Moody’s: 2016 likely to see more oil and gas defaults

Fuel Fix ^ | January 5, 2016 | Robert Grattan

[thackney]

Moody's Investor Service hiked its measure of economy-wide financial stress to the highest level since 2010 on Tuesday and warned that more defaults are coming among oil and gas companies this year.

The debt rating agency raised its oil and gas liquidity stress index, a gauge of how easily companies can access capital markets, from 19.3 percent in November to 19.6 percent in December. A higher reading indicates companies are having a harder time raising money.

For the wider economy, Moody's bumped the liquidity stress index up to 6.8 percent in December, up from 6.5 percent in November. The hike puts the financial stress measured by the index at the highest level since February 2010.

"The increase is a red flag that the default rate will continue to climb in 2016," Moody's said in a report released Tuesday.

Moody's downgraded four oil and gas producers in December, including Atlas Energy Holding, California Resources Corp. and Ultra Petroleum Corp. Moody's predicted that Atlas and Ultra would seek to make deals with their creditors in the near future, and noted that California Resources had recently completed a deal with lenders to restructure its debt. The fourth company downgraded was Vanguard Natural Resources.

Ratings agencies often consider deals that change lending terms defaults, though many creditors are willing to accept them because they can be a better option than a bankruptcy.

Moody's has been cautious with its approach to oil and gas debt. In December, the group said it was reviewing 29 exploration and production companies' ratings for potential downgrades, including debt at large companies such as Anadarko, Apache, Pioneer Natural Resources and ConocoPhillips. Moody's said the review could be completed in roughly three months.

Across the wider economy, Moody's noted that there were 141 credit downgrades and 81 upgrades in 2015. The negative trend of 1.74 downgrades per upgrade was the steepest since 2008's record ratio of 2.96, when the global economy was wracked by a financial crisis.

In December, there were 12 downgrades and two credit upgrades. Nine of the credit demotions brought companies to Moody's lowest assigned rating, indicating an imminent default, the agency said. Energy companies have driven the downgrades, and Moody's cautioned that some liquidity problems were beginning to leak over into other sectors.

Still, the group cautioned that there was little risk of the commodity slump sparking a broad financial panic. "[Speculative-grade] liquidity nevertheless remains much better compared to the depths of the last recession, and should be supported by U.S. economic growth in 2016, modest maturities for the market overall, and the prevalence of [covenant]-lite loans," analysts wrote.

[Abathar]

My company just got stung with about $150K +/- by a default customer who supplies pipeline valves and seals. Now I have a brand new machining center that their jobs were suppose to pay for just sitting here.

Oil is down 3.25% this morning as well now, yes I get people love the lower prices at the pump but there has to be a happy medium soon. Not saying $100/bbl, but $55 to 60 isn’t too bad a place to rest for a while though.