement Agreement but does not guarantee the TIFIA debt. KBRA’s evaluation of BP figured prominently into the rating.

The rating further reflects KBRA’s view that debt service payments receive material support from the legal structure established by the Bonds’ statutory framework, Act 443 of the State’s 2019 Regular Legislative Session (“Act 443”, the “Act”), and related financing documents. This support includes grace periods for payment of Damages, the State’s transfer of the following year’s full debt service requirement to the trustee within five business days of the Damages deposit into the Escrow Fund, and a first lien pledge of Damages to debt service. Additional factors considered by KBRA in the rating include the relatively short, 11-year tenor of the bonds and loans, and the overall size of the Damages, which is nominal compared to BP’s overall financial capacity.

Key Credit Considerations

The rating was assigned because of the following key credit considerations:

Credit Positives

• Magnitude of BP’s revenue, cash flow, and liquidity sources relative to BP’s obligation to pay the Damages and other Deepwater Horizon settlements, as well as BP’s vertical integration and ability to shift cash internally.

• Material protection of debt service payments after receipt of Damages by the legal and debt structure, including the first lien pledge and relatively short tenor of the Bonds.

• Public purpose of the Damages to fund key improvements to the State’s transportation infrastructure

Credit Challenges

• Reliance on BP’s ability to pay Damages considering BP’s high exposure to fluctuations in energy markets and historically sizable debt levels.

• BP’s financial exposure to decarbonization, somewhat offset by the Bonds’ short tenor and excess debt service coverage based on the currently expected Act 443 debt total and debt service schedule.

Rating Sensitivities

For Upgrade

• Sustained improvement in BP’s financial profile – for example, due to successful conversion to cash flow-generating renewable energy.

For Downgrade

• Sustained deterioration in BP’s financial profile, particularly in terms of consistent revenue and cash flow, which could be driven by commodity market volatility, unsatisfactory management of decarbonization, environmental incidents, or other factors.

To access rating and relevant documents, click here.

Methodologies

Public Finance: General Revenue Bond Methodology

Corporates: General Corporate Global Rating Methodology

ESG Global Rating Methodology

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

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