Alexandria, Va. — The financial distress that the metals and mining sector is currently experiencing is more acute than the struggles happening in the oil and gas markets, according to the lead article in the September edition of the ABI Journal. “With oil prices having recovered only modestly since early 2015, the energy sector continues to dominate defaults and distress due to its sheer size, but it has recovered from its worst valuation levels of January,” Chuck Carroll and John Yozzo of FTI Consulting Inc. write in “If you Thought the Energy Sector Was Distressed...” “On a relative basis, the metals and mining sector has overtaken it as the standout troubled industry.”
Carroll and Yozzo previously wrote in the March ABI Journal that the financial struggles of the debt-heavy oil and gas industry could have far-reaching implications for other sectors that derive a fair portion of their orders from the energy sector. The authors identified the steel industry in their previous article as an industry that could experience distress from the energy industry fallout.
Now, Carroll and Yozzo report that companies across the energy complex have responded aggressively to their crisis “in ways that most metals and mining companies cannot even hope to match.” They cite S&P statistics showing that 2015 has been a brutal year for the metals and mining sector, which accounts for only 5 percent of corporate high-yield debt, but 20 percent of all distressed debt. “Approximately $20 billion of rated debt in the metals and mining sector is currently considered distressed by the S&P, representing nearly 40 percent of the sector’s total high-yield debt and triple the amount from one year ago,” according to Carroll and Yozzo.
Amidst prominent metals and mining company bankruptcies, Carroll and Yozzo write that the industry is now scrambling to cut costs, boost liquidity and deleverage, much as the energy sector has been doing since late 2014. “It is clearly a buyer’s market, and value that is received for assets sold under the current market conditions will likely be depressed,” they write.
As for the outlook on the challenges facing the metals and mining sector, Carroll and Yozzo said that the most worrisome aspect is the “chorus of negativity” coming from industry analysts on the forward-looking expectations. “Be it coal, iron ore, steel, you name it – most analysts expect oversupply conditions and depressed prices to persist at least through 2016, perhaps even longer,” they write.
To obtain a copy of “If you Thought the Energy Sector Was Distressed...,” published in the September issue of the ABI Journal, please contact John Hartgen at 703-894-5935 or via email at jhartgen@abiworld.org. For additional information on oil and gas sector bankruptcies, When Gushers Go Dry: The Essentials of Oil & Gas Bankruptcy is available in the ABI Bookstore.
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