Fitch: Commodity Price, Investor Pressures Put Debt Issuance at Premium for HY Energy Cos

NEW YORK--()--High yield energy companies are paying more to access debt capital markets as commodity prices remain pressured and investors are more sensitive to rising risk in the sector, according to a new report by Fitch Ratings. In first quarter 2015 (1Q'15), 85% of energy companies in the market paid a higher coupon compared with the average on their existing bonds.

The high yield energy sector's new issue par weighted average coupon increased to 7.3% in 1Q'15, up from 6.2% a year earlier and nearly 160 basis points (bps) higher than its 2013 trough. The par weighted coupon for new issues in the entire high yield corporate universe averaged 6.6% during 1Q'15.

"With 18% market share, the energy sector continues to fan the flames of the high yield universe," says Eric Rosenthal, Senior Director of Leveraged Finance.

High yield energy new issuance tallied $13.2 billion in 1Q'15, an 86% increase from the year prior. When coupled with fallen angel downgrades, this pushed the overall high yield universe to $1.44 trillion at end-March 2015, a 6% increase from end-2014.

The trailing 12-month (TTM) energy default rate continues to rise, with Quicksilver Resources' and Dune Energy's bankruptcy filings contributing to end-March's 0.9% rate. While below the historical 1.9% sector average, the rate will rise further as a result of American Eagle Energy's and RAAM Global Energy's missed interest payments, and Venoco Inc.'s distressed debt exchange (DDE). In addition, potential defaults remain on the horizon for Connacher Oil and Gas, Samson Investment Co., and Sabine Oil and Gas amidst their ongoing restructuring talks.

The full report, "Fitch U.S. High Yield Default Insight: HY Energy Coupons Rise; DDE's Prevalent," is available at www.fitchratings.com, or by clicking on the link.

Additional information is available on www.fitchratings.com

Applicable Criteria and Related Research: Fitch U.S. High Yield Default Insight (HY Energy Coupons Rise; DDEs Prevalent)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864561

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Contacts

Fitch Ratings
Eric Rosenthal
Senior Director
Leveraged Finance
+1 212-908-0286
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Michael Paladino, CFA
Managing Director
Leveraged Finance
+1 212-908-9113
or
Sharon Bonelli
Senior Director
Leveraged Finance
+1 212-908-0581
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Eric Rosenthal
Senior Director
Leveraged Finance
+1 212-908-0286
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Michael Paladino, CFA
Managing Director
Leveraged Finance
+1 212-908-9113
or
Sharon Bonelli
Senior Director
Leveraged Finance
+1 212-908-0581
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com