The energy (oil and gas) and natural resources sectors lead corporate
sector downgrades during the third quarter, making up 40% of downgrades,
according to Fitch Ratings. Issuers' position on the global cost curve
and sound liquidity have differentiated stable larger participants from
vulnerable, sometimes smaller, entities.
For the third quarter of 2015 non-financial corporate (corporate)
downgrades exceeded upgrades by 1.4x to 1.0x (or 2.0x for the nine
months ending September 2015). The downgrade-to-upgrade ratio attributed
to changes in the operating/industry profile was 1.2x to 1.0x (nine
months ended September 2015: 1.3x). The energy (oil and gas) and natural
resources sectors lead corporate sector downgrades, making up 40% of
downgrades for the quarter. In several instances, rating actions reflect
announced restructurings or the heightened risk of restructuring
(including a distressed debt exchange).
Adding to energy woes, coal producers are still struggling with an over
supplied coal market. Downgrades in the quarter here included Arch Coal,
Peabody Energy, and Indika Energy. Globally, both metallurgical and
steam coal markets are in excess supply, pressuring prices. Coal
producers are in cost reduction and cash preservation mode and demand
from China is starting to weaken. Fitch believes the hard coking coal
bench mark price could average below $100.00/tonne (t) and the Newcastle
steam coal benchmark could be below $60.00/t over the next 12 months
versus current prices of $89.00/t and $67.80/t, respectively, before
Exploration and production (E&P) credits remain under pressure.
Persistently weak oil prices have continued to lead to project/capital
expenditure reduction or delays. This continues to weaken credit
profiles within the sector, particularly E&P services and related
issuers such as Transocean Inc. (BB+/Stable) Anton Oilfield Service
Group (B-/Negative), Honghua Group Ltd. (B/Negative), and Offshore
Drilling Holding, S.A. (B+/Negative). Fitch does not expect the
situation to improve significantly in the next 12 months given the capex
cuts by many oil majors.
For more information on this topic, please see our "Corporate
Upgrade/Downgrade Dashboard 3Q15," which is available on our website at www.fitchratings.com.
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.
Corporate Upgrade/Downgrade Dashboard 3Q15
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View source version on businesswire.com: http://www.businesswire.com/news/home/20151014005828/en/
Copyright Business Wire 2015
Source: Business Wire
(October 14, 2015 - 8:29 AM EDT)
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