Bankruptcy risks rise for US shale, Credit crunch looms for producers as ‘staggering’ amount of debt nears maturity by Derek Brower, Feb 19, 2020, Financial Times
Bankruptcy risks in the US shale sector are rising, with weak oil prices and tightening access to credit worsening the outlook for some producers just as a “staggering” $86bn in debt maturities start to come due.
Speculative-grade, or subinvestment, debt makes up more than 60 per cent of the total to be repaid between now and 2024, “implying a higher degree of default risk for the industry”, said Moody’s, the rating agency, in a report on Wednesday.
Speculative-grade maturities will peak in 2022, dwarfing investment-grade maturities by almost two to one that year, Moody’s said.
But weakening oil and gas prices, and bearish market sentiment — caused by expectations of a global oil-supply overhang in the first half of 2020 — will hurt producers’ efforts to raise more money this year, in turn threatening to starve them of capital to invest in production to keep cash flow intact, said analysts.
Companies already rated at subinvestment level and those focused on natural gas are especially exposed and will face investors that have developed a “risk aversion” to the sector, said the Moody’s report.
Natural gas-focused Antero Resources, EQT and Chesapeake, which between them hold debt of more than $5bn due to mature between now and 2024, were among 12 companies Moody’s said would face a “particularly challenging” refinancing outlook.
“While these companies have already taken some measures to address maturities, more needs to be done,” said Moody’s.
In January, the average interest rate paid by shale producers for corporate debt rated by Moody’s as B3, or highly speculative, was 400-500 basis points above the average for B3 rated debt across all sectors, said Sajjad Alam, the lead author of the Moody’s report. …