This doesn’t entail all of the sheer fuckery that has taken place with private deals in the investment banking community, only publicly traded debt of companies whose share prices have sunken so far that their debt/eq levels exceed 5x.
When a publicly traded entity is unable to raise capital in the debt markets, due to deteriorating business conditions, often times they’ll use their equity to fill gaps. Back in the financial crisis, banks were mostly able to do super dilutive financings, using equity, to the chagrin of shareholders. If present conditions persist, you are going to see a slew of high profile oil and gas names head into bankruptcy or raise capital via dilutive secondaries.
The following screen is data provided by Exodus, highlighting the fact that there is more than $245 billion in distressed debt. Interestingly, there is an additional $400 billion in debt from companies with debt/eq levels, ranging from 2-4.99.
In other words, this can really get a lot worse if share prices don’t recover soon.
The next question to posit is who has exposure to this debt? Which banks will write it down in 2016?
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it’s amazing how immune we’ve become to seeing large numbers.
It was but a mere 7 years ago that the world was freaking out over Paulsen seeking $700 Billion to save the entire global financial system. It was an insane amount at the time. Now 250 billion is just in the niche Oil & Gas sector.
A billion is the new 10 million.
No doubt most of that debt was offloaded to foreign banks. (Extra elevate LIBOR)
Credit to Bluestar for his twitter feed.
Deutsche Bank has a ton of oil exposure, same with Toronto Dominion.
Nate,
anywhere a simple fella like myself can see this info? thanks.
I read somewhere that this debt is nothing to worry about. Seems reminiscent of the time I was reading about sub-prime lending and it too at the time was nothing to worry about. Question: Should I be worried?
BX