OREANDA-NEWS. BP's preliminary agreement to settle Federal, state and local Deepwater Horizon claims for USD18.7bn, payable over 18 years, will considerably strengthen the company's credit profile, which had factored in the potential for a larger settlement that took much longer to agree, Fitch Ratings says. If the deal is finalised on the same terms it is likely to result in positive rating action. Fitch currently rates BP 'A' with a Negative Outlook.

While BP had amassed ample liquidity to deal with most realistic scenarios, the scale and uncertain timing of the payment of outstanding fines and penalties remained a key driver of BP's financial profile in our modelling, and had the potential to place a large financial burden on the company amid an oil price slump. The certainty the deal provides, and the deferral of the payments over a long period, gives BP the opportunity to improve its balance sheet profile and navigate the current downturn.

By coincidence we had previously assumed an additional USD18.2bn would be paid by BP to settle the claims in the near term, mainly a USD13.7bn fine under the Clean Water Act (CWA) - but our assumption was that this would have still left the state and local government claims, with a theoretical maximum value of up USD35bn, outstanding.

The agreement in principle announced today includes a far lower number for the CWA (USD5.5bn) and settles state and local government claims.

Any future rating action will follow the finalisation of the deal, which is subject to public comment and court approval. Our decision will include consideration of any change in financial policies BP may make following the deal.