Haynes Boone 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.
