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Oil crash risks a multi-billion dollar debt crisis

Asjylyn Loder, Steven Church and Jodi Xu Klein writing for MSN Money claim that US Investors face $19 billion in debt defaults unless several US energy companies can reach an agreement to restructure their debts this week.

Loder, Church and Klein argue that the problems go back to the early days of the US fracking boom, when energy companies over-borrowed in order to get in on what was thought to be a profitable long-term enterprise:

“Bondholders are paying dearly for backing a shale boom that was built on high-yield credit. Since the start of 2015, 48 oil and gas producers have gone bankrupt owing more than $17 billion, according to law firm Haynes and Boone. Fitch Ratings Ltd. predicts $70 billion of energy, metal and mining defaults this year, and notes that $77 billion of energy bonds are bid below 50 cents, according to a note Thursday.”

Too many asset managers bought into the belief that the 2005 peak in conventional oil production meant that the world had entered an age of $100 or more oil prices; making unconventional oil profitable.  But the current global oil glut has pushed prices far below the breakeven point for most US energy companies.

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