Once the APC news reverberates across the industry, this may just be the straw that breaks the energy junk bond market's back, as a scramble out of the sector ensues, resulting in the double whammy of also yanking much needed capital from shale companies. Such an exodus could not come at a worse possible time: as Bloomberg calculated if oil prices were to stay below $47 a barrel, "investors will demand a bigger cushion of extra yield to own junk-rated energy debt. Part of the reasoning is that these firms still require an excessive amount of leverage (and investor faith) to keep operating as junk-rated oil and natural gas producers have more than $25 billion of credit-line commitments expiring in 2019. If oil prices don't rebound, banks have good reason to reduce those lines substantially, siphoning off a crucial funding source."
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Goldman Sachs Asset Management has been shedding oil and gas-related company bonds in the past few months and shorting oil in some portfolios, according to Mike Swell, the firm's co-head of global fixed-income portfolio management. The investment manager has moved from an overweight position in energy-related corporate bonds a few months ago to neutral today and toward an underweight stance, he said in an interview on Friday.