The plunge in oil prices is creating opportunities for private equity firms to invest in high-yield bonds tied to energy companies and provide rescue financing.
Blackstone Group President Tony James said recently that the firm is “scrambling” to invest more than $10 billion in energy companies. It closed a $4.5 billion energy fund last month.
“Our people are scrambling and trying to come up for air,” James told reporters, according to Bloomberg. “Everything just got hammered at once. There’s clearly some very interesting values in the credit markets just buying debt at big discounts to face and getting equity-like returns.”
High-yield bonds tied to energy companies have slumped around 17% since oil prices peaked. A sustained slump in crude oil may trigger a significant increase in defaults of energy companies, Deutsche Bank AG said in a report in December.
Among other private investment firms, Carlyle Group has about $7 billion dedicated to investing in energy companies and assets, while KKR has been seeking as much as $3 billion for its second special situations fund to provide financing to troubled companies, including those hurt by falling oil prices, reported Bloomberg.
“The timing of having that capital available now really couldn’t be better,” Blackstone CEO Steve Schwarzman said of the firm’s energy fund.
Blackstone is also looking to invest in U.S. shale operators and international oil exploration and development while avoiding ultra deep-water drilling and heavy oil, David Foley, the firm’s head of energy deals, said in December.
Shale production in the United States is largely resilient to lower oil prices, he noted.