Energy Gurus Stunned By Pricing Of Junk Deal

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  • 11 Aug 2003
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A pair of high-yield energy sector mavens are astonished by the recent sale of $150 million worth of 8.75% notes of '09 by Energy Partners Ltd., a New Orleans-based oil and gas exploration and production company. Tom Parker, portfolio manager at Barclays Global Investors, believes the deal should have carried a coupon of well over 11%. "It's one of those things where if you really understand the sector, and there are enough people out there who don't, you see it's a huge mispricing of risk," he says.

Some investors may have been looking merely at the rating and debt-to-EBITDA ratio, says Parker, who used to be a sell-side energy analyst at J.P. Morgan Securities. He argues, however, that the life of the company's producing energy reserves is just 2.5 years, meaning that it will likely have to make a new acquisition to produce enough cash flow to service its debts. Parker says many high-yield energy watchers are concerned that the success of the deal will "bring a flood of lousy small energy companies into high-yield at that coupon."

One sell-side analyst was surprised the deal was not pulled. "It's a really risky situation when you combine assets in the Gulf of Mexico and high leverage. The nature of gas production in the Gulf is very unpredictable," he says. However, he is not concerned about a flood of new deals, because E & P companies currently have more cash than they know what to do with due to high energy prices and a shortage of properties for sale. A call to Tripp Smith, global co-head head of leveraged finance at Credit Suisse First Boston, the lead underwriter on the deal, was not returned.

  • 11 Aug 2003

GlobalCapital European securitization league table

Rank Lead Manager/Arranger Total Volume $m No. of Deals Share % by Volume
1 BNP Paribas 10,542 20 17.55
2 Bank of America Merrill Lynch (BAML) 6,103 21 10.16
3 Citi 5,130 13 8.54
4 JP Morgan 4,681 6 7.79
5 Morgan Stanley 4,137 11 6.89

Bookrunners of Global Structured Finance

Rank Lead Manager Amount $m No of issues Share %
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1 Citi 81,261.11 236 11.54%
2 Bank of America Merrill Lynch 66,433.81 187 9.43%
3 Wells Fargo Securities 57,637.40 170 8.18%
4 JPMorgan 53,570.42 158 7.61%
5 Credit Suisse 45,349.30 117 6.44%