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How 'Zombie' Oil Companies Stay Alive in Life-or-Death Debt Markets

'Distressed exchanges' are on the rise and contributing to a jump in defaults, especially in the energy sector.
A worker waits to connect a drill bit on Endeavor Energy Resources LP's Big Dog Drilling Rig 22 in the Permian basin outside of Midland, Texas, U.S.
Photographer: Brittany Sowacke/Bloomberg

Beneath the surge in corporate defaults lies a surge in distressed exchanges. 

Such exchanges — defined by Moody's Investors Service as when a troubled company offers its lenders new or restructured debt, securities, cash, or other assets, that amount to a smaller commitment than the original IOU — could have big implications for debt markets as they stretch out the current credit cycle and result in even greater losses for investors.