Oil at $40 or $50, or even $30 hardly matters anymore as losses are set to pile up in the Norwegian junk bond market.
That’s inevitable in a universe where 40 percent of the bonds are rated CCC, according to Paal Ringholm, head of credit research at Swedbank AB.
“Many companies will incur losses on investors in the next years,” he said in an interview. “The downturn is so hard that many will not survive.”
Brent crude on Tuesday fell below $40 a barrel for the first time in seven years, adding further pressure on Norway’s struggling oil service companies. Companies such as Polarcus Ltd, a seismic surveyor of oilfields, have already halted payments on their debt and are seeking talks with investors.
The DNB High Yield Norway Total Return Hedged Index has fallen 15 percent from a high in September 2014.
Not all investors are running for cover.
Ville Talasmaeki, head of credit investments at Finland’s Sampo Plc, said he’s been a “selective buyer” over the autumn, picking out companies that will “survive the storm.”
“Given the yields and cash price at the moment one can sustain 60 to 70 percent default with some expected recovery and still make zero,” he said. “Based on those assumptions you can build a portfolio that can generate meaningful return.”
He declined to name specific companies.
Ringholm said that while this is one of the toughest downturns ever for the oil business, he’s also recommending a “market weight.”
“There are enough names to buy and make money,” he said. “But there’s of course risk.”