http://www.zerohedge.com/news/2016-03-15/these-are-energy-bonds-most-likely-default-next-six-months
Currently, $63 billion of energy and metals/mining bond issues are bid below 40 cents. While there is definitely noise around names that are bid in the 60-to-80-cents region, the majority of issues trading at deep discounts are near-term default candidates. The high-yield market has bounced back nicely over the past few weeks, highlighted by a record $5 billion in mutual fund inflows, but the energy troubles aren’t getting resolved with crude oil prices still under $40. Liquidity is definitely a concern.
Is the recent bounce in oil prices enough to delay the day of reckoning?
While crude oil prices have gained more than $11 from a Feb. 11 low, the levels are still well below what is required to break even. Most energy companies need the WTI to be north of $50 and quickly. If this happens, the capital markets could thaw a bit and asset sales might get done, enabling these companies to keep going. However, several of these companies are already in a precarious position and will be tested further by semiannual interest payments due next month. Many have already used lifelines like distressed debt exchanges and hired restructuring advisers, so absent that fast rise in WTI, some defaults will be inevitable. We estimate about $40 billion of additional outstanding energy bond debt will likely default this year.
The 30-day post-default energy price over the past 12 months is 23 percent and that figure is unlikely to rise considering current secondary levels. It doesn’t bode well for recoveries. In the worst cases, investors could be looking at cents on the dollar.
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