Ezra Holdings: The Latest Energy Business Bankruptcy, But Not the Last

Ezra Holdings: The Latest Energy Business Bankruptcy, But Not the Last

As we’ve discussed before, the energy industry is recovering. But for Ezra Holdings Limited, that recovery proved to be too little, too late, as it filed for bankruptcy on March 18, 2017.

Decisions made in the days of easy money and $100+/barrel oil forced this offshore services company into a tough road for recovery, leaving them vulnerable to every setback.

In this bankruptcy post-mortem, find out what red flags signaled growing bankruptcy risk — and why Ezra became the latest energy industry statistic from last year’s energy industry bankruptcy crisis.

Learn from the pattern of unfolding financial distress:
Read the full Ezra Holdings Ltd. Bankruptcy Case Study

Industry recovery comes too late for some

It’s been nearly 10 years since oil hit a record high of $147 per barrel (July 11, 2008), but companies are still feeling the pinch from decisions they made then. When prices spiked, many energy companies borrowed aggressively to finance new projects. With crude prices at that level, paying off debt wouldn’t be a problem.

But when prices fell, energy companies started dropping like flies. Though the worst days of the industry financial crisis occurred just a year ago — when prices cratered below $30 per barrel in January 2016  — companies like Ezra remind us there’s no quick fix for financial distress, and some over-leveraged companies are unable to restructure and bounce back.

How debt threw off Ezra Holdings

While the good news for the energy industry is that analysts believe prices will remain stable, the bad news is that there are still companies like Ezra that over-leveraged in the 00s limping along and unable to rebound.

Ezra Holdings was able to hang on until affiliate Emas Chiyoda Subsea Ltd., filed for bankruptcy, leaving the company on the hook for nearly $900 million in liabilities.

This was the final straw, but there were financial red flags throughout the past year that cast doubt on Ezra’s ongoing viability:

  • Working capital plummeted to ($887.2) million, as anticipated orders failed to materialize.
  • Operating margin fell and losses grew, quarter after quarter.
  • Free cash flow was negative for 3 out of the last 5 quarters.
  • Tangible net worth took a 62.5% nose dive over just one quarter
  • Stock value tanked, dropping to a paltry 1.1 cent before being suspended
  • A breach of financial covenants, resulted in the reclassification of long term debts as current liabilities.
     

The biggest red flag of all? The company’s FRISK® score was on a steady 12-month decline from 3 to 1 — signaling up to a 50% likelihood of bankruptcy within 12 months.

To see all of the financial distress red flags for Ezra Holdings, read the entire case study.

Don’t ignore public company risk

Many of our subscribers are shocked to learn that more than half of their credit portfolio risk is tied up in public companies — not the private companies they typically monitor like a hawk. And public companies are big, so when they fail, the liability tends to be large.

The good news? Public company bankruptcy always comes with warning signs. With the right  tools to analyze the public companies in your portfolio, spotting high risk companies like Ezra Holdings becomes a more manageable task.

That’s why we created the FRISK® financial risk score. The FRISK® score is 96% accurate in predicting bankruptcy, providing an early warning of public company failure so you can take steps to mitigate risk at the right time.

Are there distressed companies hidden in your portfolio?

We hope this bankruptcy case study helps you to recognize a classic pattern of financial distress as you manage credit risk, both in and out of the energy sector. For help analyzing your public company risk, contact us for a complimentary portfolio risk assessment.

Learn to discover your financially distressed counterparties and biggest portfolio risks.
Read the full Bankruptcy Case Study for Ezra Holdings Limited

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At the core of CreditRiskMonitor’s service is its 96% accurate FRISK® score, which is formulated to predict public company bankruptcy risk. One of four key components calculated in the FRISK® score is crowdsourced subscriber activity. This unique system tracks subscribers' patterns of research activity, capturing and aggregating the real-time concerns of what are essentially the key gatekeepers of corporate credit. Other features of CreditRiskMonitor’s service include timely news alerts, the Altman Z” score, agency ratings, financial ratios and trends. CreditRiskMonitor’s network of trade contributors provides more than $135 billion in trade data on their counterparties every month, giving them visibility into their biggest dollar risks.