...The recent collapse in commodity prices and industry margins triggered by recession and the capital markets meltdown has focused attention on the ability of companies to preserve their financial flexibility through the downturn. Issuer responses across the energy sector have been vigorous to date and have included sharp cuts in upstream budgets; a 40% drop in the U.S. rig count from year-ago levels; and the economic mothballing of significant portions of refining capacity. On the firm level, companies have generally done a good job of preserving liquidity in the current downturn through a range of aggressive actions, including reducing or eliminating share buyback programs; cutting discretionary capex; cost-cutting initiatives; asset sales; and, in a number of cases, defensively tapping capital markets. These actions, combined with a rebound in energy prices off recent lows, should facilitate improved margins going forward, albeit off of a depressed base. Against this backdrop, the threat...
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