Riverstone Credit

Riverstone Credit to raise US$200 million and list on London Stock Exchange

Riverstone Credit Opportunities Income Plc, a closed ended company which intends to operate as an investment trust, announced its intention to launch an initial public offering (“IPO”) on the London Stock Exchange, by way of a placing and offer for subscription targeting the issue of 200 million of its ordinary shares at an issue price of US$1.00 per Ordinary Share.

The Company, to be managed by Riverstone Investment Group LLC, will seek to generate consistent shareholder returns predominantly in the form of income distributions principally by making senior secured loans to energy-related businesses.

KEY HIGHLIGHTS

– Pure exposure to loans in the global energy sector, an industry with robust capital demand, significant scale and low loan default rates.

– Primary focus on direct lending to middle market energy businesses.

– Investment universe with limited competition, capable of generating attractive risk-adjusted returns.

– From 2020 onwards, targeting an 8-10% annual dividend yield on the IPO issue price1, paid quarterly, with an initial target dividend of 2.2 cents for the period from IPO to 31 December 2019.

– Access to the management expertise of Riverstone, a focused and experienced investment management group with an established credit platform and proven track record in the credit sector2.

– Ability for public investors to invest alongside the Investment Manager and the Riverstone Credit Platform and access an attractive pipeline of potential investment opportunities.

– Innovative fee structure with no base fee to Riverstone and alignment of interests between Riverstone and shareholders

Christopher Abbate and Jamie Brodsky, Co-Heads of Riverstone Credit Team, said:

“The energy sector is large with substantial financing needs which are not being met by traditional lenders. We see this as a very attractive opportunity to make senior secured loans to well capitalized mid-sized energy companies that generate compelling risk adjusted returns. We have made over 40 loans since 2015 and our recent private fund RCP I is generating a double digit net rate of return.”

MARKET OPPORTUNITY

The Company will invest exclusively in the global energy sector. The energy sector is a significant component of virtually all major economies, and is one of the largest consumers of capital globally, spending over US$600 billion in 2018. Capital expenditure in the global energy sector is expected to grow over time, with 2020 expenditure levels predicted to exceed US$650 billion, 26% higher than 2016 levels3.

The energy industry has historically attracted substantial amounts of debt capital to finance a large percentage of its capital needs. The Investment Manager believes this has particularly been the case with small and mid-market companies, which generally have significant capital requirements driven by the continuous need to reinvest in assets. Demand for capital in the energy sector appears to remain consistently strong, even with fluctuations in commodity prices. Despite a 59% reduction in commodity prices between 2014 and 20154, the energy sector remained one of the largest consumers of capital globally, spending US$492 billion and US$377 billion in 2015 and 2016, respectively5.

In each year from 2013 to 2015, and again in 2017 and 2018, the energy industry attracted more commercial bank lending globally than any other sector. The Investment Manager believes that this consistently strong supply and demand in the energy sector is the result of, amongst other things, attractive underlying asset and industry characteristics as well as the existence of established lender protections. Average default rates in the energy sector have historically been nearly half of the average across all sectors, with recovery rates which are 20 to 25% higher6. Furthermore, between 2001 and 2017, the average high yield energy default rate was 2.6%, well below the average non-energy default rate of 4.9%7, despite significant commodity price volatility during the relevant period8.

The Company will focus its investment activity primarily on direct lending to small and middle market businesses in the energy sector. This is a market segment in which, despite attractive lending characteristics, the Investment Manager believes two long-term trends have contributed to the supply of credit not keeping pace with demand:

– first, in the wake of the global financial crisis, commercial lenders have faced both increased scrutiny from regulators and pressure from shareholders that together have resulted in tighter lending standards and a general pulling back from lending to small and middle-market energy companies; and

– secondly, as debt capital markets have grown in size, the ability of such markets to price smaller illiquid and unrated credits has become limited, reducing their ability to fulfil their historic role financing the parts of the capital structures of small and middle-market energy companies which commercial banks were unable to fund.

INVESTMENT OBJECTIVE AND TARGET DIVIDEND

The Company will seek to generate consistent shareholder returns predominantly in the form of income distributions principally by making senior secured loans to energy-related businesses.

The Company will seek to achieve its investment objective through investing in a diversified portfolio of direct and indirect investments in loans, notes, bonds and other debt instruments, including convertible debt, issued by entities¬† operating in the energy sector. The Company may also invest in warrants or other equity interests or instruments received in connection with (for example, stapled instruments), or as a consequence of (for example, due to a workout, refinancing or restructuring or mezzanine financing), an investment in Loans (collectively “Related Equity Interests”).

Whilst not forming part of the Investment Policy, starting in the calendar year ending 31 December 2020, the Company will target annual dividends equal to a yield of between 8% and 10% per annum on the issue price of US$1.00 per Ordinary Share, paid to shareholders quarterly. The Company is also targeting a dividend of at least 2.2 cents per Ordinary Share for the period beginning on the date of Admission and ending 31 December 2019, to be declared in February 2020 and paid in March 20201.

INVESTMENT MANAGER

Riverstone Investment Group LLC has been appointed as the sole investment manager of the Group (and any holding structure through which the Group may conduct its investment activities in the future) pursuant to the Investment Management Agreement. The Investment Manager is a member of Riverstone’s group and is wholly-owned and controlled by Riverstone. The Riverstone Credit Team and other Riverstone professionals will assist the Investment Manager in the discharge of its obligations under the Investment Management Agreement. Under the Investment Management Agreement, the Investment Manager has discretion to acquire, dispose of and manage the direct and indirect assets of the Company subject to and in accordance with the Investment Policy. The Investment Manager is a registered investment adviser under the Advisers Act and is regulated by the US Securities and Exchange Commission.

Riverstone was founded in 2000 exclusively to pursue energy-focused private investments. Today, Riverstone is one of the world’s largest and most experienced private equity firms focused on the energy and power industry, with 50 investment professionals, ten of whom focus exclusively on the Riverstone Credit Platform, and over 70 corporate professionals operating from offices in New York, Houston, London, Mexico City and Amsterdam. Since inception Riverstone has raised approximately US$39 billion of capital across three principal investment platforms (as at 31 March 2019).

As at 31 December 2018, Riverstone had committed approximately US$2.1 billion of capital for investment across the Riverstone Credit Platform. Investments made by the RCP Funds represented, as at 31 December 2018, almost exclusively senior secured loans with floating rates, a weighted average LTV of 41%, a focus on shorter loan duration and an average loan size of US$90 million9. As at 31 December 2018, RCP I had generated a Net IRR of 12%2. As at the date of the Prospectus, the Riverstone Credit Team has a zero realized loss ratio in direct lending.

The Company will pay no base or ongoing management fee to Riverstone. Save for reimbursement for its properly incurred expenses, the only remuneration to which Riverstone will be entitled under the Investment Management Agreement will be the Profit Share, which will be payable quarterly by the Group and calculated by reference to the Company’s income, as calculated for UK tax purposes.

An affiliate of Riverstone has committed to subscribe for at least 2% of the Ordinary Shares to be issued pursuant to the IPO, up to a maximum number of Ordinary Shares equal in value to US$4 million (or such greater number of Ordinary Shares as the Company and the Investment Manager may agree) providing a further alignment between Riverstone and Shareholders.

OTHER INFORMATION

The Company intends to make its investments through a group structure. The Company expects to make investments that are likely to generate income effectively connected with the conduct of a trade or business within the United States or otherwise subject to regular U.S. federal income taxation on a net basis through Riverstone International Credit Corp., a corporation established in the State of Delaware, which is a wholly-owned subsidiary of the Company (“USCo”). USCo will in turn invest through Riverstone International Credit – Direct L.P., a limited partnership established in the State of Delaware in which USCo will be the sole limited partner. Other investments are expected to be made through Riverstone International Credit L.P., a limited partnership established in the State of Delaware in which the Company will be the sole limited partner (Riverstone International Credit – Direct L.P. together with Riverstone International Credit L.P. and USCo being referred to as the “Group”).

The Company will apply to the London Stock Exchange for its Ordinary Shares to be admitted to trading on the Specialist Fund Segment of the Main Market of the London Stock Exchange.

A copy of the Prospectus will shortly be submitted to the National Storage Mechanism and be available for inspection at www.riverstonecoi.com.

Unless the context otherwise requires, capitalised terms used in this announcement have the meanings given to them in the Prospectus.

EXPECTED TIMETABLE

Each of the times and dates set out below and mentioned elsewhere in this announcement may be adjusted by the Company, in which event details of the new times and dates will be notified to the FCA and the London Stock Exchange. References to a time of day are to London time.

 

Publication of Prospectus and commencement of the Placing and Offer for Subscription

10 May 2019

Latest time and date for Application Forms under the Offer for

Subscription

11.00 am on 20 May 2019

Latest time and date for receipt of indications of interest in the

Placing

10.00 am on 22 May 2019

RIS announcement of the results of the Issue

22 May 2019

Admission and commencement of dealings in the Ordinary Shares

on the Specialist Fund Segment

8.00am on 24 May 2019