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Oil Bankruptcies Leave Lenders With ‘Catastrophic’ Recovery Rate

  • Rate of 21% in 2015 compares to average of 59% previously
  • Bankruptcies so far this year are double last year’s total

U.S. oil bankruptcies haven’t been this “catastrophic” for lenders in a long time, in what may be the worst bust of any industry this century, according to Moody’s Investors Service.

Creditors are recovering an average 21 percent of what they lent, compared with about 59 percent in past decades, the credit-rating agency said Monday in a report that looks into lending to 15 exploration and production companies that filed for bankruptcy protection in 2015. That may be on par with, or worse than, the telecommunications industry collapse in 2001 and 2002, the study led by David Keisman said. High-yield bonds recovered a mere 6 percent, compared to 30 percent in previous years going back to 1987.

Defaults in the oil and natural gas industry have been rising through a market slump that has exceeded two years as companies lacked the cash to make interest payments on their debt. Bankruptcies among U.S. producers so far this year are about twice the number among companies rated by Moody’s in all of 2015, the report said. The oil and gas figures have helped propel U.S. corporate defaults to the highest since 2009.

Less than half of the companies that negotiated distressed-debt exchanges in 2015 to try to stave off bankruptcy succeeded, the analysts wrote. Among those that did such deals only to file for bankruptcy protection this year are Halcon Resources Corp., SandRidge Energy Inc. and Goodrich Petroleum Corp. Their debt will probably have very weak recoveries, they said.

“Given our view that prices have somewhat stabilized, and will likely gradually increase, it appears that the E&P sector is unlikely to deteriorate further,” the report said. “Although the worst is likely behind us, the E&P sector still remains stressed.”

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