As energy prices rise, Investors are flocking to US oil and gas companies’ debt, attracted by their ability to make cash once more. According to Bank of America Global Research, funds now have overweight positions in high-yield energy bonds when compared to a benchmark index. This means that rather than simply tracking the proportion of energy sector bonds in the index, Investors are opting to acquire far more.
Energy bonds are attracting Investors interest as crude oil prices surge, more than tripling since late 2020 to $90 a barrel, the highest level in seven years. The price of natural gas has also risen. According to a person with direct knowledge of the sale, Range Resources, a shale gas producer active in the Appalachian region, raised $500 million in January, receiving double the amount of Investors demand as normal oil and gas deals.
Range was able to decrease its interest payments almost in half because to the robust demand for the debt, with the coupon on the eight-year agreement lowering to 4.75 percent, well below the 9.25 percent coupon on the loan the proceeds were used to repay. Many financially weaker energy businesses, such as Chesapeake Energy, a pioneer of the shale revolution, have either restructured their debt or gone bankrupt since the outbreak, according to Investors.
In early 2020, falling oil prices triggered downgrades of numerous higher-rated, investment-grade corporations, including Occidental Petroleum, raising the overall quality of the high-yield bond market. Several shale oil and gas businesses have recently been upgraded by rating agencies, indicating that their balance sheets have improved in a sector that was formerly known for wasteful expenditure.