It wasn’t just the housing bubble that popped in 2007, it was the housing finance bubble, a wonderful agglomeration of sliced and diced mortgages that unraveled and thus started a systemic debt collapse. Now the back-end financing of the “fracking” miracle is unraveling, and everyone has their fingers crossed that it will have no “systemic repercussions.” SLL says it will (see “Oil Ushers in the Depression,” 12/1/14, and “Oil Economics, Part 2,” 12/3/14). Wolf Richter at wolfstreet.com provides an oil patch body count:
Debt funded the fracking boom. Now oil and gas prices have collapsed, and so has the ability to service that debt. The oil bust of the 1980s took down 700 banks, including 9 of the 10 largest in Texas. But this time, it’s different. This time, bondholders are on the hook.
And these bonds – they’re called “junk bonds” for a reason – are already cracking. Busts start with small companies and proceed to larger ones. “Bankruptcy” and “restructuring” are the terms that wipe out stockholders and leave bondholders and other creditors to tussle over the scraps.
Early January, WBH Energy, a fracking outfit in Texas, kicked off the series by filing for bankruptcy protection. It listed assets and liabilities of $10 million to $50 million. Small fry.
A week later, GASFRAC filed for bankruptcy in Alberta, where it’s based, and in Texas – under Chapter 15 for cross-border bankruptcies. Not long ago, it was a highly touted IPO, whose “waterless fracking” technology would change a parched world. Instead of water, the system pumps liquid propane gel (similar to Napalm) into the ground; much of it can be recaptured, in theory.
Ironically, it went bankrupt for other reasons: operating losses, “reduced industry activity,” the inability to find a buyer that would have paid enough to bail out its creditors, and “limited access to capital markets.” The endless source of money without which fracking doesn’t work had dried up.
To continue reading: “Default Monday”