Energy Companies snap up $20 billion in Junk Bond Record

The lowly rated US Eenergy Companies that struggled for survival last year are finding renewed optimism from investors after the oil price surge. This is helping them raise a record amount of debt to get out of bankruptcy. The Refinitiv tracked Energy and power companies have raised more than $20 billion in the high-yield bond market this year. It is an all-time record going back to 1996.

Last week, a four-month-long rally in crude prices stalled, but Brent, the international benchmark, remains above $60 a barrel. Since the start of November, prices have gone up by 60%. This rally, fuelled by vaccine rollouts and record Opec oil production cuts, has shown a change in sentiment among debt investors who had shunned many Energy Companies last year.

John Dixon, a high-yield bond trader at Dinosaur Financial Group, said, “At these levels a lot of companies can hedge future production and survive. It’s the oil-linked names in high yield that have been among the best performers recently.” The oil prices of the US were pulled below zero during last year’s oil crash. This caused deep distress in the American Energy Companies. Operators slashed planned spending, sacked many workers, and even shut down some wells.

A law firm, Haynes and Boone, said that more than 100 US oil and gas producers and service companies went bankrupt last year. The debt accounted for more than $108 billion in debt. Chesapeake Energy was a pioneer of the shale revolution, whose collapse symbolized the crisis for an industry. It blew through around $400 billion of external capital during a decade-long drilling boom.