Energy Sector Bankruptcies Are Causing Investors Heartburn



If your investment accounts include stocks, bonds or partnership interests in companies currently or previously operating in the energy sector, particularly those in the oil and gas industries and you have incurred losses or damages as a result of those investments,

At least 50 oil and gas producers in North America have sought bankruptcy protection in the past year.  At least 20 of those are/were publicly traded companies who have stock and bond investors now staring at substantial losses.

While some companies continue to operate as debtors in bankruptcy, where does that leave the individual investors that bought the bonds, stocks, or partnership interests?  For many they are faced with substantial principal losses.  Many investors are finding that the original principal invested is close to worthless.  Some are finding that their dividend or interest income stream has been interrupted.  Others may soon find that a bad situation can become even worse where partnership interests in some Master Limited Partnerships are going through debt restructuring, that process is resulting in potential negative tax consequences for some investors.  Where debt is being forgiven and/or restructured and phantom “income” is attributed some investors find they not only lost their investment, they now have a tax liability to contend with as well.

SandRidge Energy, Inc. is considering options including bankruptcy filing, meanwhile, Swift Energy Co., Samson Resources Corp., and American Eagle Energy Corp. have all skipped interest payments and may leave investors facing losses of their principal as well as interruptions in their income stream.  They are not alone, Bloomberg is predicting a very disturbing picture where as much as $40 billion or more worth of energy bonds will likely default in 2016.  In 2015, it is believed that there was $17.5 billion in defaults and the default rates appear to be increasing as there were already $13 billion in defaults just a few months into this year and no signs this is going to slow down.  In fact, many companies in the energy sector appear to be working through their last life lines and there are tens of billions of dollars  of energy sector bonds bid below $1.00 that appear to be near-term default candidates.  With oil prices at or below the $40 range, the price levels appear well below any required break even.  Several companies teetering in an already precarious position will be tested even further as semiannual interest payments are due in April 2016.  An avalanche of energy sector company defaults could be just around the corner and in some cases investors could be looking at principal investments of just pennies on the dollar.

Companies currently being investigated include (but are not limited to):

Linn Energy LLC

Linn Energy Finance Corp.

Peabody Energy Corp.

Swift Energy Co.

Alpha Natural Resources, Inc.

Sandridge Energy Inc.

Arch Coal Inc.

Sabine Oil & Gas Corp.

Basic Energy Services, Inc.

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