Troubled Energy Companies Fuel Moody’s Watch List

A Moody’s Investors Service watch list of junk-rated companies is the longest it’s been in more than five years, and the beleaguered oil-and-gas industry accounts for a good chunk of it.

The number of non-financial companies the firm rates a deeply speculative B3 with a negative outlook or lower rose to 223 this month, the highest tally since the spring of 2010, Moody’s said Thursday. Companies on this list are considered more vulnerable to default on their debt.

Per Moody’s grading scale, B3 is six notches into junk territory. A negative outlook suggests a further downgrade could be on the horizon.

The increase marks the latest sign that crumbling commodities prices are taking a toll on corporate borrowers. Oil-and-gas companies such as Exco Resources Inc., SandRidge Energy Inc. and Basic Energy Services Inc. represent some 24% of the Moody’s list.

“Persistently low commodity prices have exacerbated liquidity stress on exploration and production and oil-field services companies, and worsened financial flexibility for issuers with weaker credit profiles,” Moody’s says.

Separately, Fitch Ratings recently increased to 3.5% its expected default rate for the end of 2015, up from a range of 2.5% to 3%, because of “ongoing strife in the energy and metals and mining sectors.” Oil and natural gas prices have fallen the past year while coal is locked in a multiyear decline.

While the tumble in commodities prices has taken most of the blame for an uptick corporate distress, other industries aren’t immune.

Service providers have accounted for a significant share of the Moody’s list in recent months, as have retail, consumer products and media firms.

While few fear a recession is imminent, many market participants suspect the current stretch of unusually low default rates is nearing its end.

Lately, companies have had a tough time getting off the Moody’s list by improving their finances. The three months through September, for the third-straight quarter, more companies were taken off the list because of defaults than upgrades to higher credit ratings.

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Number of Issuers
10/1/2015

OIL & GAS
53
23.8%

SERVICES
31
13.9%

RETAIL
16
7.2%

MEDIA
13
5.8%

CONSUMER PRODUCTS
11
4.9%

MANUFACTURING
11
4.9%

TECHNOLOGY
10
4.5%

WHLSL DSTRBTN
10
4.5%

DEFENSE
8
3.6%

GAMING: CASINOS
7
3.1%

TELECOMMUNICATIONS
7
3.1%

AIRCRAFT & AEROSPACE
6
2.7%

METALS & MINING
6
2.7%

CONSTR & ENGINEERING SERV
5
2.2%

ENVIRONMENT
5
2.2%

HEALTHCARE
4
1.8%

PACKAGING
4
1.8%

RESTAURANTS
4
1.8%

ENERGY: OTHER
3
1.3%

AUTOMOTIVE
2
0.9%

CHEMICALS
2
0.9%

PHARMACEUTICALS
2
0.9%

TRANSPORTATION
2
0.9%

NATURAL PRODUCTS PROCESSOR
1
0.4%

FOREST PRODUCTS
0
0.0%

223