Looking at the wreckage of the worst energy junk-bond rout on record, Jeffrey Aronson of Centerbridge Capital Partners LP likes what he sees.
“There has been so much blood on the street in this space, and the technicals were so poor, that it intrigues us,” Aronson, managing principal and co-founder of Centerbridge, which manages $11 billion in distressed debt, said at the University of Texas Investment Management Company’s 20th anniversary conference Thursday in Austin. “We buy things that no one else wants, that’s what we do. We typically try to buy them at a point at a point of maximum fear.”
High-yield energy debt is down 8 percent this year after plummeting 24 percent last year, compared with a 5 percent drop in the broader high-yield market, according to Bank of America Merrill Lynch Indexes. The rout has come as commodity prices have fallen near the lowest levels in at least 25 years, according to the Bloomberg Commodity Index, amid reduced demand for oil, metals and minerals as China’s economy cools.
Aronson, who spoke at a session with Fortress Investment Group LLC founder Peter Briger, said he’s looking for companies that can outlast the carnage of the oil rout that is now in its 21st month.
“As long as they can survive an extended period of depressed prices and not burn a lot of cash, or better yet not make any money but not lose any money, we like the optionalities of sticking with that,” he said, adding that Centerbridge’s energy-debt holdings are “modest,” up to 5 percent from zero a year ago.
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For Briger, Fortress’s co-chairman and principal, the best opportunities in energy junk may come through private equity.
“If energy prices stay down here, we’re going to see a tremendous amount of defaults and bankruptcies,” he said. “It will be the supply/demand imbalance, and the resetting of price of those capital structures in those assets, that create the opportunity for someone like us.”
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