The $460 billion asset manager is building up a team in its fixed-income business that invests in oil and gas companies. It will make loans, buy bonds, and take equity stakes. The company has hired Daniel Posner, a veteran distressed-debt money manager, to lead the team along with Petter Stensland, a high-yield credit analyst at the firm.

“Capital is truly dear and the sector has gone much further through a challenging environment,” said Ashish Shah, head of fixed income at AB. “There is a core financing need that banks are unable to fulfill and we think we can provide that capital solution.”

Energy companies are starved for credit after the price of oil fell by more than 60 percent since the middle of 2014. Regulators are pressing banks to cut their exposure to risky junk-rated loans and bonds, which has made it harder for energy companies to borrow. That situation could get worse in April after banks conduct their twice-yearly reevaluations of their oil and gas loan exposure, a review that could reduce credit lines by 30 percent, Standard & Poor’s estimated earlier this month.

Powered by Debt

The banks’ retreat, combined with a jump in oil prices in recent weeks, has enticed at least some investors to increase their exposure to energy companies. AB’s credit team is the latest example of the “shadow banking system” ramping up while traditional bank lenders pull back.

The U.S. shale boom earlier this decade was fueled by junk debt. Companies spent more on drilling than they earned selling oil and gas, plugging the difference with bonds and loans.

Those loans and bonds are now a millstone for many banks and other lenders, a turn that regulators are paying close attention to. According to a report from bank examiners including the Federal Reserve in November, credits related to energy companies were increasingly weak.

Continue reading story…