Oil bonds are becoming a major problem
Oil and gas names now top Moody's growing list of companies rated B3 negative and lower, according to a research report released Friday.
Bond ratings this low are considered "junk."
Here's Moody's Julia Chursin:
"Of the 28 companies that were added to the list, 43% were from the oil & gas sector, which has seen an uptick in ratings downgrades due to falling oil prices. From the inception of the list, companies from the oil & gas industry, on average, comprised 8% of its total population. As of March 1, they comprised almost 14% of the list, the segment's highest percentage ever and the largest industry sector on the current list. The latest change represents a quarterly increase of 5.5%."
Overall, the number of companies on that list is 184 (at March 1), a two-year peak.
Last week, we reported on Quiksilver Energy filed for Chapter 11 bankruptcy protection because it's struggling to settle its $2.35 billion debt.
And earlier in March, American Eagle Energy missed the first $10 million interest payment to its bondholders, and entered a 30-day grace period.
Chursin added that "While previously a majority of companies left the B3 Negative and Lower list via positive rating changes or rating withdrawals, this trend has now reversed, with defaults being the main reason why companies are leaving it. A continuation of this reversal could signal tough times ahead for speculative-grade issuers."
Despite a brief recovery that's taken West Texas Intermediate crude back above $50 per barrel, it is still more than 50% below its June 2014 peak.
Moody's included this chart showing that WTI prices and the number of oil and gas companies on the list, which the firm said "generally move in the opposite direction."
