The downgrading of BP’s credit-rating to BBB – on the very brink of ‘Investment grade’ - takes the hapless firm into Enron territory, which ain’t a good place at all.
It increases their cost of debt, which is bad enough: but the problem goes a lot further than that. BP’s business model, like that of Enron (though not to the same extent), leans heavily on wholesale energy market transactions – trading and other deals, including derivatives - on a very large scale: far more so than other oil majors.
Very many companies have a prudent policy of never dealing in derivatives or other forms of long-term contract (beyond, say, 1 year) with any firm that is below Investment grade – for the simple reason that they want to be sure the counterparty will be around to stump up in due course, be that to make a payment, or to deliver a cargo of oil or whatever. BP had made forward purchase commitments beyond 1 year ahead of $62 billion at year-end 2009, and held $ 4.9 billion of in-the-money positions on derivatives of more than 1 year maturity - exactly the type of business that can't be done at sub-Investment grade (figures from BP's 2009 AR).
If BP is thereby excluded from such lucrative markets, and/or forced to post a great deal more collateral (and this may have started already), it is in ever deeper doodoo.
Enron was famously ‘asset-lite’, but it still managed to retain Investment grade until near the end. Its tortuous efforts to maintain this precarious position, which finished it off eventually, were 100% driven by the need to keep doing those profitable long-term and derivative deals.
Obviously BP is an asset-rich company: but it has been brought to the brink of the very same precipice.