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Fitch: US High-Yield Energy Default Rate Hits 9% in February

February 22, 2016, 07:33 AM
Filed Under: Industry News

The trailing 12-month (TTM) energy default rate is expected to finish February above 9% while the exploration and production (E&P) rate will surpass 14%, as continued declines in commodity prices are helping to push U.S. high-yield bond issuers in the direction of default, according to Fitch Ratings.

Eleven U.S. high-yield bond defaults were tallied through mid-February. That is the highest number recorded during a one-month span since 11 occurred back in September 2009, though the issuer universe count has grown 28% since then. So far this February, the energy and metals/mining sectors accounted for $5.5 billion in volume, or 82% on a count basis.

At the end of January, the TTM energy default rate was 7.2% and the E&P rate was 11.3%.

Currently, 41% of energy high-yield bond outstandings are bid below 50 cents. Over the past six months, there have been 12 distressed debt exchanges in the energy sector alone as the lower-for-longer oil price scenario pressures capital structures.

Arch Coal's bankruptcy filing in January propelled the metals/mining TTM rate to 13.8%, the highest sector rate since 2002. In addition, Verso Paper's January $1.7 billion filing represented the largest paper and containers default since September 2011.

So far this year, 14 companies have defaulted, with another six slated for default in March following missed interest payments in February.

Four consecutive years with high-yield bond issuance exceeding $250 billion pushed out the bulk of high-yield debt coming due to 2019-2023. Over the next 11 months, just $30.4 billion is slated to mature, with 14% coming from issues rated 'CCC' or below. In comparison, $27.1 billion was scheduled to mature in 2009 during the same period, but 52% of that was from the lowest-rated tier.

The troubled energy and metals/mining sectors have just $5.1 billion of debt maturing in 2016, but that figure nearly quadruples to $19.9 billion in 2017.

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