Creditors lose historic sums in oil bankruptcies, Moody’s says

by: Collin Eaton

For the lenders that bankrolled the shale boom, the oil-market crash may leave as much financial wreckage behind as the devastating telecom bust in the early 2000s, Moody’s Investors Service said.

On average, banks and bond investors have recovered only about $1 of every $5 they poured into the U.S. oil companies that eventually went bankrupt in 2015, according to the credit rating agency.

That amount is about a third of the money creditors historically have pulled out of drillers who default on their debt. It’s slightly less than investors recovered from bankrupt telecom firms in 2002, and “can only be described as catastrophic,” the credit ratings agency said in a new report released Monday.

Creditors aren’t getting much of their money back because the oil companies that went bankrupt last year were mostly small firms that ran up high debts in the heady days of the U.S. shale drilling bonanza and don’t have the assets or access to capital that larger firms do.

“It’s definitely difficult when you’re small,” said Amol Joshi, a senior analyst in the corporate finance group of Moody’s Investors Service in New York. “If you’re large, you have the banks supporting you. Small companies don’t have that. When you have less flexibility, high debt, low oil prices and high-cost operations, you get a perfect storm.”

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