Threat to BHP Billiton credit rating through Potash bid

BHP Billiton today saw its debt spread grow wider than rival Rio Tinto's for the first time in more than two years, as credit agencies warned its rating would be downgraded if it goes ahead with its $39 billion (£25 billion) bid for fertiliser giant Potash.

Despite BHP being known for a conservative balance sheet, the mining giant's hostile takeover attempt has seen its debt spread rise by around by 40 basis points to 113 since the first reports of the deal emerged on Monday, according to analysts at Markit Credit Research.

They added that Rio's spread of 102 basis points is only a few points wider than the start of the week.

Ratings agency Standard & Poor's today warned that BHP Billiton's A+ grade was under threat. It said: "In our opinion, BHP Billiton's financial flexibility could be strained by its plans to use cash and debt to fund the proposed Potash Corp acquisition.

"We would likely lower the ratings on BHP Billiton by one notch to A' if the acquisition proceeds at the current offer price and if BHP Billiton's capital-spending program is not moderated."

Rival agency Moody's added that it would downgrade BHP one level to an A2' credit rating, especially if BHP has to raise its $130-a-share offer to woo Potash investors, as City analysts expect.

BHP is thought to have arranged a syndicated loan worth $45 billion to back the hostile bid, with six banks involved in the financing.