Capital Restructuring | Second Quarter 2015

August 2015 – In this edition, we provide our perspectives on the restructuring market during the second quarter of 2015 which include: Moody’s default rate finished the second quarter at 1.9%, while the S&P default rate rose to 2.1%, the highest rate since December 2013 when it reached 2.2%. Moody’s expects the default rate to finish the year at 2.5%, while S&P is projecting 2.8% by the end of March 2016. Defaults appear concentrated, not widespread across industries. Although energy, metals, and mining comprise only 7% of leveraged loans, they represented almost half of defaults during the first half of 2015. Moody’s default-forecasting model estimates a near doubling of the 12-month probability of default in the oil & gas sector. Even if energy prices recover gradually, weaker oil & gas issuers will still be positioned for a much greater risk of default. Independent exploration and production companies should have the most trouble in the coming year, as they are typically smaller in size and more reliant on outsized capital spending to replenish their reserves.

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