It’s not just distressed debt or the energy sector. I was chatting with a friend/colleague in NYC who is connected with the high yield market. To begin with, the economic devastation to Texas from the collapsing price of oil is just beginning. Word to him from a big Texas bank is that the massive asset write-downs – i.e. energy and real estate loans – are just starting. Up until now the banks and financial firms have been able to hold off marking to market in hopes of a recovery in the price of oil. But distressed offerings in oil, gas and real estate assets are starting to hit the market and it’s going to force the issue. This is going to get ugly.
This is economic fall-out that will spread to the entire country.
Next we turned to the high yield market and he remarked that the junk market is collapsing. And it’s not just oil bonds – it’s gas, technology, healthcare, industrial, retail – everything. The few recent deals that got done soaked up all the cash available and now big outflows are starting again. There’s no liquidity and bids that show up within a reasonable context of the quoted bid/ask market get tattoo’d. It’s impossible to move any kind of stuff – i.e. big investors, mutual funds, pension funds are stuck.
This post was published at Investment Research Dynamics on November 25, 2015.
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