Energy woes crush lending pipeline

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Private equity's lifeline was cut off to start 2016. And it's hurting Wall Street banks, too, which are losing lending business to European competitors.

For U.S. private equity firms, it means fewer deals, and at a higher cost. For investors, it cuts the likelihood that they'll be able to reap returns on deals where companies are taken private. And for banks, many of which forecast disappointing earnings reports next month, it's one more factor going against them in what has been a painful 2016.

Instead of assigning the blame to busted deals and bankruptcies, several Wall Street sources pointed toward plunging commodity prices as a source of falling high-yield deals. Some noted that pessimistic economic growth expectations have continued to spook investors in riskier debt.

But ugliness in the energy sector cannot be ignored. BlackRock revealed in a regulatory filing this week that it plans to launch an exchange-traded fund that will invest in junk bonds but exclude energy companies' debt, a sign of how unattractive the sector has become to investors.

"Energy continues to be out of favor," said the head of leveraged finance at one major U.S. bank, who asked to not be quoted.