NEW YORK (Reuters) – Bonds of hard-hit oil and gas companies such as Occidental Petroleum (OXY.N), Antero Resources (AR.N), WPX Energy (WPX.N), HighPoint Resources (HPR.N) and Western Midstream Partners (WES.N) rose in price on Thursday after the Federal Reserve announced it would expand its Main Street Lending Facility to larger and riskier companies affected by the coronavirus pandemic.
The central bank said it would widen its lending to firms with 15,000 employees and $5 billion in revenue, versus initial limits of 10,000 workers and $2 billion. The program now will extend loans to more precarious companies, if banks agree to take on 15% of the loan.
In afternoon trade, seven of the 10 biggest upward movers in the U.S. corporate bond market were oil and gas companies, according to MarketAxess data. WPX Energy’s 5.75% June 2026 bond was up 6.7% on the day, last trading at 88 cents on the dollar. Occidental’s 6.45% September 2036 issue traded up 5.7% on the day, last trading at 74 cents on the dollar.
The lending project is aimed at companies that were financially stable prior to the crisis and have since been hit. The program’s expansion to include riskier companies could allow recent downgrades into the junk sector to participate.
Energy companies have been hit hard as fuel demand worldwide has dropped by roughly 30%. More than half of the so-called fallen angels – companies downgraded from investment grade to junk – from the first quarter are in the energy sector, and the bonds of each of those traded higher on Thursday, with particularly notable moves in Occidental and Western Midstream.
Is it unclear whether companies whose bonds rose will apply – or meet all of the Fed’s criteria. None of the companies immediately responded to a request for comment.
“Energy companies could benefit,” said Nicholas Follett, manager of investment management and research at Commonwealth Financial Network. Other beneficiaries could be “formerly investment grade companies that are being chased out of the investment grade index.”
Follett pointed to Occidental, which he said had “a fine balance sheet about six months ago, but had “been taken completely offsides.”
While the public debt market has remained open, issuers across the credit spectrum have had to pay more to borrow. For smaller oil and gas names with lots of leverage on their balance sheet, current borrowing costs may be too high.
“I think the kinds of companies that would use this are those that can’t use the public markets because they are a little too small or they are in a more affected industry and thus, public markets are expensive,” said Tom Graff, head of fixed income at Brown Advisory.
Reporting by Kate Duguid; Editing by Megan Davies and Dan Grebler