Here Are 175 Companies On The Verge Of Financial Upheaval

The new year is bringing some seismic shifts across the natural resources industry. With a huge swath of mining and energy companies being warned this week on coming changes to their finances. 

The opening salvo came last Friday, from ratings agency Moody’s. Which said it is placing 175 companies in the minerals and petroleum sectors on watch for downgrades to their credit ratings. 

Lower commodities prices were the major trigger for the warning. With Moody’s saying that the collapse in crude is jeopardizing credit ratings for 120 firms in the oil and gas sector. 

That comes after the firm lowered its 2016 price assumption for WTI crude by $7, to $33 per barrel. 

Moody’s further said that some companies could be downgraded by multiple notches — suggesting these could go to junk status overnight. The firm added that energy companies in North America are particularly at risk for downgrades. 

And Moody’s wasn’t the only agency raising concerns about resource companies. With Standard & Poor’s (S&P) following suit this week in lowering its commodity price assumptions for the coming years.

S&P said Monday it has cut its 2016 and 2017 forecast for WTI crude by 20%. And also dropped its forecast price for Henry Hub natural gas by 15% for the next two years. 

That prompted S&P to issue an immediate credit downgrade on one major oil and gas player: shale specialists Chesapeake Energy. A move that caused a single-day, 16% fall in Chesapeake’s share price. 

The big drop in S&P’s assumptions could trigger similar downgrades for other oil and gas firms. Suggesting we may hear more soon about problems in energy credit markets — and see commensurate hits taken by public companies in the space.

The real pain will come when these firms need to refinance debt. Chesapeake, for example, has $2 billion in liabilities coming due in 2017 (against a current market capitalization of just $2.1 billion) — meaning the company needs a significant turnaround in investor sentiment, right away.

This could be one of the biggest trends unfolding in 2016. Watch for news on more credit downgrades — and for attempts at debt refinancing by firms across energy and mining.

Here’s to keeping it real,

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Dave Forest 

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