Norway’s largest bank, DNB ASA, have said their outlook is much more balanced after ‘bondholder friendly’ agreements were reached on Thursday regarding the nation’s oil service debt.
Paris, France, July 19, 2016 — After a difficult year where a drop in crude prices forced satellite oil firms to completely restructure their businesses, DNB now see the current market as a lot safer after the latest round of junk bond negotiations.
Ottar Ertzeid, Group Executive Vice President of Markets at DNB, said in an interview that recent talks had resulted in “significantly better recovery rates” for oil service bondholders than predicted.
“In previous weeks our outlook has been fairly negative to say the least,” he said. “Looking at the agreements made last week we can confidently say that we now have more of a balanced view.”
Many Norwegian businesses on the periphery of the crude industry have been having a hard time coping with the decline in the sector, including offshore service and supply companies and drilling vessel operators.
One of the most heavily debt laden, Seadrill Ltd, reached a refinancing agreement with banks last week in a bond-for-equity scheme. Other firms like Seismic surveyor Polarcus Ltd. and shipowner Songa Offshore SE made favourable agreements with their bondholders in 2016 in the first step of further negotiations.
As worries that further massive defaults would be forthcoming due to the decline in oil, Norway’s crude-focused junk bond market has virtually ground to a halt. After prices reached basement level they are currently recovering, good news for Scandinavia’s biggest bond market.
Steve Rogers, Director of Asset Allocation at Orix Capital Trading commented on developments, “From a 27 percent low after Q1 we’re seeing high yield returns pared to about 20 percent over the last few months. It seems as if the storm has passed,” he said.
Ertzeid added in his interview in Oslo that the continued glut in crude, and oversupply from service companies will see the sector continue to work through some tough times.
“On the bond side of things we can be a bit more positive even if there is some way to go to get the physical side of the industry back on its feet,” he said.
Orix Capital Trading