The Business Times

Investors in troubled oil bonds leaning on banks for rescue

Funds now have to decide to sell their junk-rated debt at deep discounts or wait for possible crude price recovery

Published Wed, Dec 17, 2014 · 09:50 PM


INDEPENDENT oil exploration and production companies are leaning heavily on bank credit lines to survive plunging crude prices, making it a nervous time for US funds holding their junk-rated debt.

"The question is, 'How long do the banks keep the heart beating?'" said Francis Bradley III, a Greenberg Traurig lawyer in Houston who specialises in energy company financing deals. "It's not an unlimited lifeline."

US mutual funds hold an estimated US$30 billion in rapidly depreciating debt from a group of about two dozen energy-related companies whose bonds are considered highly distressed, according to Thomson Reuters data.

Fund managers need banks to keep extending credit so the energy companies don't collapse and default. But if the price of oil remains unprofitably low, the banks will only stretch so far. And in the event of default, the banks are…

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