CNN Money recently carried a story entitled, “Warning: Oil Company Defaults Coming.” We agree with everything in the article, however, we wish it were published years ago! For many months we have warned about coming defaults in the shale bond arena.
Back in August, the Wall Street Journal reported that oil producers are expected to lose $4.4 trillion over the next three years. Unless oil and gas prices double overnight, many shale bond issues will default (some defaulted just months after issuance).
For years, the nation’s appetite for junk grade bonds seemed insatiable. Drilling companies bulked up on expensive technologies and new equipment. With oil prices holding in the mid $40’s per barrel, there is no way they can make money, however.
It seems like every week, some industry analyst or trade publication sounds the alarm about impending defaults. We blame the stockbrokers and financial advisors that sold much of this toxic debt. Junk grade bonds might be great for institutional investors looking for high yields and willing to speculate. They have no business in the portfolios of retirees and others who need their money to fund their retirement.
Everyone in the industry knew these were speculative plays yet some unscrupulous brokers continue to peddle them on an unsuspecting public.
Stockbrokers have duties to understand their clients’ investment needs and to only recommend suitable investments. For the average investor, that means no shale bond issues, oil and gas partnerships or other speculative investments.
While the bonds and other speculative oil and gas debt will be the first default, the entire sector is in trouble. Experts say that unless energy prices increase, countries like Saudi Arabia could be broke within a few years. CNN, the publication that this week warned about impending defaults, previously reported that the world’s leading oil exporter needs oil prices to rise to $104 per barrel simply to break even!
Stockbrokers should have performed their own due diligence before peddling these securities. Because investors have been desperate for high yields, however, stockbrokers simply took their money and gave people what they thought they wanted. That may have earned them so high commissions but only gave the investors false hope.
In the coming months we expect to see many more shale bond defaults. If a stockbroker failed to warn you of the risks inherent in these debt securities or failed to tell you that they were junk quality, you may have a claim.
Most claims against stockbrokers are handled by binding arbitration. Both the broker and his or her employer can be held responsible for your losses. Claims are typically handled on a contingent fee basis meaning no legal fees unless we recover money for you.
Interested in learning more? Give us a call. For more information contact attorney Brian Mahany at or by telephone at (414) 704-6731 (direct). Also visit our energy loss recovery page.
MahanyLaw – America’s Fraud Recovery Lawyers
[Minimum loss size generally $250,000 but call us no matter what the size of your loss. Often we can find other investors who lost money with the same firm allowing us to consolidate the cases and help investors with smaller losses. Depending on the brokerage firm involved, we often co-counsel with other law firms.]