several ways the crisis has impacted
the current state of RBL lending:
• Anti-cash-hoarding provisions
mandatory hedging requirements,
and amendments to intercreditor
agreements designed to expand
first lien lenders’ protections in
bankruptcy against interference
by second lien lenders.
are not being required
in most new RBLs.
• Virtually all new RBL
financings require borrowers
to deliver deposit account
• Lenders are requiring mortgages
on less than 90 percent of the
economic value of proved reserves.
• In some larger corporate deals,
The Newest Round
The rebound in commodity prices
and deleveraging in the E&P sector
have alleviated some of the pressure
on borrowers and have spurred early
signs of a rebound in RBL activity.
borrowing bases could previously
be increased with something short
of unanimous lender approval.
Typically at 80 percent before the
crisis, the ratio had crept up to 90
percent or higher during the crisis.
• Provisions governing restricted
Now, virtually all RBLs require
100 percent lender approval
for borrowing base increases.
payments have tightened in some
deals to require satisfaction of
liquidity and leverage tests.
Although some commercial banks
have exited the market permanently,
many others are showing renewed
interest in RBL lending. Recent
facilities have generally been smaller
than pre-crisis RBLs, and several
have been oversubscribed. Although
a number of these new RBL facilities
maintain vestiges of lessons learned
from the 2015-2016 cycle, a number
of crisis-driven restrictive covenants
have already fallen out of vogue.
Based on an informal survey of
industry participants, the authors note
Lenders can no longer be
“dragged” to stretch a borrowing
base, and market participants
are comfortable relying on
“yank-a-bank” provisions to
avoid the problem of obtaining
consents from holdouts. (Of
course, holdouts tend to emerge
in distressed situations, when
other lenders are unlikely to
buy out a syndicate member at
par, but lenders presumably are
willing to trade the flexibility
of outvoting a holdout for the
right not to be dragged.)
• Many RBL deals have a
minimum liquidity closing
condition equal to 10 to 20
percent of the borrowing base.
• Pricing for new RBLs has crept
up compared to pre-crisis levels.
• It is common for new RBLs
to impose two- to four-year
minimum hedging requirements.
• As before the crisis, it is standard
for new RBLs to include financial
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