With the adverse effects of COVID-19 being felt in the U.S. for five months now and with oil prices below $45 during this crisis, it should be no surprise that U.S. oil and gas companies’ default rate has been rising rapidly. Year-to-date, 22 energy companies have defaulted on their leveraged loans, high yield bonds, and in some cases on both.
According to Eric Rosenthal, Senior Director of Leveraged Finance at Fitch Ratings, “the energy sector default volume totals a little over $25 billion. The energy sector makes up 16% of total corporate defaults of leveraged loans and 36% of high yield defaults year-to-date.” Thus far this year, total leveraged loan and high yield bond defaults total $96 billion, with the energy sector representing 26% of that total.
Unfortunately, we will see more defaults this of oil and gas companies. As I wrote last week, 55% of Fitch Ratings’ Top Bonds of Concern are in the energy sector. Today’s monthly Top Loans of Concern report shows that the energy sector’s default rate in leveraged loans is over 15%; this is three times higher than the average leveraged loan default rate for all sectors of the U.S. economy.