The Carlyle Group has closed on the new Carlyle Energy Mezzanine Opportunities Fund II. Carlyle raised $2.8 billion in this energy credit fund which is twice the size of the Energy Mezzanine Opportunities Fund I that raised $1.38 billion in 2012. The fund will provide capital to energy companies that have found it challenging to obtain capital from traditional sources. Multibillion dollar investments were made in the fund by some of the larger pension funds in the U.S.
Source: Carlyle closes second energy credit fund at $2.8 billion – Pensions & Investments
Salt Lake City-based Zions Bancorp. (Nasdaq: ZION), the parent company of Houston-based Amegy Bank of Texas, continued to reduce its energy-related loan portfolio during the third quarter with its largest reduction to-date.Zions reduced its energy portfolio by $256 million during the third quarter of 2016, the largest so far, according to Scott McLean, president and COO for Zions. This falls in line with an ongoing strategy for the bank to reduce its energy exposure during the poor energy climate. In the past 12 months, Zions has reduced its overall energy exposure, which includes unfunded commitments, as well as lease and lending balances, by more than $1 billion. Zions currently had just under $4.1 billion in energy exposure through the third quarter, according to its quarterly earnings report.
Source: Amegy Bank parent Zions Bancorp. continues to reduce energy portfolio – Houston Business Journal
Key Energy Services Inc., an oil-well servicer, filed for chapter 11 protection on Monday after securing its creditors’ support for a debt-restructuring deal.Key said in court papers that its restructuring plan, which is subject to the approval of the U.S. Bankruptcy Court in Wilmington, Del., will cut its $1 billion in liabilities to about $250 million so it can emerge from chapter 11 with a “manageable debt load.”
Source: Key Energy Files for Chapter 11 After Striking Restructuring Deal – NASDAQ.com
Energy investors have long hoped that falling prices would solve themselves by driving producers into bankruptcy and stanching the flood of excess supply, but it hasn’t worked out that way.
Their owners may be bankrupt, but the sprawling mines of Wyoming’s Powder River Basin are still churning out coal. It is the same story in oil fields along the Gulf Coast and with shale-gas wells in the Rocky Mountains.Energy investors have long hoped that falling prices would solve themselves by driving producers into bankruptcy and stanching the flood of excess supply. It turns out that while bankruptcy filings are up, they have barely impacted fossil-fuel markets.About 70 U.S. oil and gas companies filed for bankruptcy in 2015 and 2016. They now produce the equivalent of about 1 million barrels a day, about the same as before they declared bankruptcy, according to Wood Mackenzie. That represents about 5% of U.S. oil-and-gas output.That resilience has kept energy inventories flush and prices capped. Oil shot to $50 a barrel this summer, but has had trouble making much progress beyond that mark. On Friday, oil futures in New York rose 0.4% to $50.85 a barrel.The theory that bankruptcies would help balance the market “was misguided to begin with,” says Roy Martin, a research analyst at energy consultancy Wood Mackenzie. “And people are starting to come around to that now.”This is exactly the way chapter 11 was meant to work. The process is designed to save companies that can be saved, and many energy companies are using it to lighten their heavy debt loads, adapt to lean times and keep producing.
Source: Bankruptcy Bust: How Zombie Companies Are Killing the Oil Rally – WSJ
It’s becoming difficult to see how the lowest-rated U.S. junk bonds can continue to rally.They’ve posted their best performance since 2009, with more than a 30 percent return so far this year. And now investors from Goldman Sachs Asset Management to Highland Capital are starting to become nervous about this debt, and with good reason: If there’s any sort of economic shock at all, these notes are poised to lose a lot. And some sort of shock is entirely possible in the near future.
Source: 30% Junk Rally Gives Traders Heartburn – Bloomberg Gadfly
The worst may be yet to come for some strained oil services companies as $110 billion in debt, most of it junk rated, creeps closer to maturity.More than $21 billion of debt from oilfield services and drilling companies is estimated to be maturing in 2018, almost three times the total burden in 2017, according to a report from Moody’s Investors Service on Aug. 9. More than 70 percent of those high-yield bonds and term loans are rated Caa1 or lower, and more than 90 percent are rated below B1.Speculative-grade debt is becoming increasingly risky, as the default rate is expected to reach 5.1 percent in November, according to a separate Moody’s report. The 12-month global default rate rose to 4.7 percent in July, up from its long-term average of 4.2 percent, Moody’s wrote. Of the 102 defaults this year, 49 have come from the oil and gas sector, Moody’s noted.“While some companies will be able to delay refinancing until business conditions improve, for the lowest-rated entities, onerous interest payments and required capital expenditure will consume cash balances and challenge their ability to wait it out,” Morris Borenstein, an assistant vice president at Moody’s, said in the report.
Source: For Oil Companies $110 Billion Debt Wall Looms Over Next 5 Years – Bloomberg
Zions Bancorp, the parent company of Houston-based Amegy Bank of Texas, is coming off a first half of 2016 where it posted $73 million in losses on its energy loan portfolio, and expects more for the rest of the year, as well.The charge-offs were in line with what Salt Lake City-based Zion (Nasdaq: ZION) expected — a $125 million loss on its energy loan portfolio. The losses are largely tied to one sector: Since Sept. 30, 2014, 78 percent of Zions’ loan losses related to energy have been in oil field services, earnings documents show.
Source: Amegy parent Zions Bancorp closes first half with energy losses, more expected – Houston Business Journal
High-yield energy bonds, which have risen even as oil slid more than 20 percent in the past two months, may be hit if the commodity dips below the $40 it’s trading at now, according to Barclays Plc strategist Brad Rogoff.“That portion of the high-yield market especially, it looks a little rich with crude at $40,” a barrel, Rogoff, head of global credit strategy research at Barclays Capital, said Monday on Bloomberg TV. “If we drop below, you’ve probably got some downside there.”High-yield energy bonds are on track for their best returns since 2009, with oil recovering from a 13-year low of $26.21 a barrel in February. After rising to $51.23 in June, crude dipped back under $40 on Monday. With that drop, the correlation between speculative-grade bonds and the oil price is at its weakest level since at least 2010.
Source: Beware Junk Energy Bonds Amid Oil Slide, Barclays’s Rogoff Warns – Bloomberg
As oil prices surged toward $100 a barrel in 2010, Key Energy Services doubled down on horizontal drilling and began building heavy-duty service rigs. Four years later, the company had spent more than $1 billion on equipment and other capital investments as it rode the shale boom, piling up debt along the way.Then the market turned. Crude prices plunged, drillers fled oil fields, and Key’s cash flow evaporated. But the debt didn’t.Today, Key Energy is on the verge of bankruptcy, struggling under the weight of net debt – total debt minus available cash – that nearly tripled over the past decade to $760 million. Like many other energy firms, Key finds it nearly impossible to pay down loans it banked in days of plenty, now that prices have dipped below $50 a barrel.”The market caught Key off guard,” said Trey Whichard, Key’s former chief financial officer, “and it caught a lot of companies off guard.”Key Energy is an example of how oil and gas firms, supported by banks and other lenders, turned a boom into a bubble and why, now that it has burst, the energy industry faces a slow and painful recovery. Even if companies can avoid bankruptcy, the costs servicing heavy debt loads will tie up money that might otherwise be used to buy new equipment, launch new products, and hire new workers. A Houston Chronicle analysis of 130 publicly traded energy companies found that their combined net debt, a vital indicator of the health of a company, jumped sevenfold in a decade, ballooning from $60 billion in 2005 to $440 billion last year.”Something is going to have to give,” said Ed Hirs, an energy fellow in the University of Houston’s economics department and managing director for a small oil and gas exploration company on the Gulf Coast. “This is not a sustainable trend.”
Source: Heavy debt loads could slow energy’s recovery – Houston Chronicle
Eagle Ford Shale operator Atlas Resource Partners LP said Monday it expects to file Chapter 11 and has entered into a restructuring agreement with its lenders.
The Pennsylvania-based Atlas has 22 wells in Atascosa County, as well as operations that include acreage in Oklahoma, North Texas’ Barnett Shale gas field and the Marcellus Shale gas field in Pennsylvania.
The company said it expects to operate its oil and gas properties during restructuring and will continue to pay suppliers, employees and royalty owners. But it will emerge with a new name: Titan Energy LLC. Unit holders will be wiped out by the bankruptcy and will not be entitled to shares of the new company.
Source: Eagle Ford operator heads into bankruptcy