Haynes and Boone, LLP Partner Jeff Nichols was featured in an article from Hart Energy describing that upstream operators looking to tap the capital markets need to be circumspect, and even a little bit creative.
It is ironic, given the general financial health of the sector, said Nichols.
“The industry is as bankable as it’s ever been,” he said,
With asset-backed securitization deals, assets are dropped down into a special purpose vehicle and production is protected with hedging out five to seven years, Nichols said. That hedging enables ABS deals to secure a better rating from the ratings agencies, resulting in a lower interest rate.
Thanks to that hedging, the advance rate can be as high as 80% to 90%, said Nichols. In contrast, the current advance rate for RBLs is more in the 40% to 50% range, he said. Of course, the cost of hedging an ABS so many years out is not insubstantial.
To read the full article in Hart Energy, click here.
