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KBRA Releases - What Bond Spreads Are Saying About Energy M&A

KBRA believes that differentiation in the energy industry in terms of operational and financial risk management has increased. Some companies are becoming more disciplined in response to the industry's challenging headwinds, while other energy companies have remained static. Mergers and acquisitions (M&A) activity in the sector is providing a useful litmus test into this dynamic. In this report, KBRA covers recent notable corporate M&A including Exploration & Production (E&P) transactions across the Permian, Denver-Julesburg (DJ), and Haynesville basins, as well as midstream and oil service mergers. KBRA will also discuss how acquirer and target company debt performed following the transactions and highlight some recent private acquisitions of public operators.

Key Takeaways

KBRA expects that the M&A activity will continue, reflecting an increased level of distressed high-yield energy companies, an upcoming wall of bond maturities (discussed in KBRA's previous piece, Navigating Energy Headwinds), and reduced capital directed toward the industry. An increasing number of energy companies engage in mergers in pursuit of cost synergies, allowing them to manage volatile energy prices more effectively. KBRA expects that companies in stronger financial positions may capitalize on weaker peers that have not implemented financial discipline, acquiring assets at attractive prices. Equity has been used increasingly to fund M&A transactions; however, equity share prices have typically declined following M&A announcement, as shareholders question their value creation. The fixed income market's reaction to these transactions has been largely positive, especially compared to the trajectory of the energy high-yield bond market. KBRA views most of the mergers discussed in this report as credit positive.

To read the report, click here.

Related Publications: (available at

Two New Energy Bankruptcies: Deja vu All Over Again? Global Political Economy Is a Supporting Factor in Oil Sector Performance An Updated View of Energy Firm Creditworthiness: Fundamentally Weaker or Battle Tested?


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About KBRA and KBRA Europe

KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.

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Analytical Contacts: 

Corinne Hill, CFA, Senior Director
(646) 731-3331 

Adam Gracely, Senior Analyst
(646) 731-3329 

Van Hesser, Senior Managing Director
(646) 731-2305 

Business Development Contact: 

Dave DeMilt, Managing Director
(646) 731-3335

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