US banks to cut credit lines for en­ergy firms

The Pak Banker - - FRONT PAGE -

NEW YORK: Cash-strapped en­ergy firms are com­ing un­der in­creas­ing pres­sure from U.S. bank lenders and, on av­er­age, could see a 15 per­cent to 20 per­cent cut in their credit lines, the head of JP Mor­gan's com­mer­cial bank told in­vestors to­day. Un­til now, banks could be more le­nient with their en­ergy clients de­spite a pro­longed slump in the price of oil, but Doug Petno, the head of JP Mor­gan's com­mer­cial bank, said that is chang­ing. Moves, dis­closed in se­cu­ri­ties fil­ings, by oil and gas com­pa­nies such as Linn En­ergy (LINE.O) and San­dRidge En­ergy to max out re­volv­ing credit lines - de­signed to cover short-term fund­ing gaps - have prompted banks to take ac­tion.

Petno said JP Mor­gan was not wait­ing for April, when banks tra­di­tion­ally re­assess the value of oil re­serves un­der­pin­ning en­ergy loans - a process known as re­de­ter­mi­na­tion - to re­assess its ex­po­sure. "We are not wait­ing for the spring re­de­ter­mi­na­tion to dis­cuss this with our clients," he said dur­ing a pre­sen­ta­tion at JP Mor­gan's an­nual in­vestor day in New York. Petno said JP Mor­gan had been work­ing closely with its en­ergy cus­tomers through the cur­rent price rout.

The big­gest U.S. bank by as­sets plans to in­crease pro­vi­sions for ex­pected losses on bad en­ergy loans by more than 60 per­cent in the first quar­ter. Petno said he ex­pected credit lines, on av­er­age, would shrink by 15 per­cent to 20 per­cent across the in­dus­try, but there would be wide vari­a­tions de­pend­ing on the health of the bor­rower. "Some bor­row­ing bases may by go up. Some may go down by 50 per­cent," he said. A lurch in the price of oil below $30 a bar­rel last month has forced com­pa­nies to off­load as­sets and cut staff to sur­vive. Dozens of com­pa­nies have al­ready hit the wall and a third of oil pro­duc­ers and ser­vice firms, or 175 com­pa­nies, are at high risk of slip­ping into bank­ruptcy this year, ac­cord­ing to a study by Deloitte.

"Most of th­ese clients are work­ing with their banks way in ad­vance of re­de­ter­mi­na­tions, so it is com­pelling M&A, it is com­pelling as­set sales, it is com­pelling dis­cus­sions with pri­vate equity. But there is a lot of lev­er­age," said Petno. The most dis­tressed clients know when they are go­ing to be pinched... and are tak­ing the steps to deal with it," he added. "There will be a mean­ing­ful num­ber of th­ese play­ers who have no op­tions. I think we have only be­gun to see the range of bank­rupt­cies in oil and gas."

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