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Energy Credit Risk Soars Most In 2015 As Bankruptcies, Liquidations Loom
While investors have grown to used to knife-catching heroics in equity markets, the Energy credit markets have been a poster child of yield-reaching, bottom-guessing, dip-buying exuberance in the past six months. As every leg lower in oil was met with more Oil ETF buyers and bond buyers (or loan financers) as "the bottom is in," so each low has failed and new lows are made. The last few days have seen credit risk soar the most in 2015 in the energy sector as numerous firms enter bankruptcy or approach it with huge looming coupon and principal due. What is even more telling is the news of a huge liquidation sale of energy heavy equipment which will be the 'tell' for the entire industry if it is weak...
Who can resist a 1000bps spread?
But the last few days have seen credit risk surge most in 2015...
As Bankruptcies mount...as Bloomberg reports,
Quicksilver Resources has until Thursday, March 19 to reach a deal with creditors over a missed $13.6 million interest payment, increasing the possibility the oil and gas driller will follow two peers who filed for bankruptcy protection this month.
The Fort Worth, Texas-based company said on Feb. 17 that it wouldn't make the interest payment on $298 million of bonds maturing in 2019. It said it had a 30-day grace period before failure to pay is considered an event of default. Bondholders would then have the ability to accelerate the $298 million bond's maturity to immediate payment. If that occurred, cross defaults would be triggered on some of the company's $2.03 billion in borrowings.
Aside from the looming interest payment, the company is dealing with the threat of a cascading series of loans coming due sooner than planned because it has yet to refinance a subordinated piece of debt.
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Quicksilver has been battling a cash squeeze made worse by a rout in oil prices that helped push offshore rig servicer Cal-Dive International and oil explorer BPZ Resources into bankruptcy this month. Colorado crude producer American Eagle Energy missed its first interest payment earlier this month on a $175 million junk bond as it struggles to cope with U.S. crude that is down 52 percent since July.
And then there's Sabine Oil & Gas...
Sabine Oil & Gas 2019 bond yields jumped to a record high of 73.7 percent Monday after the oil and gas exploration company said it will delay filing its full-year results until March 31 and canceled a conference call for after it releases fourth-quarter and 2014 earnings.
From Par to 16 c on the dollar in 3 months...
And now we see liquidations begin...as the biggest heavy equipment auction house - Ritchie Bros - prepares near record auction of energy trasnportation and crane equipment... offering its own financing for the first time in what appears a desparate move to get this off their books...
On March 25, Ritchie Bros., the world's largest industrial auctioneer, will conduct a massive multi-million dollar crane and transportation auction for Energy Transportation in Casper, Wyoming. Energy Transportation is the largest supplier of fully operated and maintained crane services, specialized rigging, and heavy haul transportation in the state of Wyoming. More than 750 items will be sold in the one-owner unreserved public auction, including 14 rough terrain cranes (ranging from 20 – 150 tons), seven all terrain cranes (225 – 600 tons), seven hydraulic truck cranes (75 – 110 tons), six crawler cranes (230 – 660 tons), related rigging equipment, as well as heavy-spec trucks, trailers and other equipment.
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A special financing offer is available for this auction through Ritchie Bros. Financial Services, with rates as low as 3.95% and no payments for 90 days. "We've got a special financing offer in place for this auction only, so buyers can bid with the power of cash and finance their purchases at great low rates"
Watch this auction as your tell for global expectations for the energy complex
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As Deutsche Bank warned previously, if oil prices stay low for a while...
"we would expect to see 1/3rd of US energy Bs/CCCs to restructure, which would imply a 15% default rate for overall US HY energy, and a 2.5% contribution to the broad US HY default rate.... A shock of that magnitude could be sufficient to trigger a broader HY market default cycle, if materialized. "
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With rates set to rise - and with them a tightening of financial conditions which will reduce further the efficiency of carry trades to fund spec HY plays, the window for these HY Energy names is closing fast.
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joyflation
The new 2016 crawler crane has an MP3 player and a large beverage container.
The offshore drillers with the highest risk of default are those with rigs older than 20 years that are worth less than the scrapping price.
And scrapping is also picking up bigtime.
so go long new rigs, short old rigs.
it’s about the same gameplay with drillers right now than it was with drybulk shipping in 2009.
I guess "pump 'till you drop" has shown its limits. Weird, I though they'll make it "on volume"... as always. /s
The most telling thing when they were drunk on oil price the left equipment including pickup trucks going into town running never ever shutting them off They are not doing that now.
MLP ain't got nothin on REIT...
Still...the dollar remains King. Everything else is not even as good as toilet paper.
King dollar means lots and lots of defaults in the end. We're damned if we do, and we're damned if we don't.
Hyperinflate or default, BITCHEZ!
(Or both)
All of this is just welfare for the banksters. Everyone else pays.
More bankruptcies?
Sounds Bullish.
Sure thing on that banker welfare.
All bankers report better earnings when their borrowers declare bankruptcy and don't repay the loans.
Nazscam already green other stawk indexes certain to follow to green before close WHEEE nothing can sink the Shitshow!
FWIW, I enjoy your posts. I can relate to your frustration. Here is some scripture that has helped me. No sarc.
https://www.youtube.com/watch?v=ls8RXqyZDsk
Love the George Carlin. I was at a show he did where he was going off and said '3 out of 4 Americans polled believe in angels....WTF has everyone in this country lost their fucking minds??'....frustrated he was, just like the rest of us.
Wait till wall street sues the Fed for not providing liquidity as usual!
They can by offering a cash for cluncker deal on old rigs.
the banks and credit providers get the money and a default epidemic can be avoided while it also helps production go down.
OR
America can confiscate oilfields and add them to their strategic reserves. But that would be a smart move so it probably won’t happen...
Government subsidies for all.
More debt, more control!
LOL.............
Canadian crude dropped below 30.00 yesterday. Almost all commodities below the cost of production. Alberta real estate under pressure for massive job losses. Federal budget delayed. Inflation in the things we need to survive is easily 10%. Canada is in a world of hurt and will probably need negative rates soon.
Negative rates or negative yields?
Don't worry about your money anymore either...its all good.
Canada is done=)
Yes, Canada is done, but Canadians are a special kind of stupid. Right now, practically nobody has a clue what's going on. Most believe oil will come back any day now, and the effects will be contained in Alberta.
Already 80% of the country's housing market is falling, so much for it being contained in Alberta. Looking for a nice short trade? Try Canadian banks, they're up to their ears in mortgages and consumer credit of maxed out debt addicts.
Welcome to the oil patch y'all, especially all you people who thought they had a sure thing. I'm just waiting for the giant flushing sound in the market so myself and a few other pessimists can pick up some solid leases if the price is right.
From $70-ish to bupkiss in 3 months...
If you think the Casper auction is big you should look at Ritchie Bros. auction line up in Williston North Dakota for their May 5th auction. I drove by their lot south of town on Sunday.......I've never seen so much equipment.
Incredible.
Yeah, when the magic goes away it tends to go down big and that's all high dollar equipment.
I wonder who'll be at the auction. Arabs vs. bankers?
Caterpillar and the like are also probably juicy candidates for shorting at this juncture...
No Joy Globally?
there was a guy buying iron in 86' and put it all outside of Cushing - mountains of the stuff - sat there for ten years or more
The cat skull and cross bones on any chart means doom.
So, I should buy, right? buy low and sell high, isn't that the ticket to riches?
It's easy to tell the low and high after the fact.
Go look at $SOGC and laugh...or cry...whichever suits you.
Lost 50% of MKT Cap in 2 days.
Those used crane commercials featuring Dick Cheney out of Jackson Hole are a sight to behold, as speaking tour engagements have all but dried up for Dick. Wonder what he makes for a 30 second spot...
Peak Oil, Baby.
Peak Oil. Wasn't that supposed to be Ten years ago?
So, all that finance that was going into Oil production, will no go into other Wallstreet ventures and the stock market (ex-energy) will soar.
Maybe some major small/medium company M&A for the next few years, and a few larger mergers.
Meanwhile Russia and China will continue to work-out their exploration deals.
Venzuela, Argentina, Brazil will probably go entirely bankrupt...it will be very bad there and any other energy backed economy.