The rout that pushed commodities prices to the lowest level in 16 years continues to wreak havoc on energy-company balance sheets, with the number of high-grade bonds at risk of ending up junk rising last quarter to the highest level this year.
Companies from Freeport-McMoran Inc. to Canadian Oil Sands Ltd. are among 17 issuers that Moody’s Investors Service added in the third quarter to its "fallen angels" list -- companies at risk of being reviewed for potential cuts or tagged with negative outlooks that would push them to junk status.
They contrast with potential "rising stars," speculative-grade companies close to a possible upgrade to investment status. There were no rising stars added last quarter, Moody’s wrote in a note to clients on Monday.
"We are seeing investment-grade issuers are not immune to the commodity weakness," said Mark Stodden, a credit analyst at Moody’s and lead author of the note. "It’s not clear that investment-grade companies can absorb prolonged weakness in the market. The longer the pressure remains, the more it will creep into the higher rungs of the credit universe."
In the quarter, Moody’s said there were a total of 55 companies in the "crossover zone," 41 potential fallen angels and 14 potential rising stars. Of the potential fallen angels, Moody’s said a quarter were from energy, chemicals, and metal and mining; of the 37 actual fallen angels this year, half came from those sectors.
Commodity prices have fallen by 16 percent this year, according to data compiled by Bloomberg, amid reduced demand for oil, metals and minerals from China amid the country’s economic slowdown.
Energy company debt has plunged in suit, with investment grade energy debt falling 0.9 percent this year, compared to a 0.8 percent gain in the broader investment grade market. High-yield energy debt has fared even worse falling 8.7 percent, compared to a gain of 0.2 percent in the broader junk debt market.