Fitch: Another Wave of E&P Bankruptcies Hits Default Rate
OREANDA-NEWS. The exploration and production (E&P) trailing 12-month (TTM) U.S. high yield bond default rate is at a record 27% due to bankruptcy filings during the past week by four E&P companies: SandRidge Energy, Breitburn Energy, Penn Virginia and Linn Energy, says Fitch Ratings. This is close to the 30-35% rate Fitch expects for the E&P subsector by the end of 2016.
The May TTM default rate for the broader energy sector is nearing 14%, while the rate for the total market rose to 4.5%, the first time it has been above 4% since July 2010.
"With the latest round of energy defaults completed, the big question is how many more bankruptcies will occur this year. The answer is probably quite a few," said Eric Rosenthal, Senior Director of Leveraged Finance.
Seventy Seven Energy and Lightstream Resources are both near-term default candidates that will push the E&P default rate higher if and when they file.
The energy and metals/mining sectors have dominated the default and bankruptcy landscape since commodity prices began to dive in 2014. Consistently low prices since then resulted in $17.5 billion of defaulted energy-sector debt in 2015.
"The high watermark set for energy defaults in 2015 has already been surpassed in the first four-plus months of this year," said Rosenthal.
So far in 2016, the energy sector has seen $26 billion of defaults.
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