Operators seen still able to raise capital

Oil and gas operators remain able to raise capital despite falling crude oil prices and, for many, deteriorating financial conditions, according to analysts at Moody’s Investors Service.

In fact, say Prateek Yanati Reddy, associate analyst, Pete Speer, senior vice-president, and Amol Joshi, vice-president and senior analyst, in a research note, access to capital markets by US exploration and production companies is “robust.”

Citing data from FactSet Research System Inc., the analysts report that during January-June, 57 companies issued $21 billion of equity, and 58 companies issued $73 billion of debt.

“In an environment of record-low interest rates and substantial declines in energy company equity valuations following the oil price collapse, investors in energy companies appear to be positioning themselves to benefit from a rebound in commodity prices,” the analysts say.

Second-lien issuances have risen this year, they add.

Lower-rated producers have used second-lien issuances mainly to bolster liquidity. The “occasionally” use them to redeem unsecure notes at large discounts to par. Some have issued equity in exchange for debt.

“We view these transactions as distressed exchanges—effectively defaults,” the analysts say.

Persistently low oil and gas prices probably will produce more defaults, they add.

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