"“We effectively had free credit for seven years and an energy transformation, so a lot of capital went into that,” said Leslie Biddle of Serengeti Asset Management, a $1.5bn US hedge fund with significant oil and gas investments. “But now the capital markets to exploration and production have shut.”
Companies on the distressed list are paying interest at 10 percentage points more than Treasury rates. Standard & Poor’s (S&P) says the energy sector accounts for around 31% of the $285bn total distressed debt in the US. Some investors are attracted by the high yields on offer and a belief that the oil price of oil will soon rise. Borrowers, meanwhile, are keen to fund investment by issuing bonds in the hope the price of oil will eventually rise again.
But sentiment in the sector is worsening the longer the oil price stays low. Many traders had expected an upswing this year, but it has failed to materialise.
In the US, 35 exploration and production companies filed for bankruptcy between July 2014 and December 2015, according to a recent Deloitte report."
