YTD Corporate Default Jump To Highest Since 2009

Tyler Durden's picture

While many were looking forward to the weekend in last week's holiday-shortened week for some overdue downtime, the CEOs of five, mostly energy, companies had nothing but bad news for their employees and shareholders: they had no choice but to throw in the towel and file for bankruptcy.

And, as Bloomberg reports, with last week's five defaults, the 2016 to date total is now 31, the highest since 2009 when there were 42 company defaults, according to Standard & Poor's. Four of the defaults in the week ended March 23 were by U.S. issuers including UCI Holdings Ltd. and Peabody Energy Corp., the credit rating company said.

This is just the beginning: we expect the real energy default tidal wave to be unleashed in a few weeks when, following the spring redetermination season, energy company liquidity evaporates as banks slash their committed exposure, and oil and gas firms - seeing no way out - and no longer able to raise equity and refinance bank debt, will have no choice but to make that last trek to bankruptcy court as they hand over the equity keys to the company's unsecured and, in most cases, secured lenders.

We also wonder if at that moment when total 2016 to date defaults surpass 2009 (in roughly 2-3 months), whether the so called "market" will also hit fresh all time highs.

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Theonewhoknows's picture
Theonewhoknows (not verified) Mar 28, 2016 2:20 PM

Shale bond market will make the energy companies drop like flies unless bailed out. 
and then we will have another 2008 

Hohum's picture

That's when the fun begins: when a big energy player files BK.  Peabody Energy?  Chesapeake Energy?  Bueller?

RadioFlyer's picture
RadioFlyer (not verified) Hohum Mar 28, 2016 2:43 PM

Bueller Default and Gas Co. for sure.

Farmer Joe in Brooklyn's picture

Good write-up, but I'd be VERY cautious shorting bonds of E&P companies. 

The default wave, if fully realized, would cause complete mayhem in the credit markets.  You would see banks buckle and a collateral chain waterfall. 

For this reason, I believe the Fed will do EVERYTHING in their power to slow/stop the defaults in the energy space.  If they are not already meddling, they will soon (which the author did allude to).

I think the brainiacs at the Fed could even openly admit to buying up E&P assets on the cheap as a strategy for "energy independence".  Of course, they'd be bailing out creditors in the process... but Americans are easily duped. 

I hope I'm wrong, but I suspect that the Fed will intervene with another bailout. 

When this shit finally blows, it's going to be epic.  But they know this also and will pull EVERY last rabbit they have in their hat this time around because the alternative will make the Great Depression look like a picnic.

Tick tock, tick tock...

jm's picture

This isn't like a bunch of mortgages held on bank balance sheets and can't be unwound.  Bank exposure to energy in terms of bonds-- and this is absolutely an energy commodity story--is low.  Loans more, which may prove me wrong.

The Fed has no need to intervene by buying assets here to keep management in place.  Mortgages were messy and securitization created ambuiguity at every turn. With bonds, the work-out process is BK which in the US is pretty brutal and fast.  Someone WILL buy these assets at a discount.  And the the music will start again.

As long as rates stay low, and yield are unattractive in other debt, high yield is going nowhere. When rates go up not because the FED is jerking funding off and buying up the rates market, but because the market goes on strike, then it will be epic. I refuse to pretend anyone knows when this will be.


NoDebt's picture

She is made of iron, sir.  I assure you she can and will sink.  The pumps merely buy you time, nothing more.


NoDebt's picture

"We also wonder if at that moment when total 2016 to date defaults surpass 2009 (in roughly 2-3 months), whether the so called "market" will also hit fresh all time highs."

The Magic 8-ball says "It is decidedly so."


Panafrican Funktron Robot's picture

Cabot and Anadarko are pretty concerning from a liquidity standpoint.  Apache is also all kinds of ugly.

scubapro's picture


apc, rig  throwin wft   this is a signif portion of the industry.   do they get bought for $1 to avoid BK by HAL??   or do the execs form a new company and merge a couple.....or b/c of their largesse   shareholders go to 0, and bondholders get 15cents via new stock offering? puts then buy the bonds for 5cents and get in line?

scubapro's picture


it is truly amazing.  truly.    so many real value data points, many econonmic data points  clearly show the overvaluation and turn in trend from the top...yet spx, djx  dont even blink.     it makes the 'price' of the mkt just that much more hollow, prone to air pockets.  

a while back, i kept thinking we wouldnt 'crash' like 2008 and it would be 'death by a thousand cuts/frog in slow boil' type of market...where main st wouldnt notice until were at -30%.   2008 was crash, so this would be different...but the hollowness is pushing me to the crash idea again...what might be different, is the 'crash' to -30%, is quickly ignored as 'that was it, time to buy again' and after a 20% climb (still down by 16%), another air pocket.

i dont believe anything matches exactly, thus keep trying to see where the difference will occur.   so here today we have total complancency, whose opposite mkt impact may be the 'air pocket'; mix with a strong desire for it to 'be over, time to buy'  and there is just multiple kicks to the head.     everyone has a plan until theyre punched in the face.

lasvegaspersona's picture

How big are these companies? Are we talking major player or just 'companies'? Hell there were probably a dozen 'companies'

going out of business the hard way here in Vegas just yesterday (I don't know that for a fact but it is probably a fair guess.)

resaci's picture

Titanic had plenty of liquidity