Some oil industry analysts are speculating that financial liability associated with the Deepwater Horizon oil spill will be enough to force British Petroleum (BP) to seek bankruptcy protection.
Since April 20, 2010 when an oil well blowout caused an explosion on the Deepwater Horizon offshore drilling platform some 40 miles south of the Louisiana coat, BP’s net worth has shrunk by $70 billion (approximately 45% of its market cap.). The out-of-pocket costs to BP on a daily basis are estimated as being in the neighborhood of $40 million a day. The U.S. Justice Department has begun a preliminary criminal investigation into the incident and a consumer boycott is underway.
If BP does seek bankruptcy protection, the company will most likely file under Chapter 11, which would allow the company to continue business operations. Chapter 11 bankruptcy would impose a de facto liability cap, which would leave BP’s shareholders at risk. This is the main reason why BP’s stock has been seeing such volatility on the market this past two weeks: investors do not want to be stuck holding the bag.
Other analysts point out, however, that BP’s balance sheet is strong. Houston-based energy analyst Raymond James & Associates has estimated that by the time the cleanup is through, BP’s out of pocket costs will be in the range of $7.5 billion for 2010 and 2011. This is an amount that BP at its current capitalization can easily afford to pay without seeking bankruptcy protection.
Lehman Brothers Sells Art Assets
The Lehman Brothers financial group is preparing to sell its contemporary art assets in a bid to raise $10 million with which to pay creditors under the terms of its Chapter 11 bankruptcy filing. At the time of the filing on September 15, 2008, Lehman Brothers held over $600 billion worth of assets, making this the largest bankruptcy filing in U.S. history. (The company was facing $613 billion worth of debt, however.) Many financial analysts credit the filing as the precipitating factor in the current economic downturn: the Dow Jones plummeted over 500 points (-4.4%) on the day it was announced.
Lehman Brothers has designated the prestigious British auction house Sotheby's to handle the sale, which includes pieces by Andy Warhol, Swedish sculptor Claes Oldenburg and architect Maya Lin. The U.S. bankruptcy court must approve the sale before it can take place.
Lehman Brothers’ remaining assets include commercial real estate, residential mortgages and private equity.
In March 2010, after 18 months in Chapter 11, Lehman Brothers released some details of its reorganization plan. (Lehman Brothers did not release the disclosure statement that generally accompanies the release of the bankruptcy plan.) The plan called for the creation of a subsidiary, Lamco that would serve as an asset manager for the estate. Lehman Brothers is said to be looking at 65,000 claims from around the world amounting to $875 billion.
