Corporate Banking and Investment Capital Markets Symposium Hosted By: MOGA Senior Debt & Second Lien...
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Transcript of Corporate Banking and Investment Capital Markets Symposium Hosted By: MOGA Senior Debt & Second Lien...
Corporate
Bankingand Investment
Capital Markets SymposiumHosted By: MOGA Senior Debt & Second Lien Bank Financing
May 18, 2006
Doug Liftman
Managing Director
BNP Paribas
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Corporate
Banking
and Investment
1. E&P Bank Lending Overview
2. Second Lien Bank Facilities
3. About BNP Paribas
Table of Contents
Corporate
Bankingand Investment
1. E&P Bank Lending Overview
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Corporate
Banking
and Investment
Energy Industry Capital Provider Risk & Return Paradigm
Institutional Second Liens &
High Yield Debt
Bank Debt
Bank Overadvances & Second Liens
Mezzanine Capital
Convertible Debt
Private and Public Equity
5-10%
10-15%
20-30%
30% +
Total
Returns
Controlled Risks Uncontrolled Risks
PDP
Reserves
Proven
Reserves
Exploration
Activity
Engineering and
Operations Risks
Geological and
Geophysical Risks
Management Sponsorship
Capitalization Hedging
R/P F&D
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Corporate
Banking
and Investment
Energy Bank Lending Parameters
Lend against proven reserve value - primarily PDP
Third party reserve estimates - usually risked
Loan value determined by advance rates
Cash flow model validates the analysis
Conservative price deck historically employed relative to strip prices
Full value given to price hedges
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Corporate
Banking
and Investment
BNP Paribas utilizes the following advance rate guidelines to determine the borrowing base.
PDP Reserves 50-70%
PDNP Reserves 30-50%
PUD Reserves 20-40%
BNP Paribas’ currently uses the following base case commodity price assumptions.
Tristone Capital publishes quarterly a comprehensive review and summary of active oil and gas lender price decks.
Current Engineering Metrics
WTI Crude Price Base Case
2006 46.00$ 2007 42.00$ 2008 and beyond 38.00$
Gas Price Base Case2006 6.75$ 2007 6.25$ 2008 and beyond 5.50$
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Corporate
Banking
and Investment
Current Bank Market Conditions
Strong commodity prices bolster producer cash flows
Higher cash flows used to pay down debt
“Hot Sector” syndrome - high capital inflows
Significant loan appetite in the market
Default rates non-existent
Bank spreads under pressure - too much capital
Private equity is the new major source of capital formation in E&P today
Significant M&A activity
Second Lien Facilities can optimize equity returns
Corporate
Bankingand Investment
2. Second Lien Bank Facilities
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Corporate
Banking
and Investment
BNP Paribas’s Role in Second Lien Term Loan Market
BNP Paribas opened the Second Lien E&P market in 2003 with Quicksilver facility
Have arranged and agented the majority of the subsequent Second Lien Facilities done in the bank market
Most recently – Petrohawk (3rd issue since November 2004) and Energy XXI
Have attracted bank and institutional participants
Established ability to navigate intercreditor issues
True underwriting capacity
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Corporate
Banking
and Investment
Second Lien Fundamentals
Structure based upon conventional RBL parameters
Engineering Review
Cash Flow Analysis (Bank Price Deck)
Asset Coverage Test (PV/Total Debt)
Financial Covenants
Semi-Annual Redetermination
Transaction Criteria
Management
Reserve Integrity
Hedging
Capitalization
Standardized Documentation
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Corporate
Banking
and Investment
Two Second Lien Markets
Bank
Debt Enhancement Product
Provided by Banks & Long Term Institutional Holders
Pricing Range: LIBOR + 4 to 5%
Basic Covenant Package
PV/Debt Coverage Covenant
Debt/EBITDA Limitation
Prepayment Flexibility
Institutional
Debt Maximization Objective
Paper is Liquid and Trades with Reasonable Frequency
Premium Pricing for Larger Loan Capacity: LIBOR + 5% (and higher)
Covenant Package Less Onerous
Higher Prepayment Penalty
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Corporate
Banking
and Investment
Bank Second Lien Advantages
Increased availability versus conventional bank debt
Longer maturity profile than standard overadvance bank facilities
“Relationship Lending” versus Institutional Second Lien or High Yield Options
Ability to enhance equity returns by reducing lower-tiered capital contributions - private equity
Lower issuance costs versus capital market alternatives
Can easily be upsized if needed in the future
Flexible and economic prepayment versus institutional and public market capital issuance
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Corporate
Banking
and Investment
Basic Bank Second Lien Terms
Amount - $15 - $100 MM
Maturity - 3 to 5 years
Pricing - LIBOR + 4 - 5%
Covenants
Asset Coverage Ratio
Debt Service Coverage
PDP / Proven Ratio
Execution Timing - 2 to 6 weeks
Corporate
Bankingand Investment
3. About BNP Paribas
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Corporate
Banking
and Investment
BNP Paribas
3rd largest bank in the world by total assets - over $1 Trillion
Highly rated with S&P (AA) and Moody’s (Aa2)
Extensive International Network with more than 500 offices in 87 countries
BNP Paribas’ global activities are organized into four core businesses:
Corporate and Investment Banking
Private Equity
Retail Banking
Private Banking and Asset Management
BNP Paribas’ Energy practice consistently ranks as the firm’s single largest industrial sector from a revenue standpoint
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Corporate
Banking
and Investment
BNP Paribas’ Energy & Commodity Finance Group
BNP Paribas has a global approach to the Energy sector:
Corporate Lending
Commodity Derivative capabilities
Capital Markets activities
Global Team of 500 dedicated energy specialists in Houston, Paris, New York, Geneva, London and Singapore
Senior Bank Debt
Second Lien Facilities
VPP’s
Crude Oil and Gas Price Hedging
Commodity Futures
BNP Paribas provides its Energy-related clients with a full range of products. We are market leaders in the Energy industry for :
We also offer a full compliment of public market debt and equity capabilities globally
17
Corporate
Banking
and Investment
BNP Paribas Houston’s office focuses on the upstream sector
Primarily oriented toward independent producer financings
Approximately $7 Billion portfolio
Over 125 clients
Seamless financing for commodity derivative products
Demonstrated international transaction capabilities
Our commitment to all sectors of the Energy Industry is demonstrated in BNP Paribas’ rankings in the U.S. energy banking league tables
BNP Paribas’ Commitment to the Upstream Sector
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Corporate
Banking
and Investment
League Table Rankings 2005
Rank Bank Holding Company Lead Arranger Volume# of Deals Rank Bank Holding Company Agent-Only Volume # of Deals1 JP Morgan 38,824,800,000 85 1 JP Morgan 73,850,300,000 1142 Bank of America 23,211,200,000 72 2 Bank of America 52,678,200,000 983 Citigroup 12,651,000,000 25 3 Citigroup 42,042,000,000 454 Wachovia Corp 8,782,500,000 27 4 BNP Paribas 37,575,000,000 685 BNP Paribas 7,284,500,000 28 5 Wachovia Corp 37,090,000,000 576 Lehman Brothers 6,250,000,000 5 6 Royal Bank of Scotland Plc 28,002,937,500 277 Credit Suisse First Boston 3,200,000,000 7 7 Mitsubishi UFJ Financial Group Inc 20,324,000,000 338 Wells Fargo & Co 3,193,500,000 19 8 SunTrust Bank 15,575,000,000 209 Royal Bank of Scotland Plc 3,100,468,750 5 9 Lehman Brothers 15,325,000,000 710 UBS AG 1,660,000,000 5 10 Barclays Bank Plc 13,700,000,000 1311 Mitsubishi UFJ Financial Group Inc 1,360,000,000 7 11 Scotia Capital 12,575,000,000 2112 Barclays Bank Plc 1,287,500,000 5 12 Wells Fargo & Co 12,001,000,000 4013 Merrill Lynch & Co Inc 1,250,000,000 1 13 Harris Nesbitt 11,052,000,000 2414 RBC Capital Markets 1,207,968,750 7 14 RBC Capital Markets 9,695,937,500 1415 Harris Nesbitt 1,145,000,000 6 15 Calyon Corporate & Investment Bank 8,707,500,000 1716 Goldman Sachs & Co 1,075,000,000 3 16 Fortis Bank 8,215,000,000 1717 SunTrust Bank 987,500,000 5 17 Mizuho Financial Group 7,097,000,000 418 Fortis Bank 825,000,000 5 18 Deutsche Bank AG 5,950,000,000 719 Scotia Capital 500,000,000 3 19 Societe Generale 5,942,000,000 1220 Deutsche Bank AG 425,000,000 2 20 Credit Suisse First Boston 5,450,000,000 7
2005 U.S. Oil & Gas Agent Only2005 U.S. Oil & Gas Lead Arranger
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Corporate
Banking
and Investment
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Corporate
Banking
and Investment
This presentation is only an expression of our interest in connection with the proposed transaction and nothing contained in this presentation should in any way be construed as an offer or a commitment by BNP Paribas to extend or to provide any financing of any type, either on behalf of itself or any other entity.
This presentation has been prepared by BNP PARIBAS for informational purposes only. Although the information in this presentation has been obtained from sources which BNP PARIBAS believes to be reliable, we do not represent or warrant its accuracy, and such information may be incomplete or condensed. This presentation does not constitute a prospectus and is not intended to provide the sole basis for any evaluation of the securities discussed herein. All estimates and opinions included in this presentation constitute our judgement as of the date of the presentation and may be subject to change without notice. Changes to assumptions may have a material impact on any recommendations made herein.
BNP PARIBAS or its affiliates may, from time to time, have a position or make a market in the securities mentioned in this presentation, or in derivative instruments based thereon, may solicit, perform or have performed investment banking, underwriting or other services (including acting as adviser, manager or lender) for any company, institution or person referred to in this presentation and may, to the extent permitted by law, have used the information herein contained, or the research or analysis upon which it is based, before its publication. BNP PARIBAS will not be responsible for the consequences of reliance upon any opinion or statement contained herein or for any omission.
This presentation is confidential and is being submitted to selected recipients only. It may not be reproduced (in whole or in part) to any other person without the prior written permission of BNP PARIBAS. Any U.S. person receiving this presentation and wishing to effect a transaction in any security discussed herein, must do so through a U.S. registered broker dealer. BNP Paribas Securities Corp. is a U.S. registered broker/dealer.
© 2005 BNP PARIBAS. All rights reserved.