Forty-four North American oilfield services companies had declared bankruptcy this year through late July, Haynes and Boone LLP said in a report, but the sector appears primed to hit a huge debt wall in the next five years.
Moody’s Investor Service warned that speculative-grade companies are particularly vulnerable as almost $110 billion of debt matures or expires between now and 2021. The burden will nearly triple to $21 billion from 2017 to 2018, the company said in a report.
“While some companies will be able to delay refinancing until business conditions improve, for the lowest-rated entities, onerous interest payments and required capex will consume cash balances and challenge their ability to wait it out,” Morris Borenstein, Moody’s assistant vice president, said in a prepared statement. “We also see companies facing weakening financial covenant cushions that can accelerate default or result in expensive bank amendments that may or may not alleviate refinancing needs.”
More than $29 billion in issuance and revolving debt will come due in 2021, Moody’s said in its report, with low-rated entities constituting 65% of the total. More than 70% of the rated high-yield bonds and term loans that mature through 2018 are rated Caa1 or lower, the report said, and more than 90% are below B1.
Those figures don’t include about $3.1 billion of rated and unrated committed revolvers among issuers rated Caa1 or lower that are set to expire through 2018.
Huge investments made during the shale boom between 2011 and 2015 laid the foundation for accumulation of debt. Much of the maturing debt was issued during that time, Moody’s said, while drilling set records.
However, the collapse of crude oil prices that began in late 2014 has drastically reduced drilling and placed enormous financial pressures on oilfield service companies, cutting off avenues for refinancing and forcing many to foreclose.
Moody’s expects more than one-third of the 67 companies analyzed in the report to have debt/EBITDA above 10x in 2016, placing them more at risk for debt restructurings and defaults.
Haynes and Boone listed 83 total filings for 2015 and 2016 in the July 20 issuance of its Oilfield Services Bankruptcy Tracker. Secured and unsecured debt for 2016 through late July, $8.16 billion, is 53.5% above the figure for all of 2015.