By Matt Jarzemsky
The ranks of financially stressed companies have swelled to a 4
1/2 -year high as the sharp drop in oil prices batters energy
companies.
The number of companies with the worst below-investment-grade
debt ratings rose to 184 in February, the highest count since
November 2010, and remained at that level in March, according to
Moody's Investors Service. That is a 16% increase over March
2014.
The 25 oil-and-gas and oil-services companies listed accounted
for 13.6% of the total this month, their highest share ever.
Moody's tally of stressed companies includes only U.S. nonfinancial
firms rated B3 with a negative outlook for future ratings changes
or lower. The B3 rating is six notches into junk territory.
"If this trend increases, we might see more defaults in the
energy sector," said Julia Chursin, an associate analyst at
Moody's.
A 52% slide in oil prices since June has marred an otherwise
healthy period for corporate balance sheets. While companies
broadly are still benefiting from an improving U.S. economy and
easy borrowing conditions, energy companies face a cloudy
outlook.
A number of energy companies already have filed for bankruptcy
protection. Texas oil-and-gas company Quicksilver Resources Inc.
sought Chapter 11 protection last week, following bankruptcy
filings by BPZ Resources Inc. and Dune Energy Inc. this month.
Others are exploring options to raise capital or restructure
their debt loads. Houston energy company Midstates Petroleum Co.
has held talks with potential investors to raise financing,
according to investor materials released this month. Moody's has a
Caa1 rating on the company.
Samson Resources Corp., which has a B3 Moody's rating, is
weighing options for its $3.8 billion in debt, The Wall Street
Journal reported last month. The Tulsa, Okla., company's lenders
this month trimmed how much it can borrow in exchange for more
leniency on how much debt it can carry.
"Midstates believes it has adequate access to the capital
markets, which gives us the flexibility to deal with our current
situation," said a spokesman. Samson declined to comment.
Meanwhile, the oil slump has created opportunities for the
lawyers and bankers who advise struggling companies. Bankruptcy
filings remain low, and the speculative-grade corporate default
rate stands at just over 2%, well below the 4.55% historical
average.
"If you go back to June of last year, I don't think any of us
thought that we'd see the explosion of opportunities around
companies in commodities," said Steve Zelin, senior managing
director in Blackstone Group LP's restructuring advisory group.
A recovery in prices may lift the fortunes of some oil-and-gas
companies. And bargain-hunting investors have lined up to seek
investments in the sector, raising the possibility of financial
lifelines for some companies.
"Overall, the picture's not that gloomy yet," Ms. Chursin said.
The ratings firm's forecast for corporate defaults for next year is
"still pretty low," she added. Moody expects the default rate for
junk-rated companies to rise to 2.9% by next February.
Write to Matt Jarzemsky at matthew.jarzemsky@wsj.com
Access Investor Kit for BPZ Resources, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US0556391086
Access Investor Kit for Dune Energy, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US2653387074