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Oil & Gas Bankruptcy Wave May Foreshadow More Bond Losses for Investors

June 1, 2016 Blog

Reuters recently reported that the oil and gas industry is experiencing a wave of bankruptcies, the likes of which haven’t been seen since the telecom bust in the early 2000s. At the start of May, 59 oil and gas companies had filed for bankruptcy, with at least one additional company announcing a multi-billion-dollar restructuring less than a week after the release of the Reuters report. Experts expect even more filings in the coming quarter.

Why the rash of bankruptcies? In short, oil and gas companies are still reeling from the drop in the price of oil. While crude traded at over $100 per barrel less than two years ago, it slumped to below $30 per barrel in February 2016, and currently sits at under $50 per barrel. Despite all of their resources, the oil and gas companies simply haven’t been able to adapt to the changing market environment.

Unfortunately, the oil and gas companies’ misfortunes (or, perhaps, missteps) may also signal down times for investors – and particularly for those holding energy-related bonds.

What Oil & Gas Bankruptcies Mean for Investors with Energy Bonds

As the Reuters report notes, as a result of the wave of bankruptcies, “there are also signs that lots of money could be lost . . . especially in high-yield bonds.”

A handful of years ago, energy stocks and bonds were seen as some of the safest investments around. They were good for diversification, for making sure that your entire portfolio wouldn’t crash if the market tumbled. Everyone needs energy, oil prices were high (and expected to go higher) and oil and gas companies in particular were raking it in while issuing high-yield bonds to investors.

As a result of all of these factors, brokers and investment advisors got complacent, if not greedy. They sold and recommended energy company bonds and bank bonds tied to the price of oil, often without regard for the risks that they truly entailed. Now that the price of oil has tanked and energy companies are going out of business, many of these high-yield bonds are now returning substantial losses. As more oil and gas companies go under, more investors may be at risk for losing not only their interest revenue, but their original principal as well.

Investors with Other Energy Sector Investments May Face Losses as Well

Importantly, oil and gas company bankruptcies will also affect other types of investments. For example, individuals holding oil and gas company stocks, mutual funds concentrated in the energy sector, and investments in master limited partnerships (MLPs) may all be at risk for suffering significant investment losses. Understanding the risks of energy-related investments in today’s market, brokers and financial advisors may now owe a duty to pump the brakes on the energy sector in order to help protect their clients.

What to Do if You Have Suffered Investment Losses in Energy Stocks or Bonds

If you have suffered substantial losses in high-yield bonds, an MLP or any other energy sector investment, our lawyers may be able to help you recover financial compensation. At Zamansky LLC, we are actively pursuing claims and investigations against a number firms that sold unsuitable and excessively-risky investments to individual investors.

To find out if you have a claim, we invite you to schedule a free, confidential consultation with an MLP lawyer. Call (212) 742-1414 or contact us online now.