Fitch: Peabody, Energy XXI Boost U.S. HY Default Volume to Two-Year High
OREANDA-NEWS. The trailing 12-month (TTM) U.S. high yield bond default rate is on track to hit 3.9% by end-April, according to Fitch Ratings. April defaults, headlined by Peabody Energy's filing yesterday and Energy XXI's filing this morning, coupled with a missed payment for Linn Energy already total $14 billion. This marks the largest monthly default volume registered since the $20.3 billion in April 2014 when Energy Future Holdings filed.
The TTM default rates for energy and exploration & production (E&P) will approach 12% and 23%, respectively, as those sectors continue to feel the fallout in commodity prices. The TTM default rate for metals/mining will climb to nearly 20% following Peabody's filing while the coal subsector nears 70%.
"The second quarter will not see a reprieve in defaults," said Eric Rosenthal, Senior Director of Leveraged Finance. "April defaults alone will nearly match the $15.7 billion tallied during the first quarter."
Twenty six issuers defaulted during the first quarter of 2016 (1Q16) vs 13 in 1Q15. Distressed debt exchanges were the biggest form of defaults in 1Q16, accounting for 42%.
Conversely on a volume basis, missed payments and Chapter 11 filings comprised a large majority (85%) of defaults. Much of that volume (78%) was from the energy and metals/mining sectors.
Despite a slight rise in oil prices, 'B-' or lower-rated E&Ps are struggling in the secondary market, with 57% of those companies bid below 50 cents. That number is unlikely to rise while oil prices remain below breakeven production costs.
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