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COMMENTS

Credit Trends: Distress Spikes For U.S. Oil And Gas As Maturities Loom


Credit Trends: Distress Spikes For U.S. Oil And Gas As Maturities Loom

The U.S. distress ratio (defined as the proportion of speculative-grade issues with option-adjusted composite spreads of more than 1,000 basis points relative to U.S. Treasuries) has widened considerably, to 9.4% in August from 6.2% in July, after distressed credits spiked in the oil and gas sector.

The oil and gas sector leads in maturing speculative-grade distressed debt through 2024. About 51% of the sector's total debt maturing through 2024 is speculative grade, highlighting near-term refinancing risks for lower-rated issuers in the sector. Lower-rated oilfield services issuers are feeling additional refinancing pressure as the sector has undergone a fundamental shift that will limit pricing power, due to a combination of much more efficient equipment and operations and restrained capital spending by the exploration and production industry (see "Another Brick In The Wall For The U.S. Oil And Gas Industry As Debt Maturities Build Through 2024," July 18, 2019).

Chart 1

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Developing Trends In Oil And Gas

The overall number of distressed credits increased to 166 in August from 110 in July, with all sectors experiencing either a net rise or no change since last month's report.  The tally of distressed credits in the oil and gas sector grew by 30 (see chart 3), which resulted in a spike in the sector's distress ratio to 36.4% from 18.4% (see table 1). Chesapeake Energy Corp., Gulfport Energy Corp., Rowan Cos. Inc., and Whiting Petroleum Corp. had the most new distressed issues in the sector.

Oil and gas prices have been volatile throughout 2019, most greatly affecting lower-rated issuers, which remain the most price-sensitive.  The oil and gas sector's speculative-grade spreads have widened considerably over the past few months and are close to levels last seen in 2015, when defaults in the sector spiked. In addition, new issuance in the sector has been at its weakest since 2006, before the financial crisis, with only $5.5 billion through Aug. 16, 2019. The trailing-nine-month proportion of speculative-grade new issuance in oil and gas dropped greatly in August, to 15.7% (see chart 2).

Chart 2

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Chart 3

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Chart 4

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Table 1

Utilities Had The Highest Percentage Change In Distressed Credits In August
Distress ratio (%)* Debt-based distress ratio (%)§ Number of distressed issues Total debt affected (mil. $) Percentage change in distressed credits by sector (%)
Aerospace and defense 5.9 3.0 1 370 N/A
Automotive N/A N/A N/A N/A N/A
Banks and brokers N/A N/A N/A N/A N/A
Capital goods 10.2 11.1 6 3,190 100.0
Chemicals, packaging, and environmental services 1.1 1.0 1 500
Consumer products 6.5 6.6 8 4,575 33.3
Financial institutions 3.6 4.4 5 1,506 0.0
Forest products and building materials 8.8 6.9 5 1,521 25.0
Health care 7.3 10.7 7 8,821 40.0
High technology 2.6 2.6 3 1,891 50.0
Homebuilders/real estate companies 5.7 4.1 4 1,020 0.0
Insurance 7.5 3.6 3 781 0.0
Media and entertainment 3.4 3.1 8 4,689 60.0
Metals, mining, and steel 3.3 2.8 2 875 0.0
Oil and gas 36.4 37.7 63 30,943 90.9
Retail/restaurants 21.0 18.8 17 7,636 21.4
Telecommunications 15.5 11.1 22 13,496 4.8
Transportation 4.9 5.1 2 1,075 100.0
Utilities 5.7 3.6 9 2,984 350.0
Total 9.4 8.7 166 85,873 66.3
*S&P Global Ratings' distress ratio is defined as the number of speculative-grade issues with option-adjusted spreads above 1,000 basis points divided by the total number of speculative-grade issues. §Outstanding debt amount associated with distressed issues divided by the total debt outstanding of speculative-grade issues. Data as of Aug. 16, 2019. Source: S&P Global Ratings Research.

Table 2

Oil And Gas Leads In New Distressed Issues
New Distressed Credits By Issuer
Company Sector Total issue count New issue count Outstanding amount (mil. $) Issuer rating Outlook/CreditWatch

DynCorp International Inc.

Aerospace and defense 1 1 370.0 B+ Stable

Ahern Rentals Inc.

Capital goods 1 1 550.0 B Stable

Brand Industrial Services Inc.

Capital goods 1 1 1,000.0 B- Stable

Titan International Inc.

Capital goods 1 1 399.7 CCC+ Negative

FXI Holdings Inc.

Chemicals, packaging and environmental services 1 1 500.0 B Watch Negative

H-Food Holdings LLC

Consumer products 1 1 350.0 B- Stable

Revlon Consumer Products Corp.

Consumer products 2 1 950.0 CCC+ Negative

Rayonier A.M. Products Inc.

Forest products and building materials 1 1 495.6 BB- Negative

Polaris Intermediate Corp. (d/b/a Multiplan)

Health care 1 1 1,300.0 B+ Stable

Tennessee Merger Sub Inc.

Health care 1 1 865.0 B Negative

Rackspace Hosting Inc.

High technology 1 1 1,123.6 B+ Negative

APX Group Inc.

Media and entertainment 3 1 1,124.3 B- Stable

Diamond Resorts International Inc.

Media and entertainment 1 1 600.0 CCC+ Negative

Harland Clarke Holdings Corp.

Media and entertainment 2 1 1,515.0 B- Stable

LSC Communications Inc.

Media and entertainment 1 1 450.0 CCC+ Negative

Ascent Resources Utica Holdings LLC

Oil and gas 1 1 975.0 B+ Stable

Chesapeake Energy Corp.

Oil and gas 7 7 5,556.0 B+ Stable

Denbury Resources Inc.

Oil and gas 7 1 1,979.3 CCC+ Negative

Ensco International Inc.

Oil and gas 1 1 112.1 B- Negative

Extraction Oil & Gas Inc.

Oil and gas 2 2 950.0 B Stable

Forum Energy Technologies Inc.

Oil and gas 1 1 400.0 B Negative

FTS International Inc.

Oil and gas 2 2 434.0 B Stable

Gulfport Energy Corp.

Oil and gas 4 4 2,050.0 BB- Stable

KLX Energy Services Holdings Inc.

Oil and gas 1 1 250.0 B Stable

Moss Creek Resources Holdings Inc.

Oil and gas 2 2 1,200.0 B Stable

Oasis Petroleum Inc.

Oil and gas 3 3 1,542.6 B+ Stable

Pride International Inc.

Oil and gas 1 1 300.0 B- Negative

Rowan Cos. Inc.

Oil and gas 5 4 1,979.4 B- Negative

Whiting Petroleum Corp.

Oil and gas 3 3 2,281.9 BB- Stable

Guitar Center Inc.

Retail/restaurants 2 1 946.0 CCC+ Negative

Rite Aid Corp.

Retail/restaurants 2 1 2,048.5 B- Negative

The Neiman Marcus Group LLC

Retail/restaurants 1 1 125.0 CCC Negative

West Corp.

Telecommunications 1 1 1,150.0 B- Stable

Kenan Advantage Group Inc.

Transportation 1 1 405.0 B Stable

CSI Compressco L.P.

Utilities 1 1 295.9 B- Stable

Ferrellgas Finance Corp.

Utilities 3 1 1,475.0 CCC Negative

Talen Energy Supply LLC

Utilities 5 5 1,213.4 B+ Negative
Data as of Aug. 16, 2019. Source: S&P Global Ratings Research.

For additional information regarding the distress ratio, please see our most recent quarterly publication, "Retail Is The Most Distressed U.S. Sector," published May 13, 2019.

Related Research

  • U.S. Refinancing--$5.2 Trillion Of Rated Corporate Debt Is Scheduled To Mature Through 2024, Aug. 15, 2019
  • Another Brick In The Wall For The U.S. Oil And Gas Industry As Debt Maturities Build Through 2024, July 18, 2019
  • Surging Distress In Oil And Gas Sector May Foreshadow A Second Reckoning, July 12, 2019

This report does not constitute a rating action.

Credit Markets Research:Sudeep K Kesh, New York (1) 212-438-7982;
sudeep.kesh@spglobal.com
Nicole Serino, New York + 1 (212) 438 1396;
nicole.serino@spglobal.com
Research Contributor:Abhik Debnath, CRISIL Global Analytical Center, an S&P Global Ratings affiliate, Mumbai

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