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High Yield Energy Sector Outperforms Aggregate Market Despite Risks

Posted on June 23, 2020

By: Caesar Silvestro


The US Energy high yield sector tightening tear is continuing in June. So far this month, Advantage Data’s High Yield Energy Index has tightened 154 bps to 9.57% while the ADI High Yield Index has tightened 72 bps to 6.44%.  The spread between HY Energy and the HY Index is now only 313 bps, it was 1,100 bps after March’s credit blow-out. 

Improved oil pricing has certainly helped Energy’s credit story. WTI is up about 11% this month to $40. However, all the news has not been constructive for the sector during the rally. 

Energy companies have had their liquidity reduced.  For example, Oasis Petroleum had its borrowing base cut from $1.3 billion to $625 million in April and Antero Resources’ base was shrunk from $4.5 billion to $2.85 billion in March.

Restructuring activity is increasing. Whiting Petroleum filed for bankruptcy protection in April. Chesapeake Energy skipped an interest payment on June 15th, and News source reported that Schlumberger is about to implement a billion-dollar restructuring plan that could lay off workers and write down the value of its assets.

The Energy sector has had an impressive tightening move. It will be interesting to see if Energy can maintain its positive momentum given likely liquidity reductions and restructuring headwinds. 

High Yield Energy Sector Continues to Outperform the Aggregate Market


Caesar Silvestro has nearly 20 years of buy-side and sell-side research experience in the High Yield and Distressed markets. He was an Executive Director at BBVA Securities focused on the Energy Sector and an Executive Director at MF Global overseeing the Distressed/High Yield research effort. He holds a MBA in Finance from NYU Stern School of Business and is a graduate of Franklin and Marshall College.

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