Once upon a time, oil prices were constantly hitting new record highs. Today the opposite is true. Oil prices plummeted again last week, this time by 5% and crossing below $30 per barrel. With the drop in oil prices came a new record for the Merrill Lynch High Yield Energy Bond Index. Yields hit a record 17.43%, a record since the index was started in 1996.
Low oil prices are great for motorists but bad news for many investors who purchased shale bonds and other energy sector debt instruments in the hope of making high income. Oil prices are notoriously volatile. Stockbrokers know this yet pushed billions of dollars of shale bonds on unsuspecting investors seeking high yield. Now as energy prices are reaching the bottom of the barrel, billions of dollars of bonds have defaulted and many more are poised to default any minute.
Two weeks ago I visited Texas and spoke with an expert in the industry. He claims that oil must stabilize at $73 to $74 per barrel for most U.S. producers to make a profit and pay bondholders. Others claim that the breakeven point is anywhere between $65 and $75 per barrel. One thing everyone agrees is that oil at $28.50 means more bankruptcies are inevitable.
Merrill’s High Yield Energy Bond Index is so high because the price of bonds has dropped so low. In fact, some investors are panicking as they have been unable to sell portfolio positions in junk bond funds. Rarely in history have mutual funds investors been told they can’t sell but that is happening today. Investors with those funds can only sit on the sidelines and cringe.
Or pursue claims against their brokers.
Hope for Junk and Shale Bond Investors
If you purchased a shale bond fund or invested in risky energy sector investments on your own, their is probably little you can do. Investors who bought these investments on the advice of a stockbroker or financial advisor may have recourse, however.
Why? Financial professionals are required to understand their customers’ financial needs and risk tolerance. If you wish to avoid risky investments or need access to your money, junk bonds are not for you. Some experts believe that half of all shale bond issues could default this year.
Why then would stockbrokers recommend these investments? Interest rates have been so low that brokers have been clamoring to find high yield income producing investments for clients. Shale bond investments do that but at a huge risk. A risk that is now painfully evident.
If you purchased a risky energy sector investment from a financial professional and were not advised of the risks, you may have a claim. Fortunately, claims against stockbrokers and other financial professionals are usually resolved by binding arbitration before the Financial Industry Regulatory Authority. Cases don’t drag on for years and there are no stressful court proceedings. Cases are handled on a contingent fee basis meaning no legal fees unless you recover money.
Need more information? Read our shale bond information page or call us. The call is free and without obligation. For more information, contact attorney Brian Mahany at or by telephone at (414) 704-6731 (direct). Cases handled nationwide.
MahanyLaw – America’s Fraud Recovery Lawyers
(Our usual minimum loss in stockbroker fraud cases is $250,000. Have a smaller loss? We partner with law firms across the country and can often handle smaller cases or refer you to someone who will.)