Energy Creditors Lucky To Recover 15 Cents On The Dollar In Bankruptcy

Tyler Durden's picture

This past Wednesday, we reported that in the latest twist of the energy sector collapse, liquidating oil and gas producers, and specifically their creditors, got a nasty lesson in trough cycle asset values when in one after another bankruptcy "stalking horse" aka 363 auction, they were not only unable to cover the outstanding debt (both secured and unsecured) through asset sales, but barely able to cover a tiny fraction of it.

"A lot of people got into this business and didn’t really understand the ups and downs of price cycles,” said Becky Roof, a managing director for turnaround and restructuring with the consulting firm AlixPartners. “They’re getting a very bad dose of reality right now.”

Becky is right as the following bankruptcy liquidation sales tabulated by Bloomberg demonstrate:

  • Dune went belly up owing $144.2 million. Its assets sold for $20 million.
  • In May, American Eagle Energy Corp. filed for bankruptcy with debts of $215 million. Its properties sold for $45 million in October.
  • BPZ Resources Inc. owed $275.2 million. Its assets fetched about $9 million.
  • Endeavour International Corp. went into bankruptcy owing $1.63 billion. The company sold some assets for $9.65 million and handed over the rest to lenders.
  • ERG Resources LLC opened an auction with a minimum bid of $250 million. Response? No takers.

Then earlier today we learned that as part of its 363 Asset Sale, the 3rd largest bankruptcy of 2015 after Samson Energy and Sabine Oil, that of Quicksilver, the estate was only able to collect $245 million in cash proceeds from BlueStone Natural Resources. With $2.35 billion in debt, Quicksilver was one of the first casualties of the energy bust when it filed on March 17, 2015. Today's news means that the recovery for its creditors is a paltry 10 cents on every dollar of total debt, most of which will go to partially satisfy secured claims.

The problem as the chart below shows is that these bankruptcy auctions confirm recoveries on existing debt will be paltry, and based on our limited dataset, average to roughly 15 cents on total debt exposure, which includes both secured and unsecured debt.


The good news is that our data set won't remain limited for long.  Here are several charts from Haynes and Boone showing why all those bankruptcy lawyers and financial advisors who were sitting back twiddling their thumbs for so many years, are now fully back in business.

First, the cumulative North American E&P bankruptcy filings, with some of the most notable filers for any given month:

Next, the cumulative debt that was gone "under" in the past year: some $17.2 billion:

Finally, the full list of all 2015 bankruptcies as of January 6.

In other words, the energy bankruptcy party is only just starting.

As a reminder, there are currently over 60 companies accounting for $325 billion in debt which are cash flow negative, a number which is about to surge as oil price hedges expire, unless of course oil manages to soar from here. If only 10% of these companies file in 2016, that would mean a doubling of the total amount of defaulted debt in 2015, and a shock to the entire US banking system which despite what it would like you to believe, it very much exposed to the next big default wave.

It's only downhill from there.

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Xibalba's picture

Energy Creditors Lucky To Recover 15 Cents On The Dollar In Bankruptcy...Translation: BANKERS GET PAID FOR NOTHING (still). But you lose everything.

JRobby's picture

We needed the yield. Don't you understand what it is like to need something so badly you will do...........

(Laugh Track Deafening)

glenlloyd's picture

I love the smell of defaults

JRobby's picture

When the curtain was pulled open, the deafening laugh track ended abruptly, replaced by "Pay No Attention To That Man Behind The Curtain", booming through the speakers of the world at an equally deafening volume..........

junction's picture

"But...but, my financial planner said this was a good investment."

Eyeroller's picture

It was "Predatory Lender" in 2008.

"Predatory Broker" and "Predatory Financial Planner" will be the terms de jour for 2016.

sun tzu's picture

fuck those fucking greedy bankers chasing yield

CHoward's picture

That's true capitalism - winners and losers...except when you get a fucking bail out. 

Beam Me Up Scotty's picture

Sounds about like what I will recover from all the money I have sent to the Social Security Administration.  15 cents on the dollar, might even be optimistic.

Cognitive Dissonance's picture

SS has always been a tax and always will be. It says so in the IRS code. It's just dressed up in a sexy red retirement dress and high heels.

<Not for long though.>

The sale pitch was you get more out than what you pay in. And for the early adopters it was a great deal. But as with all Ponzi's, those late to the game get little to nothing.

glenlloyd's picture

Yes, those who come at the tail end of the ponzi don't even get out of it what they paid in, if they get anything at all.

I need more asshats's picture

They wanted us to believe that Madoff was a "bad guy". Yea whatever. I send him birthday cards every year thanking him for giving the greedy joos a good kick in the balls!

Beam Me Up Scotty's picture

Oh I know that SSI was a tax, Cog.  I'm just trying to edjamacate some of the "government worshippers" who read this site, who think those "programs" are the greatest thing we have going for us, that those programs are nothing but a RIP OFF.

I have to laugh, one of the Teamsters pension plans(probably many of them) are getting a big hair cut, and all of these guys are singing the blues about how they defferred raises to get more out of their pensions.  And now, congress is voting to cut them.  Its a prime example of the best advocate for you is YOU.  Why do you need someone else to hold your money for years and years?  And you are surprised when its not all there when you think it should be???   Why should I, as a taxpayer, have to bail out your shitty union and its poor money management decisions???

Spiritof42's picture
Spiritof42 (not verified) Beam Me Up Scotty Jan 23, 2016 9:17 PM

Why do you need someone else to hold your money for years and years?  

That's another reason why SS is a confidence game. The feds get interest free loans for the years you are working and well into retirement.

I have to at least give Roosevelt credit for being a master con man. In his day, the politicians were still not comfortable with debt and deficits. SS was an ideal way of instituting a tax by palming it off as old age insurance.

bluskyes's picture

Your government is betting that you will not live long enough to collect it.

OldPhart's picture

And they're arranging the situation to ensure you/we won't.

JRobby's picture

As always Cog & glen.

The mathematics of ponzi always work out exactly like the problems at the end of the chapter.........

The side of "X" that you are on is negative value.

Dark Daze's picture

Well, if you had a government who gave a flying fuck about the citizens it wouldn't have invested every penny of SS in so called 'safe' Treasuries that it then borrowed from to fund the war machine.

Sorry, but the people themselves have allowed this to happen through ignorance, indifference and arrogance.

StychoKiller's picture

"You fscked up, you trusted us!"

Donald J. Trump's picture

It was all fake money anyway.

Flying Wombat's picture

This is an outstanding interview with Kranzler:

The Oil And Gas Credit Collapse Is Going To Be Catastrophic – Dave Kranzler

azusgm's picture

Let's see how the school board explains the new tax rate for 2016 on the debt service that couldn't possibly cost more than $0.29/$100. The general obligation debt will be paid no mattter how high the rate has to be adjusted. This will be a double hit for the unemployed workers.

Dragon HAwk's picture

Package Debt and call it a Security...  what a Hoot...

Son of Loki's picture

AAA+++ and sell to the Germans! They're pretty gullible evidently.

wizteknet's picture

Live in Texas very depressing news indeed...

Son of Loki's picture

"Texas toast" will have a new meaning. I have friends in Housotn in engineering and both have been fired already. They're planning on putting their houses up for sale soon if they cannot find enough work to pay the mortgage. Very bleak.

Al Tinfoil's picture

Sell their houses into a failing economy?  Better sell soon before the house prices collapse along with the oil price (if house prices have not collapsed already).  

Waking to reality can be a real bitch after living through a time of delusions of limitless prosperity.  The shale revolution never made economic sense when well productivity and depletion rates were considered, but the muppets bought into the hype.

JRobby's picture

Houston & Calgary are sister cities!

The Houston middle managers are priced out of Vail & Aspen for the foreseeable future. Airfares falling as a result of their demise, better ski in Canada this year!

Iam_Silverman's picture

Surely those bonds were wrapped by CDS....No?  Even more scary - if they were covered by CDS, who holds the counterparty risk?  WOuldn't it be a hoot if some of the banks on the hook for senior secured or even mezzanine-level debt also issued CDS against it?  Might as well double-down on your bets, right

Ms No's picture

The shale miracle has come full circle.  Who will get all of the assets, hmmm....

They wont be cheap down the road whether they are scarce or not.

digiblader1's picture

And consumers will get screwed by layoffs in the oil companies, huge spikes in oil prices due to production going offline due to these bankruptcies, and banks having to take big writedowns on these shale oil company dates.

dogbert8's picture

Bailout?  Of course, only a matter of whom and when.

EdSav's picture

THIS IS TERRRIFIC NEWS!! Now I can buy these at .006c/$ and cash in at 15c!!

MaxThrust's picture

Income tax is actually a labour tax. You have to pay the government for the right to work!

Bye the way if the creditor is able to collect 10cents on the dollar and was able to create credit to the tune of 10 times it's reserves, has it really lost any money?

Dark Daze's picture
Dark Daze (not verified) Jan 23, 2016 10:08 PM

So the 'suckers', i.e. the retail investors who bought the high yield debt get 10 cents. The companies get nothing. The stock holders are wiped out. But those who have access to capital, i.e. the people who own the banks do just fine thank you very much. They get prime assets for nothing in a world where the bottom is almost in and soon those companies will be spewing oil again at much higher prices. This is called 'predatory capitalism' and it stinks to high heaven.

Since the end of the second world war the US has spent over 100 Trillion on wars and the weapons of war, on coups and supporting dictatorial governments with money from the US taxpayer in the mistaken belief that they could take what they wanted.

That amount of money would have paid for universal health care for every citizen for life; it would have provided pensions for every retired American of at least 5,000 a month; it would have fixed every road and bridge in the country and there would have been enough money to send every qualified and deserving individual to college for free.

You made your choices. Now live with the consequences.

Publicus_Reanimated's picture

Smacks of a government takeover of, well... just about everything.  Is that what you really want?  I like my democracy messy, thank you.

Dark Daze's picture

I never argue with an American's god given right to be disenfranchised.

dogismycopilot's picture

these assets will go back up in price within the next 5 years. same as housing after 2009.  

Bemused Observer's picture

But I thought asset seizure was the name of the game...Oh, mean those seized assets aren't actually WORTH what the loan amount was for?

Boy, that sucks. Looks like a lot of rentiers are going to have a come to Jesus moment shortly after the default cycle gets under way...Seizing property sure can suck when the economy is against you.

What's better, writing off a bad loan and driving on, or trying desperately to salvage some 'value' and getting stuck with worthless assets that come with a taxes and maintenance costs that must be paid regardless?

People made stupid loans. Really, really stupid loans. And the reality is gonna hurt, bad. Because the real economy cannot and will not support all the debt racked up in its name. Anyone wanting to buy a house? Not for 'investment, but for living. Wait...a once-in-a-lifetime deal is coming your way...

assistedliving's picture

I remember getting calls from some f$#kers in Dallas about once a week back in '15.

to think, if my Au/Ag holdings had done 1 oz better; hell I might have.

See how my PM holdings saved me so much money!  

Panic Mode's picture

Who cares?? Jamie Dimond said they only hold little. These banks *claimed* they can take it. Let these energy companies default and see who blinks first.

surf@jm's picture

"Energy Creditors Lucky To Recover 15 Cents On The Dollar In Bankruptcy"

The real title should be:....."Taxpayers Lucky to Recover 15 cents on the dollar in bailout"

Wheres my General Motors stock?........