U.S. Oil Industry Bankruptcy Wave Nears Size of Telecom Bust

The rout in crude prices is snowballing into one of the biggest avalanches in the history of corporate America, with 59 oil and gas companies now bankrupt after this week's filings for creditor protection by Midstates Petroleum and Ultra Petroleum, Reuters reported yesterday. The number of U.S. energy bankruptcies is closing in on the staggering 68 filings seen during the depths of the telecom bust of 2002 and 2003, according to Reuters data, the law firm Haynes & Boone and bankruptcydata.com. Charles Gibbs, a restructuring partner at Akin Gump in Texas, said that the U.S. oil industry is not even halfway through its wave of bankruptcies. "I think we'll see more filings in the second quarter than in the first quarter," he said. Fifteen oil and gas companies filed for bankruptcy in the first quarter. Some oil producers appear to be holding on, hoping the price of crude stabilizes at a higher level. In February, oil slumped as low as $27 a barrel from peaks above $100 a barrel nearly two years ago. U.S. crude has recovered somewhat, and on Tuesday was trading a little below $44 a barrel. Until recently, banks had been willing to offer leeway to borrowers in the shale sector, but lately some lenders have tightened their purse strings. A widely predicted wave of mergers in the shale space has yet to materialize as oil price volatility makes valuations difficult, and buyers balk at taking on debt loads until target companies exit bankruptcy.

Get a better understanding of what happens when an oil, gas or other natural resources company goes bankrupt. Order your copy of the revised and expanded ABI's When Gushers Go Dry: The Essentials of Oil & Gas Bankruptcy, Second Edition.

Commentary: In Puerto Rico's Debt Crisis, Shades of Argentina

Puerto Rico's economic trouble has prompted comparisons to Greece, but a better analogy might be Argentina, according to a Wall Street Journal commentary today. Hedge funds that bought billions of dollars of Puerto Rico's debt two years ago are resisting a broader restructuring in hopes of preserving their rights to be paid off first and in full. The playbook -- as well as some of the parties and circumstances -- are similar to those that helped a group of holdout bondholders score a big payday in Argentina, according to the commentary. In that case, hedge funds used the courts to secure better terms than the government had offered, agreeing in February with Argentina's newly elected government to end the standoff after 15 years. This time around, the debate is whether the U.S. Congress should pass legislation that would give a federal oversight board the power to help the island balance its budget while authorizing a court-supervised restructuring of its $72 billion in debt. On Tuesday, Treasury Secretary Jacob Lew touted the risk of a long battle with hedge funds as a reason to move quickly on a restructuring. "As we saw in Argentina, holdouts can drive a process to the brink," he said. "Puerto Rico doesn't have 15 years. If this goes into litigation…there won't be anything left of Puerto Rico."

What are the next steps for Puerto Rico to resolve its financial distress? A panel of experts at ABI's New York City Bankruptcy Conference on May 12 will examine potential remedies. Rates go up on Friday! Click here to register.

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage.

Analysis: Student Debt Is About to Set Another Record, But the Picture Isn't All Bad

This spring's college seniors are about to set another record for student debt, but they're also likely to find a job and make a decent starting salary, according to a Wall Street Journal analysis on Tuesday. About seven in 10 seniors set to graduate this spring borrowed for their educations. Along with their diplomas, they'll carry an average $37,172 of student debt as they enter the workforce, according to a new analysis by higher-education expert Mark Kantrowitz. That breaks the record set by the 2015 class, which owed just over $35,000, on average. Other research shows the other side of the ledger, however: Salaries are rising for new college graduates. Americans who earned a bachelor's degree last year landed a job with an average starting salary of $50,651, according to the National Association of Colleges and Employers. That was 5 percent above the average starting salary for 2014 grads. The figures are based on student surveys conducted at 60 colleges. The New York Federal Reserve says the median salary for recent college graduates -- the point at which half earn above and half earn below -- stood at $43,000 in 2015, up from $39,992 the previous year, based on government data.

Commentary: Regulators Want to Slow Runs on Derivatives

The preferred mechanism for winding up a possibly too-big-to-fail bank these days is largely about compartmentalization, according to a Bloomberg commentary today. All of the important, messy stuff is put into subsidiaries, the deposits in a bank subsidiary, the repurchase agreements and derivatives in a broker-dealer subsidiary, etc. -- and those subsidiaries then are put under a "clean" bank holding company with a fairly large amount of capital and long-term debt. Then if things go horribly wrong, the holding company's shareholders and bondholders are the ones who lose money, shielding the people who have messier and more systemic claims on the subsidiaries, according to the commentary. However, derivatives have a tendency to want to jump out of their boxes. In particular, if bad things are happening at a large and systemically important bank holding company, there isn't a lot of reason for the bank's derivatives counterparties and repo creditors to stick around, according to the commentary. So yesterday, U.S. banking regulators proposed new rules that say a bank subsidiary's derivatives and repo contracts can't be cancelled for 48 hours after the bank's holding company files for bankruptcy or otherwise enters resolution proceedings. This gives the regulators two days to swoop in and conduct the neat resolution of the bank before its derivatives spill out everywhere and create a mess.

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