Erin Energy Corp filed for bankruptcy protection in Texas on April 25th with an FHR of 16, Very High Risk. The company is seeking to restructure its debt to allow it to continue operating and realize value from its African oil and gas assets. The company's position became untenable, with $613 million USD in liabilities and only $251 million in total assets, following 5 straight years of negative free cash flow.
What the ratings tell you
We don't issue Very High Risk ratings all that often, so this is a flag which needs to be taken seriously. An FHR of 16 indicates an annual Estimated Probability of Default of 21.21%, which should cause any risk manager to reconsider their exposure. We saw weakness in all categories of Core Health (Operating Profitability, Net Profitability, Capital Structure Efficiency and Cost Structure Efficiency) and in each Resilience Indicator (Leverage, Liquidity and Earnings Performance). You can read more about those metrics in FHR Model 101. A rating this weak puts Erin Energy in the lowest percentiles of performance.
An FHR of 16 put Erin Energy Corp in the lowest 3% of Financial Health across current US public companies.
Where our analysis tells the story
Each of our reports flagged significant risk with this counterparty. 'The Bottom Line' in our FHR Report sums it up well:
Erin Energy Corp is situated in our Very High Risk group, displays weakness in all seven of our performance categories and demonstrates significant underperformance in ROCE. If current trends persist it would be logical to expect that Erin Energy Corp will face very serious default risk this coming year and will struggle with efficiency and competitiveness problems over the medium-term; thus, the outlook is negative.
The Peer Benchmark Report also showed this company as significantly underperforming the Oil and Gas Producer sector average, which is a respectable 52.1 given recent improvements.
Clients can access these reports by searching for Erin Energy Corp on our client portal.