The $300 Billion Problem is Now Mainstream and It’s Much Bigger Than You Think

Anyone reading me over the past few months knows I’ve been harping on the capital structure of the basic resource sector. Any time markets crater and underlying fundamentals deteriorate, there is cause for concern with heavily debt burdened companies.

Since summer, as the prices of these stocks dropped, their debt/equity ratios have swelled, effectively cutting off a vital source of funding for an industry that will need to restructure a ton of debt, starting in 2017.

Cramer mentioned it tonight in his Mad Money monologue. You can view the clip here.

While it’s true, the $300 billion number is an accurate one, it isn’t forward thinking. Prices have dropped drastically for crude and other commodities in recent weeks, which is bound to hurt revenues and earnings forecasts for the respective industries, no?

Using Exodus, I scanned for basic resource companies that aren’t exactly distressed, but teetering–between 2-4.99x debt/eq. The numbers are nothing less than demonic.

In addition to the $300 billion in debt that is going to need restructuring, there is another $345 billion right behind it, who will become highly distressed should their share prices continue to fall.

Some names to keep an eye on are:

OGZPY (Russian oil giant)- $82 billion

ETE- $32 billion

VALE- $32 billion

PKX- $23 billion

FCX- $23 billion

MT- $20 billion

ACH- $15 billion

CHK- $12 billion

RIG- $9 billion

YZC- $7.5 billion

TCK- $7 billion

GGB- $7 billion

The list stretches long and wide.  There are 68 companies in all in this soon to be distressed debt group of shit.  The median 1 yr decline for these companies was -66%. Year to date, these stocks are down 23%.

Do you see where this is going?

Behind these companies are the “premier names”, with debt/eq levels ranging from 0.5 to 1.99–who have a collective debt burden of $999 billion.  In all, there is upwards of $2 trillion in basic resource debt.