As high yield bondholders struggle to deal with a crash in oil prices that has battered bonds, asset manager Alfred Berg is joining billionaire Kjell Inge Roekke in looking to small bets to take advantage of distressed oil service industry debt.
When offshore support vessel bonds dropped last year, Alfred Berg took, a large position in a small bond issued by Farstad Shipping ASA in order to gain a seat at the table for when talks begin, Tom Hestnes, manager of Alfred Berg’s 1.3 billion krone ($160 million) high-yield fund, said in an interview last week.
“That was something that I learned from the financial crisis in 2008, that the smallest loan may overturn everything,” the manager said.
Crude’s collapse over the past two years has led oil and gas companies to slash spending, reducing demand for equipment and services ranging from engineering to drilling. With income plunging, companies have found it increasingly difficult to manage debt, forcing them to refinance. That has given investors such as Roekke’s Aker ASA an opening to influence the outcome of restructurings.
Aker ASA forced a merger last month between Solstad Offshore ASA, an offshore service vessel company controlled by Roekke, and rival Rem Offshore ASA after blocking a Rem restructuring plan through a stake in the company’s bonds.
Alfred Berg’s Hoeyrente fund, which holds corporate credit with a BB+ rating or lower issued by companies operating in the Nordic region, has returned 3.9 percent over the past three months and fallen about 15 percent over the past 12 months. Hestnes, who has helped build high-yield teams at Swedbank AB, Arctic Securities AS and Sparebank 1 Markets AS, took over the portfolio in July, 2015.
Bond funds, which usually have only a few managers overseeing a multitude of investments, often struggle to keep pace with a string of restructurings during an industry downturn, Hestnes said. That has seen bondholders typically lose out to shareholders and banks in the fight over the spoils. Alfred Berg doesn’t plan to be sitting on the sidelines as other investors offload bonds from their portfolios in the heat of a financial restructuring.
“High yield bond investors often take a passive approach and avoid conflicts and defaults,” Hestnes said.“We take exposure when everyone else sells off.”
High yield bonds issued by companies in the oil and offshore industry in Norway plummeted as a wave of restructuring and consolidations ravaged a market struggling with low oil prices. That’s set to change with most companies now through restructuring and with a good platform for the next 3 to 4 years, according to Hestnes.
“If you believe that oil and gas will come back, as we do, there will be a sharp repricing of bonds,” he said. “We are very opportunistic.”