Reserve based lending rbl a type of assetbased lending abl commonly used in the oil and gas sector, reserve based loans are made against, and secured by, an oil and gas field or a portfolio of undeveloped or developed and producing oil and gas assets. In the united states, lenders employ a reserve based loan rbl structure for. Reserve based lending has been a staple product for many banks for decades. Aha will monitor developments on the designation of the applicable lenders. These players typically use rbl structures for development financing and general corporate.
Today, the board of governors of the federal reserve. We are pleased to present macquarie tristones quarterly energy lender price survey, a commodity pricing poll of energy reserve based lenders. Anna alvarez boyd, angelyque campbell, and joseph firschein from the federal. Cares act federal reserve emergency lending program. The lending programs summarized below are generally available only if the recipient is solvent and unable to secure adequate credit from other banking institutions. Asia pacific reserve based finance markets have some differ ences and regional. Supervisory letter sr 1617 on supervisory expectations for risk. The reserve based finance rbf market can broadly be divided into two subgroups based on the norms of their respective deal structures as well as the location of the participating lending banks or, in the case of the global banks, relevant lending offices.
Reserve base lending and the outlook for shale oil and gas finance columbia university in the city of new york by amir azar may 2017 amir azar is a fellow at the center on global energy policy. Reserve based finance is a long established product suite in the bank market. Asset based lending opens up borrowing potential against assets that factors do not typically advance upon including. Reservebased lending in mexico the center for american and. Reservebased lending for unconventional reserves oil. Federal reserves commercial bank examination manual. A type of assetbased lending abl commonly used in the oil and gas sector, reserve based loans are made against, and secured by, an oil and gas field or a portfolio of undeveloped or developed and producing oil and gas assets. In his full time capacity, he is vice president in energy at td securities. Reservebased lending rbl is a type of financing for independent exploration and production companies.
In may 2017, the european central bank published its final guidance on leveraged transactions the ecb guidance 1. Asset based lending is an emerging financing product in the uk, but it can be easily confused with other forms of finance. It is not yet clear whether the immediate lender to borrowers under the midsized business loan program will be a federal reserve bank or a broader group of banks and lenders. Issues and considerationsby practical law finance related content maintained usa nationalfederala discussion of reserve based loans rbls including their principal features and characteristics. The ecb guidance will come into effect six months after publication and will apply to all significant credit institutions supervised by the ecb.
The amount of the loan facility available to the borrower is based on the value of the borrowers oil and gas reserves, as adjusted from time to time. This note also discusses the main issues borrowers and lenders should consider when drafting and negotiating an rbl credit agreement and certain key provisions of these. Reserve base lending rbl structure and borrowing base determination. Operators need to replace reserves and economically produce those reserves to maintain future revenue, grow in size, and remain a going concern. They also help energy trading companies take advantage of creditenhanced retail. The amount of the loan facility available to the borrower is based on the value. Section 3 of the federal reserve act permits emergency lending to bank and nonbank companies by the board and was relied upon as the source of authority for similar lending facilities established by the federal reserve during the 2008 financial crisis. Reserve bank of cleveland to gauge small business owners perceptions of online lenders and. The federal reserve has an ongoing interest in small businesses and their access to the credit they need to succeed and grow.
The facility is repaid using the proceeds that derive from sales in the field or portfolio of fields in production. There are typically three parties participating in securities lending activity. Funding challenges in the oil and gas sector 4 nocs took advantage of the rally in emerging market bond markets in the last couple of years, as international investors sought. Reservebased energy lending is subject to market volatility, as the value of. The authors wish to thank the following colleagues for their thoughtful comments, managerial support, and guidance. We investigate complaints related to federal consumer protection laws, such as the equal credit opportunity act, fair credit reporting act, and the truth in lending act. In this context, the financingstructure known as reserve base lending rbl has been particularly instrumental in providing the sector with access to lowcost bank debt financings, allowing the rise and expansion of numerous small and midsize players in shale. Our survey of energy lenders price forecasts covers a broad spectrum of regional, u. We may also request corporate formation documents, or other forms of identification, to verify. Reserve based lending rbl is a type of financing where a loan is secured by the undeveloped reserves of oil and gas of a borrower. Click on the tab labeled handouts that appears, and there you will see a pdf of the slides for todays program. Under the facility and the main street expanded loan facility mself, a federal reserve bank reserve bank will commit to lend to a single common special purpose vehicle spv on a recourse basis.
Rbl then developed in the uk north sea in the 1970s and 1980s to finance large north. Reserve board and lisa nelson, emily garr pacetti, and mark schweitzer from the federal reserve. Federal reserve announces main street lending program and. The reduction in loan capacities left many borrowers overadvanced on their rbl facilities and their respective lenders exposed to increased credit risk. Among the federal reserve programs is the creation of a new main street lending program, which will make loans available for u. Reserve based lending for unconventional reserves oil and gas exploration and production companies producers need lots of capital. Examiners expect an fi to develop its own metrics for covenant ratios.
Our team of experienced finance, oil and gas, corporate, construction, real estate and tax lawyers can advise you on financing most types of energy assets, including reserve based lending rbl, as well as workingout and restructuring rbl loans. The borrowing base of reserve based lending credit facilities is. You can file a complaint if you think a bank has been. An introduction to reserve based lending and the uk market. Assetbased lending, a training guide to secured financing. This booklet applies to the occs supervision of national banks and federal savings associations. Sandridge energy files prearranged reorganization under. Reservebased lending is a type of financing where a loan is secured by. Asset based lending is frequently better than traditional bank lines because it offers. Supervisory expectations for afis n board of directors and senior management include a robust risk management program that addresses, at a minimum, monitoring the individual reserve based lending credits and the reserve based lending portfolio. Enforceability of occ reservebased lending guidelines. Reservebased lending facilities comparative study debt. Federal reserve releases details of main street lending. Deloitterodocumentsenergyresourcesusercrudedownturn2016.
They serve as counsel in leveraged finance deals, reserve based loans, eurobond offerings, debt restructurings, bridge loans and syndicated credit facilities. Federal reserve issues guidance on new main street. The table below summarizes eight programs recently announced, expanded or expected by the federal reserve in response to the covid19 pandemic. Reserve emergency lending program, which operates through the federal reserve banks. Equity financing is often more expensive than the producers. Federal reserve announces main street lending program and other facilities to provide credit to businesses, states, and municipalities impacted by covid19. Present value is calculated based on factors such as production levels, taxes, capital costs, and expected oil prices. Kansas city federal reserve bank small business lending survey. The rbl market can be divided into two segments, the u. Finance lawyers at bracewell help energy companies and their lenders around the world to develop, restructure, purchase and sell energy assets and projects. An rbl loan is typically a secured loan collateralized by the borrowers oil and gas reserves. Federal reserve lending programs on march 27, 2020, president trump signed the coronavirus aid, relief, and economic security act cares act, which is designed to provide financial relief to american businesses in response to the economic fallout from the efforts to stem the coronavirus covid19 pandemic.
Reserves based lending rbl began in onshore texas in the 1970s. While some of the features have changed from time to time over the years, borrowing base credit facilities and other secured lending to upstream companies have been the primary form of debt capital for producers since at least the early 1980s. Double click on the pdf and a separate page will open. A type of asset based lending abl commonly used in the oil and gas sector, reserve based loans are made against, and secured by, an oil and gas field or a portfolio of undeveloped or developed and producing oil and gas assets. The reserve based finance rbf market can broadly be divided into two subgroups based on the norms of their respec tive deal structures as well as the location of the participating lending banks or, in the case of the global banks, relevant lend ing offices. This booklet addresses the fundamentals risks of asset based lending and discussed prudent risk management practices and supervisory expectations. Based on the term sheet available on the federal reserve webpage, the following are the principal known terms and features of the new federal reserve main street facility, which are subject to adjustment by the federal reserve. A pilot survey of agent securities lending activity. Federal reserve announces new main street lending program. Chapter 12 reservebased lending in the united states. The federal reserve has discretion to make a determination of inadequate credit availability based on generally applicable considerations related primarily to market conditions. The expanded main street facility involves additional lending under loans made prior to april 8, 2020, and has.
Management of reservebased energy lending community banking. Distressed investing opportunities and presentation to. A brief comparison of federal reserve direct lending programs with the announcement by the board of governors of the federal reserve system the fed on april 9, 2020, of the implementation of a main street. Andrew rotenberg and adam scarrott of jones day explain what it is, how it works, and look at the key practical and legal issues. Refinancing of reservebased lending facility company. Seeing a return to topofthemarket, sponsorbacked credit documents like in early 2014 for.