In an article published today, Raymond M. Patella and Michael Viscount write:
The oil and gas industry has seen unprecedented levels of volatility in pricing and sustainability over the past year. Since 2015, more than 50 oil and gas exploration and production companies have filed for bankruptcy. While some of these firms will emerge from a Chapter 11 as healthy companies, the negative consequences for their creditors can be substantial.
Bankruptcies will always reverberate throughout the business community, but companies that take a thoughtful approach can go a long way toward ameliorating the uncertainty and the costs that often come along with the news that a major customer is in bankruptcy.
In an earlier three-part series, we examined in-depth the usefulness of letters of credit in commercial transactions. In this article, we outline a handful of popular credit enhancements companies may use to minimize their risk or exposure to a counterparty that they believe may be having financial difficulties. There are many different types of credit enhancements depending on the parties' leverages, cash flow, size and risk. All of these factors should be considered to arrive at an enhancement best tailored to address the concerns of specific circumstances.
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