Ratings agency Fitch has downgraded oilfield services giant Petrofac (LON: PFC) after it defaulted on an interest payment.
Fitch lowered Petrofac’s long-term issuer default rating to “restricted default” (RD) from C.
The action came as Petrofac blew through a 30-day grace period on a coupon that was supposed to be paid 15 May on $600m loan notes due in 2026.
Fitch said an RD rating is for bond issuers that have “experienced an uncured payment default but has not entered into bankruptcy filings or ceased operating”.
Petrofac struggles
The downgrade is the latest in a series of woes affecting the company which has been struggling with its debt load in the wake of loss-masking contracts and prior corruption scandals.
In April the company was forced to temporarily suspend trading in its shares due to a delay in the delivery of it full year report for 2023.
The firm also revealed it was in talk with lenders on an ongoing restructuring plan that would see it swap debt for equity.
Shareholders reacted to the potential wipe out of their equity with a significant sell off. The firm’s shares were restored to trading more than a month later.
Petrofac said it it had agreed a “forbearance” agreement with 41% of noteholders that it could wait to pay up “at least until 3o June” while it hammered out a deal. It added it would “seek to engage” with remaining lenders in coming weeks.
Panmure Gordon’s oil and gas analyst Ashley Kelty said there was no surprise in the downgrade.
He said: “Given the lengthy time of commentary from PFC management about restructuring – with nothing actually happening either – and the well flagged default, it was clear that the rating agencies were going to turn negative.”
He also ruled out a timely conclusion to Petrofac’s negotiations with bondholders in its proposed debt for equity swap.
“It is quite probable that they will default on the next coupon payment as chances of getting a restructuring sorted (and agreed) as we head into the summer holidays (coupled with an election) is extremely unlikely,” he said.
“Given the fact that existing equity holders are going to get wiped out, and bondholders will want their pound of flesh, this saga is likely to run for some time.”
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