The price of energy lending may trend up somewhat for certain issuers, but debt will still be available, as energy and power deals remain very much in favor with bankers and institutions that invest in debt securities packages.

"Liquidity is the driving force," Houston-based James Kipp, managing director and group head, energy and power group, for Wachovia Securities, told a joint meeting of the Houston Energy Finance Group and local IPAA members. "There is still a robust market for debt capital.

"Treasuries remain at historical lows. For large bank financings in excess of $1.5- to $2 billion, there is still a very deep market for deals across the spectrum, and especially in energy and power. Once you go above that size, however, you start talking about bringing in institutional investors, and that's different."

Kipp said the debt markets have changed during the past few years. "What's noteworthy is that it used to be 60% of the bank debt market was provided by commercial banks. The number of banks remains unchanged since 1996, but today, that has dropped to just 20% [as institutional participation has grown]."

Issuer defaults remain at historic lows, well below the 3% average, Kipp said, so any credit "crisis" is not a question of credit quality; it's a question of liquidity. "Liquidity remains a challenge, and the need for capital providers to fund their own redemptions" to unwind their subprime debt instruments.

Kipp said he expected the institutional market to be slow at least until after Labor Day, and possibly longer. "We think there is $300- to $320 billion of credits out there in contingent commitments that are looking for a home."

Kipp said the aggressive "covenant light" loan packages seen in the past few years are going to be revisited, and those generous terms may cease for a while.

"There is probably going to be a reversion back to more terms in covenants...but there are still many avenues open to producers at this time."

Since June, all loans have risen in cost by about 100 basis points for most E&P names, Kipp acknowledged. For midstream players, the cost has gone up by 98 to 130 basis points. "On Treasuries, the pricing and premium demanded by the market has certainly gone up for B and BB credits."

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