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Fed Bubble Bursts in $550B in Energy Debt

scott
edited December 2014 in Off-Topic
http://www.bloomberg.com/news/2014-12-11/fed-bubble-bursts-in-550-billion-of-energy-debt-credit-markets.html

Uh oh...

"Since early 2010, energy producers have raised $550 billion of new bonds and loans as the Federal Reserve held borrowing costs near zero, according to Deutsche Bank AG. With oil prices plunging, investors are questioning the ability of some issuers to meet their debt obligations. Research firm CreditSights Inc. predicts the default rate for energy junk bonds will double to eight percent next year."

"One of those to take advantage was Energy XXI Ltd. (EXXI), an oil and gas explorer, which has raised more than $2 billion in the bond market in the past four years.

The Houston-based company’s $750 million of 9.25 percent notes, issued in December 2010, have tumbled to 64 cents on the dollar from 106.3 cents in September, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. They yield 27.7 percent."

"Midstates Petroleum Co. (MPO) is spending about $1.15 drilling for every dollar earned selling oil and gas. Outspending cash flow is the norm for many companies in the U.S. shale boom."

EXXI 5yr chart:

http://finance.yahoo.com/echarts?s=EXXI+Interactive#{"range":"5y","scale":"linear"}

Comments

  • TSP_TransferTSP_Transfer
    Stephen Schwarzman, the chairman of Blackstone Group LP (BX), said it’s going to be the best time in many years to invest in energy.

    “There are a lot of people who borrowed a lot of money based on higher price levels and they’re going to need more capital,” Schwarzman said Dec. 11 at a conference sponsored by the New York Times’ DealBook. “There are going to be restructurings to do. There’s going to be a fallout. It’s going to be one of the best opportunities we’ve had in many, many years.”
    http://www.bloomberg.com/news/2014-12-12/schwarzman-says-energy-is-best-opportunity-in-many-years.html
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