The ABS market for upstream producers is expanding to meet the capital needs of the industry, according to Donovan Ventures. (Source: Shutterstock)
Asset-backed securitization (ABS), which tie cash flow from companies’ physical assets to financial instruments, offers flexibility and promise, panelists said at Hart Energy’s Energy Capital Conference (ECC) in Dallas.
“ABS funds give investors the stability of a long-term investment as opposed to the quick turnaround times of some other funds on the market,” said Tom Denkler, Corebridge Financial managing director and head of structured privates.
And the ABS market for upstream producers is expanding to meet the capital needs of the industry, according to Donovan Ventures.
"This is where the credit is going to come from for the next five or 10 years," John Donovan, founder and managing partner for Donovan Ventures said, referring to the increasing role of ABS loans.
Denkler said proved developed producing (PDP) assets are primarily used in the ABS deals, which involved a minimum of 100 wells but typically include a few thousand.
“So, it's lending against the cash flows that are coming off of those [assets],” Denkler said.
Denkler said the ABS deals also require some hedging element to maintain a predictable cash flow stream. While the percentage hedged varies, Denkler said 75% was the minimum for his firm. But Denkler said such arrangements depend on the lender.
“I'd say the typical deal usually hedges out five years,” Denkler said.
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