S&P warned about the growing number of defaults by oil companies

By March 2017 the percentage of default on debt obligations with speculative grade in the U.S. will grow to 5.3% instead of 3.8% in March 2016, warns ratings Agency S&P. the Bulk of defaults and bankruptcies of S&P experts expect the oil and gas sector. “Stress in the form of consistently low oil prices, a possible fed rate hikes and instability in foreign markets will lead to even more bankruptcies over the next 12 months,” they claim.

This assessment is unchanged from the beginning of may, contains in a recent report, S&P in terms of corporate defaults. During the week 12 to 18 may, the ten largest companies in the world have defaulted on debt or filed for bankruptcy, says the report (there RBC). Thus, last week became the most “fruitful” on corporate defaults since the beginning of 2016.

Eight of these ten companies are based USA, another telecommunications firm Intelsat and energy company Tervita — represent Monaco and Canada respectively. If you look at the scope of their activities, again eight corporations are somehow related to the oil and gas industry.

Only thus from the beginning of 2016, and 29 corporations of the energy sector suffered a financial collapse. In the latest S&P figures, and Chesapeake Energy company is a pioneer in shale oil production in the United States. In early April, RBC wrote that corporations had to lay all of their assets to obtain a loan of $4 billion At that time, the company’s debt already amounted to almost $10 billion, which is three times higher than its market value. In the end, may 12, the company announced that it planned to publish 28 million shares, to buy them on $153 million of its debt. The next day, S&P cuts Chesapeake Energy rating from CCC to SD (selective default), which is reflected in the weekly list. However, on may 19, the S&P has returned the company a rating of CCC (with negative Outlook).

Photo gallery
Life at the bottom: how Western oil companies adjust to a collapse in prices

2016, the year began with a new collapse in oil prices — the cost of a barrel of Brent in January already took a $28 per barrel. For comparison: in 2014 peak oil cost…

Showing 7 photos

In addition, S&P notes that energy companies since the beginning of the oil crisis caught the “leadership” of banks in the list of global weakest links” — companies most vulnerable to default, standing “on the threshold”. As of mid-may in the list is 60 energy companies against 29 of the credit institutions. The total number of “weak links” has grown this week with 242 to 243 of the companies that are approaching the historic maximum of 251, recorded in November 2009.

In all sectors the number of corporate defaults has increased since the beginning of the year to 72 episodes. Amount affected by these defaults of the obligations now reaches $121 billion As explained RBC representative of the S&P, the weekly list reflects only those companies that have their own rating from the Agency — in fact, the number of defaults is much higher.

The number 72 in default from early January to mid-may is a record for this time period since 2009, when for the same period, the S&P recorded the fulfillment of the commitments by more than 120 firms. For comparison, during the whole 2015 S&P reported 113 defaults.

For European corporations, the percentage of default on speculative debt securities (the default rate) will rise by next spring, not as much as in the United States: from 2.1% in March to 2.4% a year. A positive factor S&P calls a policy of “quantitative easing” ECB’s negative — the global economic slowdown and market instability and low oil prices.

Before that in early may, another rating Agency — Fitch Ratings — recorded a record number of defaults in the oil industry of the United States. About 13% of the companies in this sector with speculative grade debt are in default. By the end of 2016, Fitch expects that figure will rise to 20%.