While investors have grown to used to knife-catching heroics in equity markets, the Energy credit markets have been a poster child of yield-reaching, bottom-guessing, dip-buying exuberance in the past six months. As every leg lower in oil was met with more Oil ETF buyers and bond buyers (or loan financers) as "the bottom is in," so each low has failed and new lows are made. The last few days have seen credit risk soar the most in 2015 in the energy sector as numerous firms enter bankruptcy or approach it with huge looming coupon and principal due. What is even more telling is the news of a huge liquidation sale of energy heavy equipment which will be the 'tell' for the entire industry if it is weak...
Who can resist a 1000bps spread?
But the last few days have seen credit risk surge most in 2015...
As Bankruptcies mount...as Bloomberg reports,
Quicksilver Resources has until Thursday, March 19 to reach a deal with creditors over a missed $13.6 million interest payment, increasing the possibility the oil and gas driller will follow two peers who filed for bankruptcy protection this month.
The Fort Worth, Texas-based company said on Feb. 17 that it wouldn't make the interest payment on $298 million of bonds maturing in 2019. It said it had a 30-day grace period before failure to pay is considered an event of default. Bondholders would then have the ability to accelerate the $298 million bond's maturity to immediate payment. If that occurred, cross defaults would be triggered on some of the company's $2.03 billion in borrowings.
Aside from the looming interest payment, the company is dealing with the threat of a cascading series of loans coming due sooner than planned because it has yet to refinance a subordinated piece of debt.
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Quicksilver has been battling a cash squeeze made worse by a rout in oil prices that helped push offshore rig servicer Cal-Dive International and oil explorer BPZ Resources into bankruptcy this month. Colorado crude producer American Eagle Energy missed its first interest payment earlier this month on a $175 million junk bond as it struggles to cope with U.S. crude that is down 52 percent since July.
And then there's Sabine Oil & Gas...
Sabine Oil & Gas 2019 bond yields jumped to a record high of 73.7 percent Monday after the oil and gas exploration company said it will delay filing its full-year results until March 31 and canceled a conference call for after it releases fourth-quarter and 2014 earnings.
From Par to 16 c on the dollar in 3 months...
And now we see liquidations begin...as the biggest heavy equipment auction house - Ritchie Bros - prepares near record auction of energy trasnportation and crane equipment... offering its own financing for the first time in what appears a desparate move to get this off their books...
On March 25, Ritchie Bros., the world's largest industrial auctioneer, will conduct a massive multi-million dollar crane and transportation auction for Energy Transportation in Casper, Wyoming. Energy Transportation is the largest supplier of fully operated and maintained crane services, specialized rigging, and heavy haul transportation in the state of Wyoming. More than 750 items will be sold in the one-owner unreserved public auction, including 14 rough terrain cranes (ranging from 20 – 150 tons), seven all terrain cranes (225 – 600 tons), seven hydraulic truck cranes (75 – 110 tons), six crawler cranes (230 – 660 tons), related rigging equipment, as well as heavy-spec trucks, trailers and other equipment.
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A special financing offer is available for this auction through Ritchie Bros. Financial Services, with rates as low as 3.95% and no payments for 90 days. "We've got a special financing offer in place for this auction only, so buyers can bid with the power of cash and finance their purchases at great low rates"
Watch this auction as your tell for global expectations for the energy complex
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As Deutsche Bank warned previously, if oil prices stay low for a while...
"we would expect to see 1/3rd of US energy Bs/CCCs to restructure, which would imply a 15% default rate for overall US HY energy, and a 2.5% contribution to the broad US HY default rate.... A shock of that magnitude could be sufficient to trigger a broader HY market default cycle, if materialized."
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With rates set to rise - and with them a tightening of financial conditions which will reduce further the efficiency of carry trades to fund spec HY plays, the window for these HY Energy names is closing fast.
