Through credit default swaps (CDS), Bill Ackman is betting against BP’s debt. Not to be confused with him shorting BP’s stock as I have seen several bloggers doing since the trade was announced.
Ackman wrote to Bloomberg:
The accident has (BP oil spill) “likely permanently impaired the ability of BP to operate effectively in the U.S.,” Ackman wrote today in a letter to investors obtained by Bloomberg News. “The clean-up costs, penalties, and legal liabilities of the spill will continue to impair the company’s credit for many years.”
It seems as Ackman is pretty confident in the trade according to the same article.
“We believe it is unlikely that credit spreads will return to the pre-crises levels for many years, if ever,” Ackman wrote.
While the move is contrarian considering the huge event that is the BP oil spill, it also comes at a time when some well known value investors are going long on the stock. For example, some of the value investors who have bought BP’s stocks include Bruce Berkowitz, the folks at Dodge & Cox, David Dreman, and Irving Kahn to name a few.
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Wed, Sep 1, 2010
Bill Ackman, Bruce Berkowitz, Value Investing