Billionaire hedge-fund manager Paul Singer’s demand that Hess Corp. find ways to bolster shareholder returns is turning into a windfall for bondholders.
While Hess’s $5 billion of notes suffered the industry’s biggest losses a year ago, when Singer’s Elliott Management Corp. said on Jan. 29 that a “substantial divestment program” could help maximize value for equity holders, the bonds have since returned 3.9 percent. The $480 billion of debt issued by energy companies and tracked by Bloomberg has declined 0.77 percent in the same span.
Debt decreased to $6.2 billion from more than $8 billion at the end of 2012, Bloomberg data show. Borrowings accounted for 95 percent of annual earnings before interest, taxes, depreciation and amortization, still the highest among the four U.S. integrated oil and gas companies with market values bigger than $1 billion.
“Just because we have an activist in there doesn’t mean it’s a credit negative,” Brian Gibbons Jr., a debt analyst at New York-based CreditSights Inc., which rates the debt “outperform,” said in a telephone interview. Singer’s involvement has been a positive for Hess, he said. “They’re focusing more on core areas and controlling costs.”