Four US Firms With $4.8 Billion In Debt Warned This Week They May Default Any Minute

Tyler Durden's picture




 

The last 3 days have seen the biggest surge in US energy credit risk since December 2014, blasting back above 1000bps. This should not be a total surprise since underlying oil prices continue to languish in "not cash-flow positive" territory for many shale producers, but, as Bloomberg reports, the industry is bracing for a wave of failures as investors that were stung by bets on an improving market earlier this year try to stay away from the sector. "It’s been eerily silent," in energy credit markets, warns one bond manager, "no one is putting up new capital here."

 

The market is starting to reprice dramatically for a surge in defaults...

 

Eleven months of depressed oil prices are threatening to topple more companies in the energy industry. As Bloomberg details,

Four firms owing a combined $4.8 billion warned this week that they may be at the brink, with Penn Virginia Corp., Paragon Offshore Plc, Magnum Hunter Resources Corp. and Emerald Oil Inc. saying their auditors have expressed doubts that they can continue as going concerns. Falling oil prices are squeezing access to credit, they said. And everyone from Morgan Stanley to Goldman Sachs Group Inc. is predicting that energy prices won’t rebound anytime soon.

 

The industry is bracing for a wave of failures as investors that were stung by bets on an improving market earlier this year try to stay away from the sector. Barclays Plc analysts say that will cause the default rate among speculative-grade companies to double in the next year. Marathon Asset Management is predicting default rates among high-yield energy companies will balloon to as high as 25 percent cumulatively in the next two to three years if oil remains below $60 a barrel.

 

 

“No one is putting up new capital here,” said Bruce Richards, co-founder of Marathon, which manages $12.5 billion of assets. “It’s been eerily silent in the whole high-yield energy sector, including oil, gas, services and coal.”

 

That’s partly because investors who plowed about $14 billion into high-yield energy bonds sold in the past six months are sitting on about $2 billion of losses, according to data compiled by Bloomberg.

 

And the energy sector accounts for more than a quarter of high-yield bonds that are trading at distressed levels, according to data compiled by Bloomberg.

Barclays said in a Nov. 6 research note that the market is anticipating “a near-term wave of defaults” among energy companies. Those can’t be avoided unless commodity prices make “a very large” and “unexpected” resurgence.

“Everybody’s liquidity is worse than it was at this time last year,” said Jason Mudrick, founder of Mudrick Capital Management. “It’s a much more dire situation than it was 12 months ago.”

Charts: Bloomberg

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Wed, 11/11/2015 - 15:39 | 6778378 El Vaquero
El Vaquero's picture

BOND CRISIS!  BOND CRISIS!  BOND CRISIS! 

RAH RAH RAH!

LETS GO BOND CRISIS!

Wed, 11/11/2015 - 15:59 | 6778484 NoDebt
NoDebt's picture

Maybe we're all over-thinking this.  Maybe this IS the place the next debt crisis starts.  

It's an obvious bubble, it's DEEPLY tied in to the banks, has been rehypothecated, repackaged and resold to "investors" and now it's backing up on them mere months or WEEKS after it was sold.  By itself, not big enough to bring the system down, but as a TRIGGERING EVENT, possibly enough to start the big boys thinking about "counterparty risk" once again.

This is sounding awfully familiar.  (Subprime mortgages)

Maybe we should stop looking at the size of this problem in and of itself and start thinking more about how it's interconnected to the rest of the debt ponzi.  Maybe we've gotten so jaded we're staring the obvious right in the face and denying it's existence.

Wed, 11/11/2015 - 16:02 | 6778513 El Vaquero
El Vaquero's picture

It has been my belief for many months now that there is a decent chance that the next crisis would start in the junk bond markets due to oil prices dropping.  I have been saying 12-18 months after the price initially dropped.  Maybe out to 24 months.  That is assuming, of course, that the price of oil does not go back up.

 

Leverage works both ways, BITCHEZ!

Wed, 11/11/2015 - 16:37 | 6778694 Tom Servo
Tom Servo's picture

Easy solution, issue bonds and have the ECB buy them at par...

 

Wed, 11/11/2015 - 17:04 | 6778818 Boris Alatovkrap
Boris Alatovkrap's picture

This is canary in coal mine. What economy is so weak unstable that decrease in energy price is causing of collapse!? Economy is built on available resource of energy, labor, and material. Thank you Mr. Bankster and Mrs. Politician for decouple economic reaility.

Wed, 11/11/2015 - 17:14 | 6778876 Surviver22
Surviver22's picture

Obama will not finish his second term! Current Events Linked to Ancient Biblical Prophecy!

http://motivationdose.com/is-america-babylon/

Wed, 11/11/2015 - 18:18 | 6779145 Oldballplayer
Oldballplayer's picture

Why do you come here just to tease us?

Wed, 11/11/2015 - 19:17 | 6779343 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

This is going to trigger a bond crisis which moves to a stock crash. There will be a panic while the big boys short it all and make a killing. When it bottoms out they will pick up assets on the cheap. Same as in 2008-2009. Wash, rinse and repeat. Disgusting!!

Wed, 11/11/2015 - 19:23 | 6779364 Save_America1st
Save_America1st's picture

I'm sure the shadow QE program can easily bail out all too big to fails.  Janet Fellen will become the buy of last resort for everything there is, even muni-bonds just like was said earlier today about the Euro CB buying Euro muni-bonds.

There will be no real fail as long as these CB scumbags have the CTRL-P buttons at their beck and call. 

Fed rate hike in December???!!!???

It is to laugh.  Anyone who actually believes that would happen is just Charlie Brown thinking this time he's actually going to kick the football. 

Wed, 11/11/2015 - 19:39 | 6779421 Clockwork Orange
Clockwork Orange's picture

LOL.

This has been EXACTLY the plan all along.  The same two vampires named, MS & GS, have underwritten vast amounts of junk debt at 5% yields to Granny and Gramps who in turn were forced to reach for that yield by Ben & Janet.

Now, under the premise of 'deflation', MS & GS are, with JPM of course, beating the living snot out of every REAL asset.  Once successful, they will acquire all said real assets for pennies on the dollar ... along with XOM and the rest of their crony TPP-sucking pals.

And, if it all fails?  Off to the bug-out villas in New Zealand, complete with panic rooms and vaults of heavy.

Soon there will be nary a peasant left.

Suckers!

Wed, 11/11/2015 - 20:08 | 6779532 new game
new game's picture

link cause/effect = qe/centrals banks. moar fucking bubblenomics cause common people pain. fucking sickening and disgusting shit...

Wed, 11/11/2015 - 22:53 | 6780278 Son of Loki
Son of Loki's picture

Very Robust!

 

" Yes we can! "

Wed, 11/11/2015 - 23:22 | 6780403 xavi1951
xavi1951's picture

You say it over and over, for ever and ever, it may actually happen.  So many triggers and NO bullets!

Thu, 11/12/2015 - 04:18 | 6780997 cookie nookie
Thu, 11/12/2015 - 05:41 | 6781076 rocker
rocker's picture

Think of all the Suckers who bought "Peak Oil Theory".   LOL

At least I tried to warn most of them.

Thu, 11/12/2015 - 08:24 | 6781226 OceanX
OceanX's picture

"Peak Oil Theory"

Could you please explain why it is necessary to keep drilling new wells,  if the old ones don't stop producing.

 

The Hubbert curve is an approximation of the production rate of a resource over time. It is a symmetric logistic distribution curve, often confused with the "normal" gaussian function.

https://en.wikipedia.org/wiki/Hubbert_curve


Wed, 11/11/2015 - 21:08 | 6779748 DisasterCapitalist
DisasterCapitalist's picture

The US can EASILY handle a rate hike in December..as long as it's around .125%. Any more than that would be politically unpleasant, as the minions are supposed to vote for Hillary next year. Everything is awesome!

 

Thu, 11/12/2015 - 00:59 | 6780729 Calling Elvis
Calling Elvis's picture

Save America First - I think your CharlienBrown ananlogy is spot on.

Wed, 11/11/2015 - 20:02 | 6779513 BlindMonkey
BlindMonkey's picture

"Obama will not finish his second term! Current Events Linked to Ancient Biblical Prophecy!"

 

 

If this is biblical prophecy, are the jews excused from participation?   I hope they get to play collapse too but thought I would check with you before getting my hopes up.

Thu, 11/12/2015 - 00:37 | 6780661 techpriest
techpriest's picture

If America is mentioned in Bible prophecy at all, it's in one fairly obscure reference to some distant nations that are pretty powerless during a war that's going on just north of Israel. America is not Babylon from the perspective of those prophecies, but making a buck by stretching religious teachings has been around for a few thousand years and isn't leaving anytime soon.

Now if you do want to get a good idea from the old prophecies, it's to beware the man offering world peace if you just follow his government, religion, and cashless economy based around a mark of loyalty. Helping the rebels who refuse is a good idea too.

Wed, 11/11/2015 - 17:28 | 6778942 agent default
agent default's picture

It's not just the oil.  The oil is convenient to point at because the US can pretend that they got SA to cause the drop in order to stick it to Russia.  Makes the US look really smug.  Meanwhile the truth is, copper  down, zinc down, iron ore down, you name it down.  Baltic Dry almost crashing, soft commodities gone to hell.  I guess SA can also influence these markets as well.  

Wed, 11/11/2015 - 18:57 | 6779247 fockewulf190
fockewulf190's picture

This is just another Black Swan in the ever increasing flock. 

Glencore is still clipping wires trying to disarm the debt bomb of it´s own making.  Greece will be back in the news again soon because it can´t pay it´s upcoming debt obligations.  The ME is still an inferno.  Europe is flying apart.  One nation after the next has exploding debt levels and unfunded liabilities.  Fukushima is still blasting radiation into the Pacific Ocean.  Each of these Black Swans (and there are many more) are capable of starting the Great Reset either outright, or can start the domino chain leading to the same event.

The world financial system is a total disaster.  These four businesses in the article are consequently just the early casualties.  They will be joined by many more.

Wed, 11/11/2015 - 19:32 | 6779401 1033eruth
1033eruth's picture

fockewulf190 - We should start a ZH deadpool.  I really like Venezuela as a winner.  Only China can bail them out.

Wed, 11/11/2015 - 20:48 | 6779667 backwaterdogs
backwaterdogs's picture

Wow!  Those English classes are really helping Boris.  Good work keep it up

Wed, 11/11/2015 - 23:48 | 6780493 zeroaccountability
zeroaccountability's picture

I'm sure it has something to do with the translator. /s!

Wed, 11/11/2015 - 22:17 | 6780110 stocktivity
stocktivity's picture

It's all Bullshit!!!

Wed, 11/11/2015 - 18:23 | 6779158 Antifaschistische
Antifaschistische's picture

Reporting from  Houston.

They have doubled the Hotel capacity in Houston in the last 6 years, and STILL rates are THREE TIMES what they were 8 years ago.   I bring a lot of consultants into Houston and my travel costs have gone full retard...I don't get it.   The industry is "bracing" for the coming storm....well no one told Houston.   Sure, there has been layoffs but the malls continue to be packed, and traffic is far worse than it has ever been....EVER.

Wed, 11/11/2015 - 19:00 | 6779280 jcdenton
jcdenton's picture

LIVING in Houston ..

6th generation Texan ..

Resident of both Houston and Austin since 1980 ..

It is not  just Houston. It is the entire state of Texas. There are jobs here. There is hiring. However, there is not enough jobs to go around ..

Everyone is coming to TEXAS for SAFE HARBOR ..

ExxonMobile in The Woodlands is on hiring freeze, since they got kicked out the Kara Sea and have lost billions. Royal Dutch Shell the same since closing shop on the north slope of Alaska. Only what left is viable is in West Texas (fracking, etc.) I was laid off from my part time IT job at a very cash rich private high school in Tomball, last March, just down the street, Baker Hughes laid off half of its workforce ..

What you see in Houston, and most of Texas is still a grand facade ..

Wed, 11/11/2015 - 21:46 | 6779951 Cruel Aid
Cruel Aid's picture

good post, yea the '85 crisis is setting up again. opec got it together and caused major pain, this cause is different but will be painful. Texas was hit hard then and we have the carpetbaggers to deal with now.

Wed, 11/11/2015 - 22:38 | 6780208 Hitlery_4_Dictator
Hitlery_4_Dictator's picture

We need to kick the carpet baggers out. The good news is they will leave once the jobs stop because there is no welfare here. 

Wed, 11/11/2015 - 23:29 | 6780430 booboo
booboo's picture

Carpet baggers are there to pick through the bones and they will come later, I think you mean yankee's,

Thu, 11/12/2015 - 02:39 | 6780888 Cruel Aid
Cruel Aid's picture

Ok then locusts leaving the decimated wasteland. Bringing their green bullshit to the land of endless windmills and recycling. Back the f__k off, we got this, fix your own mess. Activist parasites pouring in. Assimilate.
We dont like all the barbecue smoke(whiney ass voice). Yea i'm hearing that shit...

Thu, 11/12/2015 - 08:36 | 6781245 OceanX
OceanX's picture

"... Houston, and most of Texas is still a grand facade .."

Lived in Houston '91 to '96 and Austin '96 to '13  Only thing bigger in Texas is the BullShit!

I graduated from UT in 2000 and still have UT calling me and asking me to donate money to the school,

 

Full disclosure, I still have a love/hate relationship with Houston ...I'm intrigued by the mystique of the city and simutaneouly repulsed by the pollution.  It's a toxic wasted dump ...some of the most beautiful women ever,

Thu, 11/12/2015 - 08:45 | 6781256 lakecity55
lakecity55's picture

You seem to be ahead of the curve on your thinking. I also wondered HOW MUCH $$ was tied up in these bonds? Enough to strain liquidity even more? At least I am not the only person who wondered about this. I just had a guy razz me a week or so back-- he remembered I was questioning what would happen when all these bonds came due.

I thought it would happen sooner, but I was wrong.

Wed, 11/11/2015 - 17:12 | 6778859 ThroxxOfVron
ThroxxOfVron's picture

China is papering over thier commodities crash and exporting ourrageous overcapacity into the rest of the world.

The United States isn't.  -Well, at least not yet..

This is economic warfare and although the big visible battle is in oil there is mad violence in a slew of commodities and products sectors includeing steel, aluminum, plastics. 

It's called dumping and it is one of the ways that the boogeyman of deflation is doistered upon us.

Prices for commodities and goods produced in the US that are sold in the US merely circulate the currency reslulting in healthy monetary velocity.  Dumping foreign goods into the domestic markets caused prices to drop drastically and damages domestic production, domestic debt dynamics, leaches currency out of the domestic markets resulting in a collapse in monetary velocity, and ultimately causes unemployment and economic malaise.

China is a command and control economy.  It's imports are being subsidized and in some cases fully funded by phony debt aka money printing by the Chi-Coms.   Nothing remotely resembling captialistism can compete with the economic warfare of unrestricted counterfeited production and export merchantilism.

The question to ask is: WHY is the Obama Administration allowing the Chinese Government to print money specifically to fund production of materials for dumping into US markets when the obvious outcome of allowing this is the destructon of the domestic commodities and manufacturing base and the domestic economy that this commodities and manufacturing base supports?

Wed, 11/11/2015 - 17:20 | 6778906 Nage42
Nage42's picture

 

"The question to ask is: WHY is the Obama Administration allowing the Chinese Government to print money specifically to fund production of materials for dumping into US markets when the obvious outcome of allowing this is the destructon of the domestic commodities and manufacturing base and the domestic economy that this commodities and manufacturing base supports?"

 

Is that really a serious question?

 

Let's see... if someone else is debasing their currency faster then you are, then your shirt looks less stinky, thus strong dollar.  No domestic manufacturing base left to destroy, as the US is way down the road of being a producer to become a consumer of iCrap, and the cheaper the iCrap the happier the iSlaves are, and as long as China prints faster, US can print just a cunt-hair less fast and maintain the illusion that USTs (US Toilet notes?) have some value in relative respect to RimB (sounds like a variant of a dirty sanchez!), and the freeshit army can keep getting new iCrap and thus continue to vote for MOAR.

 

simple, right?

Wed, 11/11/2015 - 18:44 | 6779224 Antifaschistische
Antifaschistische's picture

So, can we conclude that the US effort to maintain the PETRO dollar, which provides GREAT strength to the dollar and world status...at the cost of the US manufacturing base since we are priced out of the international labor market from a competitive perspective?  (This is a real question fo mine...)

Wed, 11/11/2015 - 18:27 | 6779174 Antifaschistische
Antifaschistische's picture

Has China really stolen our manufacturing base?   I'm not an expert on these issues....I'm not even highly informed...but there's not much I buy that is "manufactured" and made in China.   Sure, 2/3rd of everything sold at every mall in America is from China....and 90% of everything from Wal-Mart (minus TVs and food) but....America's problem in manufacturing started 40 years ago when the Chinese were still full blown third world.

Wed, 11/11/2015 - 19:07 | 6779300 jcdenton
jcdenton's picture

You want to see a reversal in manufacturing? Start milling rail for 50,000+ miles. Then overhaul the electrical grid ..

Trickle down effect?

http://www.veteranstoday.com/2014/01/05/the-wanta-reconstructing-america...

Yes, it can be done. Starting this January ..

https://app.box.com/s/hfgvcqg7gqh7i27at6sv53ywu87lwarp (Read Me First)

Wed, 11/11/2015 - 23:24 | 6780412 pitz
pitz's picture

Railway stocks would have to significantly exceed the replacement value of their assets in order for the market to commit serious new investment to the sector.  As it stands, its not hard to pick up railway stocks at 1/2 to 1/3rd of their long-term replacement cost. 

Thu, 11/12/2015 - 01:54 | 6780812 not dead yet
not dead yet's picture

Even with all the stuff the 1%ers sent overseas, so as to line their pockets with big salaries and bonuses while doing less work for it, the US was the #1 manufacturer in the world until China passed us in 2010. We make plenty of planes, trains, automobiles, machinery, construction materials, steel, auto parts, and so much more but most of the small stuff and electronics is gone. Can always tell someone who does not shop at Walmart by their comments about Walmart sells only stuff made in China or your 90% comment. It is far less than that. A great many of those overseas industries flourished because US manufacturers, such as cars and electronics, were making junk so consumers gravitated to foreign products. Plenty of people have commented in many places that they haven't owned an American car for over 40 years and will not consider buying one because they got burned so bad and still hold a grudge.

Thu, 11/12/2015 - 08:49 | 6781266 lakecity55
lakecity55's picture

I still like my Ford trucks. Fix or Repair Daily: but at least I can work on them. Thank God I learned mechanics at a young age via Triumph and BSA ownership.

Wed, 11/11/2015 - 17:22 | 6778919 oklaboy
oklaboy's picture

yoooo Debt, save me some..""""""""llllllllllllll

Wed, 11/11/2015 - 17:39 | 6778991 Panafrican Funk...
Panafrican Funktron Robot's picture

Don't forget, low oil prices affect sovereign wealth funds too, they're already in process of drawdowns to support budget holes / social services.  I think this will actually be one of the prime mechanisms for contagion into unrelated sectors.  

Wed, 11/11/2015 - 18:31 | 6779188 Mojeaux18
Mojeaux18's picture

Except that there is a lot of money in energy and always a demand.  Already some big players are moving to aquire some of these smaller and in trouble players.  There will be loses (how can there not be), but it isn't a subprime.  Subprime included people who could never qualify for loans and never paid.  In MLP's and the like I don't think there is any of that.  

Wed, 11/11/2015 - 20:21 | 6779573 azusgm
azusgm's picture

IIRC, Karl Denninger went over a little trick that seemed to be endemic among the MLPs. Borrow money and pay dividends.

For instance, look at the debt picture here:

http://finance.yahoo.com/q/ks?s=KMI+Key+Statistics

KMI is a C corp now but was an MLP until recently.

Might want to check into what the traffic is through the pipelines. Demand down soon equals transmission down.

Thu, 11/12/2015 - 02:00 | 6780821 not dead yet
not dead yet's picture

Plenty of the stock buybacks and aquisitions by all kinds of corporations was done with borrowed money even if they had plenty of cash to do it. One consequence of rates being so low. Buy back stock to line the pockets of big investors and managment instead of investing in their business.

Wed, 11/11/2015 - 22:57 | 6780293 Iam_Silverman
Iam_Silverman's picture

"This is sounding awfully familiar.  (Subprime mortgages)"

I'm sure that just as Hank Paulson had declared that the subprime housing issue "was contained", so will his predecessor on this matter.

Thu, 11/12/2015 - 10:37 | 6781664 Apocalicious
Apocalicious's picture

Bank lending in this space is about to crater. The energy guys I'm talking to aren't even discussing the redetermination rates, because their banks are going to shut down reserve based lending entirely in Q4 to these firms, switching to pure cash flow underwriting. And I'm not talking about dinky banks either, I'm talking about the biggest corporate lenders in the country will be turning off the spigot.

 

 

Wed, 11/11/2015 - 21:41 | 6779925 sun tzu
sun tzu's picture

It's time to package up some EBS for the Fed to buy. 

 

Energy Backed Securities

 

Bankers can lend billions to these companies like the NINJA loans for the housing bubble. These will be NISBSCFS bonds. No income statement, balance sheet, cash flow statement loans. These will be at 2% interest. The banks can turn around and sell them to the Fed. The losses disappear in the Fed balance sheet just like Maiden Lane I & II. 

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