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by riphay
3529 days ago
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I used to work in energy corporate finance, and this feels like a pretty alarmist article to me for a few reasons. My logic runs as follows:
- The trillions in credit are issued by a wide array of energy companies running the gamut from production, to energy infrastructure, to utilities, etc.
- When a company is getting credit, the term is significant to the pricing of the credit. Riskier companies tend not to have access to long-term debt (10 years+); this tends to be open only to companies with more secure revenue streams (utilities, refineries, etc.)
- By projecting to 2040, the article assumes creditors won't have a chance to reprice the mosaic of debt many times over until then. Riskier companies may lose access to credit completely (as we've seen during the current downturn in oil prices), while others will have to pay a higher price for their debt.
- If the projections are accurate, this market will simply shrink in step with the overall market shrinking. And if past disruptions are any indications, it will be replaced by battery / EV companies needing credit and suddenly looking a lot less risky.
- The world doesn't end. Did I miss anything in my logic? |
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If a riskier company can't renew it's credit, and in general the money is getting more expensive won't this lead to bankruptcy for many energy companies. Those companies won't be able to pay their debt back so ergo the money has to be written off.
This would lead to higher IR on any old-energy based debt which could then put even the less risky companies at risk as they need to put more of their profits into servicing their debt.
There would be a systemic failure. Unlike the housing crisis it will be due to companies that can't afford their debt in the future, rather than overextended home owners who couldn't afford the debt from day zero. But the effect could be the same.
Disclaimer: Armchair economics.