Market Overview

Friends After All? Why Wunderlich Believes Energy And Banks Do Mix


In a report published Friday, Wunderlich analysts explained why they think energy companies and banks might have a better relationship than many believe.

The idea came from “the concern in the energy sector around finances and liquidity,” amidst a period of continued weakness for oil and natural gas. Wunderlinch decided, consequently, to talk with several different people on both sides of the matter (private companies, commercial and investment bankers, etc.) to get their thoughts on some of the related issues.

Below are some key takeaways:

  • "The banks, by and large, aren’t all that exposed and seemingly are safer than most believe.
  • "Given the banks’ conservative nature in the good times, it should provide cushion in the bad times.
  • "We believe E&P credit facilities will likely be reduced in the Spring but not nearly as far as most expect.
  • "Hedges have become a hot and quite interesting topic as they help both the E&Ps and banks (though many seemingly worry that’s not true).
  • "The banks have even less exposure to the OFS names outside of working capital/cash management.
  • "Private equity is heavily invested in the energy space (both publicly and privately) and seemingly opportunistically looks for more, but we feel each deal is unique."

"These talks were very interesting to us and gave us a much better insight into how the lenders and investors are handling the downturn. While we entered these conversations looking for smoking guns or panic, we came away more knowledgeable and feeling a bit better in general about the space. While oil prices remain a headwind and we do feel there will be names that go away, at least it is nice knowing that the banks and most private equity do not look to be the ones that send them on their way."

Posted-In: WunderlichAnalyst Color Commodities Markets Analyst Ratings


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