Taking a hit: Oil firms turn to junk bonds, bankruptcy
Price crash taking toll on entities throughout industry.
On Tuesday, shale producer Quicksilver Resources filed for bankruptcy protection for its US operations after missing a bond payment.
NEW YORK:
The oil price crash is taking a growing financial toll on companies throughout the industry, forcing some into bankruptcy and others to issue expensive junk bonds to stay afloat.
On Tuesday, shale producer Quicksilver Resources filed for bankruptcy protection for its US operations after missing a bond payment.
Earlier bankruptcies include a March 3 filing by Cal Dive International, which installs offshore pipelines and platforms. And energy firms are now the top issuers, by a wide margin, of junk bonds, which require them to pay much higher yields than conventional bonds.
On March 5, US Gulf Coast producer Energy XXI issued $1.45 billion in bonds that pay a steep 11%, planning to use the money in part to pay other lenders.
Energy XXI had previously warned it would not be able to make payments if commodity prices stay low.
The par value of high-yield energy company bonds on the market surged by about $30 billion in the first two months of the year, representing both new issues and downgrades. That was far more than any other sector.
The rise in junk bonds and bankruptcies are the latest sign of stress in the petroleum sector as US crude prices linger around $45 a barrel, down nearly 60% since June.
Low prices depress profits and pinch balance sheets, especially for smaller companies, which can be heavily leveraged. That is forcing more and more of them to go to capital markets to stay afloat.
Published in The Express Tribune, March 22nd, 2015.
The oil price crash is taking a growing financial toll on companies throughout the industry, forcing some into bankruptcy and others to issue expensive junk bonds to stay afloat.
On Tuesday, shale producer Quicksilver Resources filed for bankruptcy protection for its US operations after missing a bond payment.
Earlier bankruptcies include a March 3 filing by Cal Dive International, which installs offshore pipelines and platforms. And energy firms are now the top issuers, by a wide margin, of junk bonds, which require them to pay much higher yields than conventional bonds.
On March 5, US Gulf Coast producer Energy XXI issued $1.45 billion in bonds that pay a steep 11%, planning to use the money in part to pay other lenders.
Energy XXI had previously warned it would not be able to make payments if commodity prices stay low.
The par value of high-yield energy company bonds on the market surged by about $30 billion in the first two months of the year, representing both new issues and downgrades. That was far more than any other sector.
The rise in junk bonds and bankruptcies are the latest sign of stress in the petroleum sector as US crude prices linger around $45 a barrel, down nearly 60% since June.
Low prices depress profits and pinch balance sheets, especially for smaller companies, which can be heavily leveraged. That is forcing more and more of them to go to capital markets to stay afloat.
Published in The Express Tribune, March 22nd, 2015.