Energy

Energy High-Yield Bond Defaults Most Since 2009

Paul Ausick

Published: February 19, 2016 12:05 pm

Last Updated: January 13, 2020 12:58 pm

Through the first two months of the year, the trailing 12-month default rate on high-yield energy bonds is expected to reach 9%. Halfway through February, 11 high-yield bonds have defaulted, the most recorded during a one-month span since a similar number were chalked up in September 2009.

To date in 2016, 14 companies have defaulted, and another six are expected to default in March after missing February interest payments.

The issuer count is 28% higher now than it was in 2009, but that’s probably cold comfort to holders of the soured bonds. The energy and metals/mining sectors have accounted for $5.5 billion in defaulted volume, or 82% of the total count.

The data were reported Friday by Fitch Ratings. The agency expects the default rate on energy exploration and production company bonds to reach 14% by the end of February.

The situation may ease somewhat, however, according to Fitch Ratings:

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 energy and metals/mining sector have just $5.1 billion of debt maturing this year, but that number climbs to $19.9 billion in 2017.

On Thursday, Moody’s said it expected the speculative-grade (aka, high-yield or junk) default rate to rise 4.7%, a six-year high, by next January, up from 3.1% last month.