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Energy leads the way as list of PE-backed weakest-links companies hits seven-year high

  • 85 PE-backed companies make S&P list
  • Companies represent $142.9 bln in affected debt.
  • Oil-and-gas sector leads with 24 companies; media sector leads with $68.6 bln

The number of companies in the Standard & Poor’s Weakest Links  report hit a seven-year high, with 85 private-equity-backed firms making the list. The affected debt fell 5 percent, however, to $142.9 billion from $149.9 billion since the quarterly report last ran.

S&P also highlights PE-backed companies that have defaulted or filed bankruptcy. Along with the weakest links, the default list continued to grow, to 26 from 18, while PE-backed bankruptcies grew to eight from six.

The energy sector led the way on the default list, as it continues to struggle with weak oil prices. Twenty-one of the 34 companies that have either defaulted or filed for bankruptcy belong to the energy industry.

Overall, energy and power constituted 45 — nearly 38 percent — of the 119 companies on the weakest-links default and bankruptcy lists, by far the most of any industry.

SandRidge Energy Inc, the Oklahoma City oil-and-gas exploration-and-production company, received a default rating on May 16 after filing a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code. SandRidge is backed by Carlyle Group and has affected debt of $4.7 billion.

Fieldwood Energy LLC received a selective-default rating on June 16 after participating in a distressed exchange. Riverstone Holdings, Fieldwood’s sponsor, purchased a large portion of the Gulf Coast oil-and-gas developer’s debt at a steep discount. Fieldwood has more than $3 billion in debt.

Permian Resources LLC also picked up a selective-default grade, on May 13, when it engaged in a distressed exchange of its junior subordinated notes. Permian, jointly owned by Energy & Minerals Group and First Reserve, has about $1.5 billion in debt.

Sponsors with multiple portfolio companies on the latest weakest-links list include Riverstone Holdings (with six companies); Apollo Global Management (four); Canada Pension Plan Investment Board, Energy Capital Partners, Oaktree Capital Management and TPG Capital (each with three); Advent InternationalAmerican SecuritiesApax PartnersAres ManagementAvista Capital PartnersBain Capital, Blackstone GroupCrestview Partners, First Reserve, NGP Energy Capital ManagementPalladium Equity Partners and Thomas H. Lee Partners (each with two).

All told, 245 sponsored and non-sponsored companies were on the list. The entire list has aggregate affected debt of about $316 billion.

To make the weakest links list, companies must have had speculative corporate-credit ratings of B- or lower with either a negative outlook or a negative CreditWatch implication on June 20.

From 1981 to 2015, an average of 7.2 percent of all global entities rated B- defaulted within 12 months, and the average default rate was much higher for entities rated lower than B-.

weakest links

Action Item: Download the Weakest Links report here: Weakest Links

Photo courtesy of ©iStock/deliormanli