Credit Strategy
The scale of our sourcing network, combined with our extensive borrowing experience as one of the energy sector’s most-active investors, has positioned us to be an effective solutions provider across the entire capital structure.
Strategy
We readily source lending opportunities and assets in our core areas of equity ownership, and structure loan packages that work for the asset owner while adequately protecting our investment.
Macro conditions for heavy loan demand are squarely in place, as energy industry capital budgets continue to expand and traditional bank lending sources to middle market energy borrowers continue to shrink. Our first-hand structuring experience gives us a unique perspective relative to lenders who have never owned assets in the sector and who have never been a borrower.
- Emphasis on capital preservation and downside protection
- Proprietary origination through the ECP platform
- Creative and customized structuring approach
- Cash yield component
- Avoidance of volatile oil and gas exploration of production sector
Energy Credit Opportunity
Elevated Sector Capital Needs
Growing demand for energy project funding continues in what is now the nation’s largest industry sector. Capital demands are driven primarily by infrastructure needed to support continued production growth, as well as aging infrastructure and renewable power expansions.
Sector Transformation and Policy Support
Technological advancements in hydraulic fracturing and horizontal drilling have transformed the North American energy sector, driving the need for new infrastructure to transport oil, gas, and water from new areas of productions, as well as building new petrochemical and export facilities that benefit from low domestic energy costs. The power sector is being disrupted as natural gas and renewables gain market share at the expense of coal and nuclear. All of these activities are drawing significant policy support to help grow an industry creating abundant high paying jobs, addressing important environmental challenges, and improving trade imbalances through growing energy exports. Energy has become fundamental to the vibrancy of the North American economy.
Attractive Middle Market Energy Lending Dynamics
Middle-market borrowers have limited funding options, unlike larger borrowers who have large borrowing bases sufficient in size to access the low-cost levered loan and high-yield markets. The cost of debt increases meaningfully for those smaller issuers who cannot offer a large security that carries sufficient liquidity to the debt holder. A historically high illiquidity premium has driven a high fixed income return potential in a sector that also provides real asset credit protection.
Banks Retreat From Energy Lending
In addition to avoiding smaller and illiquid lending situations, banks have also pulled back the capital being offered to the energy sector. Commodity price volatility, high loan losses in the E&P sector, and ESG priorities have caused certain banks to scale back their efforts in the sector, thereby creating an opportunity for a new class of direct energy lenders.
Investment Team
Firm-wide origination and diligence effort, coordinated and led by a dedicated credit team.