Troubled oil and gas companies may have a hard time persuading their bankers to keep extending credit as the outlook darkens for energy, potentially leading to more bankruptcies in the already-beleaguered sector, Bloomberg News reported. Lenders evaluate the value of oil reserves used as collateral for bank loans twice a year, a process that’s not likely to go well amid weak commodity prices, falling demand, shuttered capital markets and fears of coronavirus dampening global growth. Banks may cut their lending to cash-starved energy companies by 10 percent to 20 percent this spring, according to investors and analysts. “Things are so bad right now,” Shaia Hosseinzadeh, founder of OnyxPoint Global Management LP, an energy-focused investment firm, said in an interview. “The banks can kick the can down the road and say ‘there’s no point of pushing everybody into bankruptcy, we’ll wait until October.’... But if it’s business as usual, it’s going to be a horror show,” Hosseinzadeh said. Banks could use spring borrowing base conversations to limit their exposure to some of their more troubled borrowers, according to a Bloomberg Intelligence note. More than one-third of high-yield energy debt is trading at distressed levels. Oil and gas producers with bonds trading with double-digit yields include California Resources Corp., Range Resources Corp., Southwestern Energy Co., Antero Resources Corp., Comstock Resources Inc., Extraction Oil & Gas Inc. and Oasis Petroleum Inc. Read more.
In related news, the House passed a roughly $8.3 billion emergency spending package for combating the coronavirus outbreak, sending the legislation to the Senate as lawmakers raced to respond to the quickly spreading outbreak. The bill provides more than $3 billion for developing treatments for the virus and allocates $2.2 billion for the Centers for Disease Control and Prevention to contain the outbreak, among other measures. Under the legislation, which the Senate will also likely pass this week, more than $1 billion will go overseas, while $20 million will be made available to fund administrative expenses for loans to U.S. small businesses. Read more. (Subscription required.)
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