Moody’s Investors Service’s liquidity stress index (LSI) for oil and gas rose to 19.6% in December from 19.3% in November as the rout in oil prices continued to take a toll on the industry.
The sector’s LSI rose from 4.5% at the end of 2014 “and continues to edge closer to its March 2009 record high of 24.5%,” credit analysts said Tuesday. The index falls when corporate liquidity appears to improve and increases as it appears to weaken.
The index takes the total number of companies rated at the lowest speculative grade liquidity (SGL) rating, SGL-4, and divides it by the total number of SGL-rated companies. The more SGL-4 rated companies there are, the higher the index.
Among exploration and production companies that have been downgraded a notch by Moody’s to SGL-4 that are rated “Caa1 negative,” Atlas Energy Holdings is expected to undertake a distressed exchange transaction “on a significant amount of its unsecured notes in the very near future,” analysts said. California Resources Corp. recently completed a distressed exchange, while Ultra Petroleum Corp. “will likely seek a financial covenant waiver.”
More than three dozen oil and gas operators in the United States sought bankruptcy protection in 2015, with Swift Energy Co. filing its petition late on New Year’s Eve (see Shale Daily, Jan. 4). Swift’s default “is representative of continued oil patch challenges,” according to Fitch Ratings.
“The December trailing 12-month energy sector high yield bond default rate stood at 7.2% with the addition of Swift’s filing,” Fitch analysts said. For 2015, the credit analyst has an 11% energy sector default rate. “The beleaguered energy sector is the largest in the U.S. high yield index comprising about 17% of outstanding debt.”
Standard & Poor’s Ratings Services (S&P) said Tuesday the global corporate default tally totaled 112 issuers in 2015, the highest since 2009 when it reached 268. The oil and gas sector led the 2015 default tally with 29 defaulters, or 26% of the global total.
“The number of global weakest links grew to 195 (as of Dec. 14, 2015) from 187 (as of Nov. 19, 2015) — higher than the previous peak in March 2010 when the count was 203,” S&P noted. The oil and gas sector has the highest number of weakest links at 34.
“The U.S. distress ratio peaked for the year at 24.5% in December, compared with 20.1% in November,” S&P said. “The oil and gas sector accounted for 127 of the 437 issues that make up the distress ratio. The metals, mining, and steel sector had the highest sector distress ratio at 81.6% and the second-highest number of issues, with 71.”
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