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Defaults still occurring in US energy.

New York: Fitch Ratings said defaults are still occurring in US energy, notably the exploration and production (E&P) subsector, despite higher oil prices.

Fitch Ratings is a nationally recognized statistical rating organization (NRSRO) designated by the U.S. Securities and Exchange Commission. Last week, Fitch raised its WTI and Brent oil price assumptions for 2018 to $65 per barrel (bbl) and $70/bbl, respectively, from $55.0/bbl and $57.5/bbl, in response to improving supply-demand balances, robust demand growth, and heightened geopolitical tensions, including the renewal of US oil sanctions on Iran. Higher oil prices are expected to provide significant relief for high-yield E&P companies, as higher realized prices improve cash flow and support liquidity, and generally ease refinancing conditions.

Distress peaked in August 2016, with a 32.1% default rate for E&P companies, and in January 2017, with a 19.7% default rate for energy overall. However, lingering dislocations from shale and the lagged cleanup of capital structures is resulting in continued distressed debt exchanges (DDE) and Chapter 22 filings for speculative-grade E&P firms.

The E&P high-yield bond TTM default rate ended May slightly elevated, at 5.8%, versus 2.7% for the total US high- yield market. However, the May TTM institutional leveraged loan energy default rate was 19.4%, due mainly to Fieldwood Energy, which comprised 40% of energy loan defaults over the past year, versus 2.5% for the total market. Fieldwood was the largest energy loan default on record.

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Publication:Daily the Pak Banker (Lahore, Pakistan)
Date:Sep 14, 2018
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