Companies Take Advantage of ABSs to Finance Acquisitions

When natural gas prices caused sellers to hit the pause button, they turned to asset-backed securitizations (ABS) to help bridge the gap, said Vinson & Elkins Partner John Grand.

Companies took advantage of the financing to undertake dividend recaps to monetize some of their cash flows so they could better position themselves for a sale down the road, he said.

There has been some concern whether ABSs might make an eventual exit challenging, said Sidley Austin’s Jeremy Pettit. As the upstream sector has become more comfortable with securitization, those concerns seem to have diminished, he said.

It is even possible to sell a company without triggering its change of control provisions, Vinson & Elkins’ Grand said. Asset-backed securitizations permit a change of control where the buyer is of substantial financial strength and the current management team is kept in place or replaced with an equally seasoned management team. When such terms are adhered to, a company can undergo a change of control at the corporate level without having to buy back all the debt.

Multiple deals involving ABSs have already been completed. When PureWest was acquired in 2023 by a consortium of family offices and investors, the company announced the close of a $200-million ABS issued through a private placement. It was the third such offering done by the company. In 2021, PureWest disclosed closing a $300-million ABS through a Rule 144 offering and $300 million through a private placement.

QB Energy announced the acquisition of Piceance Basin assets from Caerus Oil and Gas in August. As part of that transaction, QB Energy assumed all the ABS liabilities attached to the Piceance assets. In February 2023, Caerus announced closing a $565 million ABS.

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