TROUBLING: Oil and gas companies are edging toward default

Friday, November 13, 2015
By Paul Martin

Portia Crowe
Nov. 13, 2015

Banks have an energy problem.

In a note on Friday, JPMorgan’s Vivek Juneja broke down the results from the 2015 Shared National Credits exam, a Federal Reserve initiative to review and classify large syndicated loans.

The review captures any loan bigger than $20 million that is shared by three or more supervised institutions. The SNC provides insight on so-called classified loans, or loans with unpaid interest and principal outstanding that are in danger of defaulting.

According to the results of the SNC, classified loans to oil and gas companies jumped four-fold.

The report said: “O&G classifieds rose to about 12% of total O&G commitments, well above the 5.3% ratio of classifieds for all other loan commitments. Put another way, O&G classified loans now account for 15% of total classifieds, up from 3.6% a year ago.”

That means around one in seven loans to oil and gas companies are edging toward default.

“What is also troubling is that the regulators noted a general lack of protective covenants in reserve based loans which will further exacerbate the situation,” Juneja writes.

The Rest…HERE

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