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Energy Credit Risk Soars Most In 2015 As Bankruptcies, Liquidations Loom

Tyler Durden's picture




 

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.

 

...

 

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.

 

...

 

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

*  *  *

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. "

*  *  *

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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Tue, 03/17/2015 - 15:12 | 5899265 kowalli
kowalli's picture

joyflation

Tue, 03/17/2015 - 15:16 | 5899276 Philo Beddoe
Philo Beddoe's picture

The new 2016 crawler crane has an MP3 player and a large beverage container. 

Tue, 03/17/2015 - 16:50 | 5899656 Sudden Debt
Sudden Debt's picture

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.

 

Tue, 03/17/2015 - 17:34 | 5899779 angel_of_joy
angel_of_joy's picture

I guess "pump 'till you drop" has shown its limits. Weird, I though they'll make it "on volume"... as always. /s

Wed, 03/18/2015 - 10:51 | 5902027 thecrud
thecrud's picture

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.

Tue, 03/17/2015 - 15:14 | 5899272 disabledvet
disabledvet's picture

MLP ain't got nothin on REIT...

 

Still...the dollar remains King.  Everything else is not even as good as toilet paper.

Tue, 03/17/2015 - 15:21 | 5899313 El Vaquero
El Vaquero's picture

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)

Tue, 03/17/2015 - 15:54 | 5899469 daveO
daveO's picture

All of this is just welfare for the banksters. Everyone else pays.

Tue, 03/17/2015 - 16:40 | 5899623 Never One Roach
Never One Roach's picture

More bankruptcies?

 

Sounds Bullish.

Tue, 03/17/2015 - 17:48 | 5899814 Augustus
Augustus's picture

Sure thing on that banker welfare.

All bankers report better earnings when their borrowers declare bankruptcy and don't repay the loans. 

Tue, 03/17/2015 - 15:15 | 5899277 SheepDog-One
SheepDog-One's picture

Nazscam already green other stawk indexes certain to follow to green before close WHEEE nothing can sink the Shitshow!

Tue, 03/17/2015 - 15:23 | 5899326 Philo Beddoe
Philo Beddoe's picture

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

 

Tue, 03/17/2015 - 15:41 | 5899412 SheepDog-One
SheepDog-One's picture

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.

Tue, 03/17/2015 - 15:16 | 5899285 starman
starman's picture

Wait till wall street sues the Fed for not providing liquidity as usual! 

Tue, 03/17/2015 - 16:53 | 5899665 Sudden Debt
Sudden Debt's picture

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...

Tue, 03/17/2015 - 15:17 | 5899287 Chuck Knoblauch
Chuck Knoblauch's picture

Government subsidies for all.

More debt, more control!

LOL.............

Tue, 03/17/2015 - 15:20 | 5899306 sudzee
sudzee's picture

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.

Tue, 03/17/2015 - 16:24 | 5899578 disabledvet
disabledvet's picture

Negative rates or negative yields?

 

Don't worry about your money anymore either...its all good.

Tue, 03/17/2015 - 16:25 | 5899582 kowalli
kowalli's picture

Canada is done=)

Tue, 03/17/2015 - 20:35 | 5900359 Carpenter1
Carpenter1's picture

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.

Tue, 03/17/2015 - 15:20 | 5899307 KnuckleDragger-X
KnuckleDragger-X's picture

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.

Tue, 03/17/2015 - 15:24 | 5899330 ThroxxOfVron
ThroxxOfVron's picture

From $70-ish to bupkiss in 3 months...

Tue, 03/17/2015 - 15:27 | 5899349 herman55
herman55's picture

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.

Tue, 03/17/2015 - 15:30 | 5899357 KnuckleDragger-X
KnuckleDragger-X's picture

Yeah, when the magic goes away it tends to go down big and that's all high dollar equipment.

Tue, 03/17/2015 - 15:58 | 5899483 daveO
daveO's picture

I wonder who'll be at the auction. Arabs vs. bankers? 

Tue, 03/17/2015 - 16:02 | 5899496 ThroxxOfVron
ThroxxOfVron's picture

Caterpillar and the like are also probably juicy candidates for shorting at this juncture...

Tue, 03/17/2015 - 21:35 | 5900552 ceilidh_trail
ceilidh_trail's picture

No Joy Globally?

Tue, 03/17/2015 - 18:37 | 5900016 Omen IV
Omen IV's picture

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

Tue, 03/17/2015 - 15:31 | 5899361 Mike Honcho
Mike Honcho's picture

The cat skull and cross bones on any chart means doom.

Tue, 03/17/2015 - 15:40 | 5899411 madcows
madcows's picture

So, I should buy, right?  buy low and sell high, isn't that the ticket to riches?

Tue, 03/17/2015 - 20:34 | 5900357 sun tzu
sun tzu's picture

It's easy to tell the low and high after the fact.

Tue, 03/17/2015 - 15:50 | 5899453 Billy Sol Estes
Billy Sol Estes's picture

Go look at $SOGC and laugh...or cry...whichever suits you.

Lost 50% of MKT Cap in 2 days.

Tue, 03/17/2015 - 16:07 | 5899522 KashNCarry
KashNCarry's picture

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...

Tue, 03/17/2015 - 17:58 | 5899845 Augustus
Augustus's picture

Peak Oil, Baby.

Peak Oil. Wasn't that supposed to be Ten years ago?

Tue, 03/17/2015 - 20:59 | 5900433 HardlyZero
HardlyZero's picture

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.

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