Monday, March 21, 2016

Report: $40B more energy debt could default this year

In 2016, oil and gas companies could default on an additional $40 billion in debt, according to Fuel Fix, citing a report by Fitch Ratings.

Approximately $6 billion of energy debt has already fallen into default this year, and Fitch Ratings expects energy companies to fall out of compliance on the terms of $9 billion worth of debt agreements over the next month. After that, an additional $40 billion could come in 2016. Fuel Fix noted that, throughout 2015, $17.5 billion in energy debt was in default.

The past three energy defaults have involved missed interest payments, Fitch said, adding that four more companies are expected to miss payments before the end of April. Those companies are Chaparral Energy, LINN Energy, Energy XXI, and Goodrich Petroleum.

LINN Energy has recently said that the company would miss interest payments on two loans, and that filing for Chapter 11 bankruptcy may be “unavoidable.” LINN has a large cash balance after drawing down its available credit, and the company has $1.8 billion in hedges that will ensure cash flow through 2016.

But the company is facing immediate demands on its cash and decreasing revenue. In addition to overdue interest payments, Linn is also expected to have its borrowing base cut by lenders in the coming months. Analysts from Fitch, Raymond James, and Standard and Poor’s all expect LINN to file for Chapter 11 in the coming months.


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