A small oil company may be about to default on its bonds

American Eagle Energy may not be able to pay back nearly $US10 million in interest to its bondholders.

On Monday, it missed the first interest payment of nearly $US10 million to bondholders, entering a 30-day grace period that had been agreed upon.

According to a report from Bloomberg’s Jodi Xu and Kleinand Laura J. Keller, the company has hired financial advisers to negotiate with the bondholders on a restructuring of the debt.

Via Bloomberg:

“The energy sector represents about 14 per cent of the high-yield bond market, and analysts expect defaults to increase this year as more companies are forced to scale back operations and record losses on oil reserves previously valued at much higher prices.

Bloomberg reported that the first signal of financial trouble came in December, when the company cancelled a revolving line of credit worth $US60 million. Instead, it closed hedge positions it had entered due to falling oil prices to recoup $US13 million.

The oil crash that started last June has forced companies to cut capital expenditure plans, layoff thousands of workers, and reduce their earnings outlook for this year. And now, it appears that some companies may not be able to pay back the money they borrowed from the public.

American Eagle Shares traded as much as 6% lower on Thursday.

Head over to Bloomberg for the full story >>

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