CHICAGO--(BUSINESS WIRE)--Lender willingness to pressure U.S. high yield energy issuers may be limited in the current downturn in oil prices based on historical patterns, according to Fitch Ratings.
Fitch reviewed historical changes in borrowing base across a sample of liquids-rich high-yield energy issuers during 2007-2014 and found the drop in borrowing base was considerably smaller than the drop in oil prices. This trend was especially apparent during 2008-2009, when oil prices declined by over 50%, yet borrowing bases declined by much smaller levels. Fitch notes the historical relationship between E&P sector borrowing bases and oil prices, while correlated, are not 1:1 for a number of reasons.
Liquidity issues for the E&P sector have come into sharper focus given the recent 35% downturn in crude oil prices and the implied drop in cash flows across the sector. Liquidity is a top consideration for E&P high-yield names in the current lower oil price environment, given their typically spottier access to capital markets, less diversified production profiles, higher leverage and significant negative free cash flow.
As Fitch has previously noted, issuance by non-investment grade energy issuers was particularly strong in 2014 and accounts for 17% - approximately $225 billion - of the total U.S. high yield debt outstanding.
The full report 'E&P Borrowing Base Redeterminations' is available at 'www.fitchratings.com.'
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: E&P Borrowing Base Redeterminations (History Suggests Lenders May Go Easy in a Downturn)