Distressed energy space shrinks as issuers are lifted on sustained strong oil prices

By Cristal Cody

Tupelo, Miss., Feb. 16 – Fewer energy names are seen in the distressed market so far in 2024 as oil prices remain strong.

“Sort of what’s happened is there isn’t as much distressed to speak of anymore and certainly not in energy,” a source said Friday. “We’ve got a resurgence in oil prices, that’s going to be positive for oil, so we don’t have a lot. There’s very low leveraged in any of these names anymore. Anything that was sort of investment grade that had gone into high yield is now firmly back in IG.”

A handful of energy names are still considered distressed with yields of nearly 20% and spreads of more than 1,000 basis points, including Nine Energy Service Inc., Sunnova Energy Corp. and EnQuest plc.

Exits

Having left the distressed space, issuers including Apache Corp. and Occidental Petroleum Corp. are now traded as high-grade issues.

Occidental Petroleum paper is split-rated with high-grade ratings from Moody’s Investors Service and junk ratings from S&P Global Ratings but “trades like it’s an investment-grade issue,” the source said.

The company’s 8 7/8% notes due 2030 (Baa3/BB+) were quoted Friday at 116 bid and yielding 5 5/8%.

Moody’s upgraded the company’s more than $15 billion of face debt to investment grade in May 2023.

Other energy names remain active in both the high-grade and high-yield spaces so far this year.

Talos Production Inc.’s new 9% senior secured second-priority notes due 2029 and 9 3/8% senior secured second-priority notes due 2031 (B3/BB-/B+) priced at par Jan. 25 are now trading around 102, 102½, a source said Friday.

The notes were sold in $625 million tranches.

Once distressed oilfield services name Transocean Ltd.’s $525 million of 8 3/8% senior secured notes due 2028 (B2/B) priced a year ago on Jan. 9, 2023 at par have improved considerably.

“The bonds are trading around 103, 103½,” a market source said. “They’ve tightened about 100 basis points from new issuance. They’re doing fine.”

Transocean will report fourth-quarter earnings results on Monday.

Oil backdrop

West Texas Intermediate crude oil benchmark futures for March delivery settled Friday $1.16 higher at $79.19 a barrel.

According to a note Friday from Hargreaves Lansdown analyst Sophie Lund-Yates, oil prices are approaching $83 a barrel amid the geopolitical tension.

“The price of Brent crude is approaching $83 a barrel as it advances for the second week in a row,” Lund-Yates said. “OPEC+ efforts to control supply, coupled with ongoing geopolitical tension in the Middle East, means the price has been squeezed upwards.”

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