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Published on Oct 17, 2016
The
stabilization of energy prices in 2016 stemmed a potential wave of oil
patch bankruptcies. That pause could end in 2017 as steep debt loads may
prove too much for some suppliers, said Ted Gavin, managing partner of
Gavin/Solmonese. "I think the data shows that the prolonged drop in oil
prices has led companies seeking to hold on through the trough to use
debt to replace what used to be income," said Gavin. "Rather than
curtailing operations, companies are going deeper in debt waiting for
pricing to return to a level more likely to provide for breakeven or
better operations," said Gavin. "Like all businesses, increases in debt
in the oil business has a short lifespan before the company faces
failure - and here we are." Gavin said the shipping industry is not
going to be totally undone by the Hanjin bankruptcy, which many are
calling the "Lehman of the shipping world". In his view, there is no
lack of capacity in shipping and all the other shippers are going to be
getting a little bit healthier by Hanjin's demise. "It may result in
slightly higher goods pricing, but the significance of a broader impact
of Hanjin is being overblown," said Gavin. As for the retail sector,
Gavin said the bankruptcies at Sports Authority, Aeropostale and
Golfsmith will have a major impact on commercial real estate due to
shrinking tenants of this size and scale. Moreover, he said retailers
like Sears are at high risk of default due to declining mall traffic,
competition from online and other types of retailers, and a lack of a
compelling product line. Finally, Gavin said for-profit colleges and
universities could soon be a thing of the past as federal regulators
have begun zeroing in on the industry's habit of exploiting students.
The last example of this is ITT Educational Services , which recently
filed for bankruptcy after losing access to federally backed student
loans.
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