By March 29, 2016 Read More →

Oil, gas companies lead 2015 credit rating downgrades – Fitch Ratings

Pressure from lower-for-longer oil, gas prices has weakened credit profiles beyond Fitch’s original expectations


Stock market volatility is affecting credit ratings

NEW YORK – According to Fitch Ratings, energy (oil and gas) and natural resource companies made up 33 per cent of credit rating downgrades, excluding sovereign related, during 2015.

Persistently weak oil prices have continued to lead to CAPEX reductions or delays and have been a primary driver for weakened investment and sub-investment-grade credit profiles globally.


Prolonged weak oil, gas and commodity prices have triggered various revisions to Fitch’s commodity price decks, which, combined with liquidity concerns and management reaction for some entities, have led to rating downgrades.

Operational/industry factors primarily drove downgrades for the natural resources (metals and mining) sector, which made up 15 per cent of downgrades (excluding sovereign related).

FitchOvercapacity of supply, reduction in Chinese demand and idiosyncratic reasons such as Chinese dumping of steel have kept commodity prices low.

In addition, investor sentiment toward commodities is deeply negative and is likely to remain so into the first half of 2016, affecting commodity sectors such as copper and nickel.

Non-financial corporate downgrades exceeded upgrades by 2 to 1 (x) for 2015. The number of issuers downgraded, excluding duplicates, in Fitch’s corporate portfolio went up to 207 in 2015 from 125 in 2014, a 66 per cent increase.

The energy (oil & gas), natural resources, building materials & construction and utilities sectors drove approximately 70 per cent of the increase in downgrades.

FitchAs a result, Fitch aims to assign cyclical companies ratings that have enough headroom to enable them to remain broadly stable during the sector’s inherent cyclical peaks and troughs, not assigning ever-changing, pro-cyclical ratings.

In 2015, approximately 45 per cent of corporate upgrades were in North America, with most (80%) driven by an improvement in the operations/industry environment.

This reflects the stronger recovery in the US than in other countries and Fitch’s forward-looking expectations for improved operating performance consistent with its guidelines.

Brazilian corporates had the highest number of downgrades for a country at 48 and made up approximately 75 per cent of the Latin American portfolio downgrades in 2015. These actions have been across all rating levels and different sectors. The risk of further downgrades hang over Brazilian corporates, demonstrated by both the negative outlook on the Brazil sovereign and approximately 50 per cent of the Brazilian corporate portfolio having a negative rating outlook or watch.

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