UPDATE 1-PIMCO buying more debt of oil spill companies

(Adds context, details, byline)

By John Parry

NEW YORK, July 1 (Reuters) - Pacific Investment Management Co. (PIMCO) is buying more debt of some of the companies involved in the oil spill disaster in the Gulf of Mexico, the bond fund manager said on Thursday.

PIMCO, which manages the world's biggest bond fund, said that it was "adding to positions in those names we favor." though did not cite specific companies.

However, in mid-June, Bill Gross, the co-chief investment officer of PIMCO, said that he had bought $100 million of short-maturing BP Plc (BP.L) (BP.N) notes and some Anadarko Petroleum Corp (APC.N) paper.

Asked on June 16 about whether he would add more BP and Anadarko securities, Gross said: "Future purchases are market and event-dependent."

"Many of the companies involved in the oil spill accident have investment-grade ratings, yet their bonds are trading as if they are high yield," wrote Mark Kiesel, head of the corporate bond portfolio management group at PIMCO in a U.S. Credit Perspectives article on the company's web site on Thursday.

For some of the companies involved in the oil spill the costs to insure their debt against default have risen excessively, Kiesel argued.

Five-year credit default swap (CDS) spreads are now trading at 550 basis points or higher in some cases, Kiesel wrote.

"This level reflects a high yield or "junk" spread, but it is likely more a reflection of uncertainty and fear of Washington political interventions rather than bottom-up credit fundamentals," Kiesel wrote.

Yet bond investors do face risks, Kiesel said.

Because rating agencies are aggressively downgrading some of these companies, investors who can hold only bonds with high ratings may be forced to sell, which could lead to broader selling in the market, he wrote.

A slowing economy would be negative for energy prices and hurt these companies' income statements, while legal and insurance costs for companies associated with the spill are likely to rise, Kiesel said.

Despite pressure on BP's bonds in recent weeks, the chances of BP declaring bankruptcy to deal with oil-spill claims are remote, bankruptcy professionals said last month. See [ID:nN10213505].

"Over the past several weeks, some market participants have even spoken of the possibility that a company involved in the oil spill accident may consider filing for bankruptcy, although in our view, such an event is highly unlikely," wrote Kiesel.

That's because the company has hefty amounts of cash on hand, strong operating cash flow and could sell assets to raise money if needed, Kiesel wrote.

BP's bond prices gained on Thursday as Hurricane Alex weakened to a tropical storm as it moved over northeastern Mexico, alleviating fears that the storm might disrupt ongoing efforts to capture some of the oil spewing into the ocean.

BP Capital Market's 4.75 percent notes due in 2019 rose 1.5 cents on the dollar to 85 cents, for a yield of 7 percent, according to MarketAxess data.

(Reporting by John Parry, Dena Aubin, Walden Siew and Jennifer Ablan; Editing by Theodore d'Afflisio and Padraic Cassidy)