Struggling energy companies are getting money from an unlikely source

Banks have been pulling back from lending to energy companies.Hedge funds and buyout firms have been stepping in tothe void.The oil price is down more than 50% since mid-2014, and banks are less eager to lend to struggling oil companies. Regulators are also wary of risky junk-rated loans and bonds.Don Dimitrievich, managing director at Highbridge Principal Strategies, saidin a panel at the Debtwire investors summit on Tuesday:Due to thefallout in credit crisis, regulators haveviewed energy as a systematic risk to the banking sector, so they've really stepped in this time around and imposed regulatory constraints as to how banks can handle these reserve-based loans.Now banks can't be as accommodative as they've historically been.Wells Fargo, which has some of the riskiest exposure among the banks,has cut available credit lines to oil and gas companiesby 3%, or $1.3 billion to $40.7 billion, according to its presentation to investorson Tuesday. The San Francisco-based bank expects to see further stress in the sector this year.JPMorgan Chase and Bank of America also said that they had to set aside more money to cover soured energyloans last quarter.Alternative-asset managers, in contrast, have been moving in to the space. They can provide flexible capital and have the ability to be more patient, according toDaniel East, principal of Carlyle Group's energy mezzanine opportunities fund.Every six months, oil and gas producersnegotiatehow much they can borrowfromtheir banksbased on valuations of theirreserves backing these loans. Lenders have previously been willing toprovide someleeway,Dimitrievich said, butthat's no longer the case.There are companies with smaller credit lines that didn't want to have banks look over their shoulders every six months, East added.He said:When we're making loans to energy companies,we look at the collateral agreement to make sure the capital is going to repay existing indebtedness, that the money's good, and a variety of commodity outcomes.To the extent that there's an area whereyou can create value on the drill bit, we are certainly OKwiththat and we can advance capital more rapidly and much more aggressively than lenders in the banking community.SEE ALSO:DISTRESSED INVESTOR: 'It's time to put money to work'Join the conversation about this storyNOW WATCH: How ISIS makes over $1 billion a year
Click here to read full news..