Energy default risk high despite rebound: Fitch
OREANDA-NEWS. August 19, 2016. The near-term default risk of energy companies remain high, ratings agency Fitch says, despite the recent recovery in prices.
The energy industry makes up 49pc of the 53 companies on Fitch Ratings' "concern list" of companies it considers at risk for defaulting on their loans. The energy sector accounts for only 4pc of the overall institutional leveraged loan market, currently valued at about \\$944bn, according to Fitch.
"If oil prices remain at current levels — below the breakeven point for many E&Ps — concerns will continue to center on energy loans," said Eric Rosenthal, Fitch's senior director of leveraged finance.
While many oil and gas producers say they have cut their costs greatly, they still need higher prices to break even. Many still carry huge debt loads as they borrowed heavily to either expand rapidly in years past or try to stay afloat during the current downturn.
Most of the energy companies on the Fitch list are either small oil and gas producers or oilfield service providers, and most of them are not particularly well known beyond their financial woes. The companies include Fieldwood Energy, Ocean Rig, Pacific Drilling, American Energy-Marcellus, W&T Offshore and Larchmonth Resources.
Energy companies accounted for nine of the past 10 defaults, Fitch says. Five loans totaling \\$2.1bn defaulted in July, bringing the trailing 12-month leveraged loan default rate to 2.1pc, which is expected to increase to 2.2pc by end-August given that Templar Energy and Stallion Oilfield Holdings' missed interest payments. Fitch forecasts a 2.5pc year-end default rate.