Energy-sector bond defaults – and for some producers, bankruptcy risks – are piling up, and coal liabilities aren’t the only culprit. Oil-and-gas producers, suffering with low crude prices after a shale revolution made the U. S. a viable energy producer, are smothered under their own junk bonds.
Small- and medium-size U. S.-based producers, especially those that expanded with the shale boom, are most vulnerable; any blip in oil prices may not be high enough or fast enough to protect all producers. And just this week, at least two more warned about their near-term future. It’s a climate that’s driven some of this sector’s high-yield paper to trade at 30 cents on the dollar or less.
Peabody Energy BTU, 11.87% said Wednesday it filed a ‘going concern’ notice with regulators. Peabody has opted to exercise the 30-day grace period with respect to a $21.1 million interest payment due March 16 on its 6.50% notes due in September 2020, as well as a $50 million interest payment due March 16 on its 10% senior secured second lien notes due in March 2022. Costs and lost business to tougher coal regulation were cited.
But Linn Energy LINE, -9.35% -which on Tuesday filed its own ‘going concern’ after missed interest payments now in a grace period – is primarily an oil-and-gas producer with shale interests in western U. S. states. If it files for bankruptcy protection, its $10 billion in debt would make it the largest U. S. oil company to do so since oil prices began their sharp decline in mid-2014.
This post was published at David Stockmans Contra Corner on March 17, 2016.
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