Energy Defaults Weigh on Junk

July 31st, 2015 11:04 pm | by John Jansen |

Via Barron’s:

3-Year High in Junk Bond Defaults in Second Quarter


The number of defaults among companies rated below investment grade jumped to 15 in the second quarter, a three-year high, according to Moody’s Investors Service. There were just 10 in the first quarter of 2015 as well as in the second quarter of 2014.

This 50% jump doesn’t change the overall default rate, which remains at just 2%. Moody’s believes the default rate will reach a high of 3.2% in February of 2016.

More than half of the second quarter defaults came from the  energy sector, which has suffered from lower prices. Defaults included Alpha Natural Resources (ANRZ), a coal company which did a distressed debt exchange, Warren Resources (WRES), an oil and gas exploration and production company, which also did a distressed debt exchange, and firearms maker Colt Defense, which went bankrupt.

Moody’s senior vice president John Puchalla wrote in the report:

The fallout from the sharp drop in energy prices continues to create operating and liquidity challenges in the oil & gas (O&G) sector, but the resulting upward pressure on defaults is not spreading broadly to other sectors.

On the bright side, the total amount of debt that went into default was far smaller than in the first quarter — just $6.4 billion compared to $27.8 billion. The first quarter included a $20.5 billion default in Caesars Entertainment (CZR) debt.

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