Fitch: Drillers Have Elevated Exposure As LBO Candidates

Fitch Ratings believes the U.S. drilling and service sectors have an elevated exposure to leveraged-buyout (LBO) transactions. Historically, the industry has been an unattractive candidate for large, leveraging deals due to the cyclicality of earnings and cash flow. "Robust returns to shareholders continue to provide the greatest level of protection to bondholders from LBO risk, consolidation risk or from leveraged recapitalizations," says Adam Miller, associate director, Fitch Ratings. As commodity prices have increased substantially during the past few years, the increased demand for drilling rigs has resulted in substantial contract backlogs, and these have the potential to mitigate any near-term risk to falling commodity prices. For more on this, see the July issue of Oil and Gas Investor. For a subscription, call 713-260-6441.