What's wrong with EnQuest bonds?

[AJS-]

Never actually invested in bonds so not sure if I'm missing something but EnQuest bonds look like reasonable value to me. Trading at about 90p with a 5.5% coupon, which gives a 7% yield, and mature in 2022.

http://www.fixedincomeinvestor.co.uk/x/bondchart.h...

Why have they dropped off a cliff recently? As far as I know EnQuest is fairly stable with producing assets. I guess the shares will have been hammered by the oil price drop but doesn't seem to be in any danger of going under. Or is it?

I know that bond prices will probably fall if/when interest rates rise, but if you're prepared to stay in until maturity it looks like a pretty good bet.

What am I missing?

[ringram]

Its likely the economic returns are being cut heavily with the drop in the price of oil.
Im not sure what their cost of production per barrel is but with the recent 20% cut in price they are likely to be under some pressure if not ultimately uneconomic.

Therefore their ability to maintain bond repayments is also under pressure etc..

[AJS-]

Hmm, so the relatively low price reflects perceived likelihood of default? And is default basically bankruptcy or are there different levels of default/bankruptcy?

Can't really find a very clear answer on google! Thanks

[ringram]

Default may stay bankruptcy.

Any company can default if they like. Look at the bond terms for remedies, constraints, conditions etc..

But yes, default on coupon and/or principle are all increased probabilities in the current environment.

[ellroy]

As has been said default can be many things, including something as simple as a late payment.

There were two PIBs in the last week who'd been in default for several months who made up their back payments.

[AJS-]

Interesting! Thanks. Still half tempting as it's a decent return but not very keen on losing the lot.

[ringram]

Thats what diversified portfolio's are for