Fitch: U.S. HY Default Rate Heading to 3% in August

NEW YORK--(BUSINESS WIRE)-- U.S. energy and metals/mining defaults are likely to continue through the summer as commodity price weakness keeps those industries in the spotlight, says Fitch Ratings. The corporate default outlook outside of those affected by the weak commodity price environment remains much healthier.

There are several defaults, including Alpha Natural Resources, Hercules Offshore Inc., Samson Resources Corp. and Arch Coal Inc., that would likely increase the overall August trailing 12-month (TTM) rate to 3%.

Fitch's TTM U.S. energy default rate could hit 4% in August, more than twice its 1.9% historic average. The TTM August metals/mining default rate, already at 10% following Alpha's bankruptcy earlier in the month, could jump to 15% if Arch Coal Inc. elects to file after its distressed debt exchange (DDE) expires on Aug. 14.

'Despite the busy summer for defaults, the worst for energy and metals/mining has not necessarily passed,' says Eric Rosenthal, Senior Director of Leveraged Finance. 'An uptick in DDEs historically has not been a confidence builder for stable default rates.'

In addition to Arch, five energy companies completed DDEs during the second quarter of 2015 (2Q15), including Venoco Inc., Halcon Resources Corp., SandRidge Energy Inc., Midstates Petroleum Co. and Warren Resources Inc. All have debt bid at deeply discounted levels.

Fitch finds that 35 companies did an initial DDE from 2008-2015 and experienced a subsequent default. The second default occurred within one year of the DDE in 63% of those cases. This includes Alpha's default, just four months post-DDE.

At end-July 2015, Fitch's overall TTM default rate stood at 2.5%, up from 2.3% at end-June. The TTM default rates for energy, exploration/production, and metals/mining stood at 2.5%, 5% and 7.1%, respectively, at end-July.

Excluding the energy and metals/mining sector, the July TTM default rate is 2.3 %, due largely to Caesars Entertainment Operating Co.'s bankruptcy filing. Removing Caesars puts the rate at a benign 1.1%.

The full report, 'U.S. High Yield Default Insight: August Defaults Likely to Drive TTM Default Rate to 3%,' is available at www.fitchratings.com.

Additional information is available at 'www.fitchratings.com'.

Fitch U.S. High Yield Default Insight (August Defaults Likely to Drive TTM Default Rate to 3%)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869542

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View source version on businesswire.com: http://www.businesswire.com/news/home/20150813005762/en/

Fitch Ratings
Eric Rosenthal
Senior Director
Leveraged Finance
+1-212-908-0286
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Michael Paladino, CFA
Managing Director
Leveraged Finance
+1-212-908-9113
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
[email protected]

Source: Fitch Ratings

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