For distressed-energy investors, depressed commodities prices have made credit a better place to be than private equity.
That’s the view of fund managers and investors at the Energy & Natural Resources Summit at the SuperReturn U.S. 2015 in Boston on Monday, who said struggling companies are concerned about selling equity at bargain-basement prices and instead are waiting for commodities to return to prior levels. In the meantime, they issue debt.
“The environment for credit investing is more attractive today because nobody in the energy sector wants to sell their assets unless they absolutely have to,” Carlyle Group LP’s David Albert, co-head of the Carlyle Energy Mezzanine Opportunities Fund, said at the summit. That makes “attempts to buy assets challenging.”
Oil prices that dropped as much as 60 percent in the past year were at about $60 a barrel in New York on Monday, well below the average of $90 over the past five years. While that’s squeezed many energy companies, it’s also kept them off the market, leaving private-equity investors “feeling hungry,” as Apollo Global Management LLC’s Greg Beard put it.
“There were hundreds of candidates at the end the last year” for private-equity deals, said Beard, head of Apollo’s natural-resources investing. “No more.”
Even as he touted the relative security in credit investing, Carlyle’s Albert warned that credit investors pursuing transactions with a goal of taking control of the restructured companies also face valuation uncertainty due the volatility in oil prices.
A number of distressed credit funds, for example, have approached companies about debt-exchange deals, which would convert debt into other forms of debt or equity, with an aim for future control of the company.
“Oftentimes, investors are just looking at the public data,” said Carlyle’s Albert. “It’s very difficult to figure out how a company is actually doing that way.”