Volatile commodity prices are weighing heavily on some US companies even
as others enjoy stable industry fundamentals, according to Fitch
Ratings. We also believe international growth challenges could create
Among rated US corporates, 26 out of 34 sectors have Stable sector
outlooks. Of the six sectors with Negative outlooks, four are in
commodities-related areas: oil & gas, oilfield services, midstream
services, and mining. These industries also have negative rating
Many high-yield companies in the oil and gas sector are in survival
mode, suffering from some combination of a higher cost base, declining
hedge coverage and lack of financeable assets. The sector's negative
sector outlook reflects the risks of a lower-for-longer price scenario
across the space. Lower oil and gas prices and Fitch's downward revision
of our corporate oil & gas price deck earlier this month will likely
increase the number of negative ratings actions across the sector.
Exploration and production companies are signaling for a second
consecutive year of capex cutbacks, which will add pressure to oilfield
service provider metrics. We believe capex cuts will be the deepest for
US independents and could be reduced an additional 20%-30% following an
average 35% cut in 2015. International oil companies will likely exhibit
increased discipline in 2016, with an estimated 10%-15% reduction while
the credit profiles of national oil companies are expected to be mixed.
Still, diversified services providers are better positioned to weather
another year of E&P capex cutbacks due to their geographic
diversification, breadth and scope of services, and generally more
Ratings of most midstream issuers should continue to be stable, but
continued low commodity prices, increased counterparty risk, potential
volume declines, constricted capital market access and rising leverage
could lead to negative rating actions or Outlook changes.
Most mining companies currently have credit profiles that are weak for
their assigned ratings. Limited revenue growth is expected in 2016 and
we expect companies to continue to focus on cost control and short-term
Weak non-US global economic growth is considered an evolving risk that
could erode corporate strength. China growth has slowed, while Brazil
and Russia are both experiencing recessions and European growth is
underwhelming. Slow global growth is already affecting the credit
profiles for many diversified and capital goods issuers that are also
suffering from the negative impact of currency movements and cyclical
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article, which may include
hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.
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View source version on businesswire.com: http://www.businesswire.com/news/home/20160129005589/en/
Copyright Business Wire 2016
Source: Business Wire
(January 29, 2016 - 10:21 AM EST)
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