‘The Clock May Stop Ticking’: Oil Price Rout Bites As HY Energy Issuance Plunges

As oil continues to struggle amid persistent worries about US production, rising OPEC exports, and nagging concerns about who would or wouldn’t support deeper/longer cuts…

Crude

…some folks are asking questions about US HY credit.

So far, HY as a whole as remained relatively resilient to widening in HY energy.

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How long that can last remains to be seen. As Bloomberg notes, “energy bonds took the biggest hit in U.S. high-yield [this week] as oil slumped, heading for a weekly loss as drillers resume a year-long expansion.”

A couple of examples:

  • Sanchez Energy leads with biggest drop among all high yield bonds
    • Co.’s 7.75% notes due 2021 plunged 3.44pts to 88.06
  • California Resources’ 8% notes due 2022 fell 1.77pts to 60.73

EnergyBonds

“The most significant thing about the recent sell off in HY energy is that it has been relatively modest,” Bloomberg’s Spencer Cutter observes, adding that “most of those companies have enough liquidity and no material debt maturities in the near term that they should be able to hang on for another 12 to 18 months.”

Those sentiments were echoed by Goldman on Friday. “Given the low near-term refinancing needs in the HY Energy sector (Exhibit 11), we do not think the decline in primary market activity signals higher default risk going forward,” the bank wrote.

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As tipped in that excerpt, the reason people are rushing to highlight the lack of a maturity wall is because HY energy issuance just dried up altogether:

issuance

“June saw the lowest new issue volumes since February of last year, with only $650 million priced in vs. a year-to-date monthly average pace of $5.5 billion, prior to that,” Goldman continues.

As the above-mentioned Spencer Cutter concludes, “if oil prices are still around $45 a barrel at the end of 2018, the clock may stop ticking for many of them in 2019.”

Tick, tock. 

Tick, tock…

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