Oil Companies Face $110-billion in Debt, Default Rates Are Rising: Moody's

Cumulative debt load for oil services and drilling companies is estimated at $110 billion

As if oil in the $40s and hyper-aggressive Middle Eastern production wasn't enough to deal with, oil services and drilling companies have been dealt another blow with news that their cumulative debt load is estimated at $110 billion, and that it'll have to be paid off over the next five years.

According to a Moody's Investors Service report released this week, $60 billion of the debt is from bonds sold to investors; another $45 billion is from revolving credit lines.

Most of the debt is junk-rated: over 70 percent of the high-yield bonds and term loans are rated Caa1 or lower, and over 90 percent are rated below B1.

The report states that speculative-grade companies account for 65 percent of all maturities and expirations; estimates for 2018 show the maturity wall growing dramatically to more than $21 billion, almost three times the total debt burden in 2017, and the debt burden will increase in 2021, when nearly $29 billion of issuance and revolvers is scheduled to come due.

The credit ratings agency says one-third of the 67 companies on its list could see debt levels climb to 10 times more than raw earnings: "Not surprisingly, these companies are most at risk for debt restructurings and defaults," wrote Morris Borenstein, assistant vice president at Moody's.

Borenstein added that refinancing needs across the sector are significant, and "while some companies will be able to delay refinancing until business conditions improve, for the lowest-rated entities, onerous interest payments and required capital expenditure will consume cash balances and challenge their ability to wait it out."

Moody's also notes that of the 102 defaults filed this year, 49 are from the oil and gas sector; worse, the 12-month global default rate climbed to 4.7 percent last month compared to its long-term average of 4.2 percent, and Moody's believes the percentage will reach 5.1 percent in November.

In February, a Deloitte study revealed that about 175 companies representing one third of publicly traded oil and energy producers have over $150 billion in debt and are at a high risk of going bankrupt this year