Plunging oil prices and the economic fallout from the global coronavirus outbreak are setting the stage for a potential wave of debt restructurings and bankruptcies, especially in the energy and services sectors, according to company advisers and analysts, Reuters reported. Oil prices dropped by a third over the weekend after Saudi Arabia discounted its crude and signaled it would raise output, fueling concerns about the survival of heavily indebted oil and gas exploration and production companies. Credit investors pulled money out of the riskiest energy bonds, widening the spread of U.S. junk-rated energy debt over safer Treasuries to the highest since March 2016, the ICE/BofAML U.S. high yield energy index showed. Oasis Petroleum Inc, Chesapeake Energy Corp and Whiting Petroleum Corp were among those hardest hit, with their stocks and bonds losing as much as half their value. “This weekend’s developments in the oil market represent a strong additional headwind that will lead to further repricing in risk as well as increasing defaults and downgrades,” Credit Suisse credit analysts wrote in a research note this week. At the same time, the spread of coronavirus around the world continues to roil global markets and unnerve investors. On Monday, Wall Street suffered its biggest one-day stock market loss since the 2008 financial crisis, only to recoup half of the losses yesterday. Debt-laden companies in service sectors hit by reduced tourism and discretionary spending, such as airlines, cruise lines, movie theaters, gaming companies and hotel chains, are particularly vulnerable, according to Fitch Ratings and restructuring experts. Read more.
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