Funds managed by Oaktree Capital Management LP and affiliates of Sixth Street Partners have formed a joint venture to manage a portfolio of energy loans acquired from ABN AMRO Bank NV and plan to roughly double its size, a source familiar with the transaction said.
The loan portfolio from the Dutch bank has a total commitment size of around $3 billion, of which approximately $1.5 billion is drawn. Oaktree and Sixth Street are jointly acquiring the portfolio at a discount to book value of approximately €135 million, ABN Amro disclosed in a June 24 statement.
The acquired loan book has approximately 90 loans from 75 borrowers and is primarily revolvers, but also includes a handful of term loans. The vast majority of loans in the portfolio are to non-investment grade companies.
Roughly 55% of the loans are backed by upstream exploration and production companies, followed by 35% midstream companies such as pipelines and infrastructure, with the remaining 10% in energy services.
A team of more than 20 investment professionals, split evenly between Oaktree and Sixth Street, worked on the transaction. Part of the joint team will manage and continue to source investments. A third-party loan servicing administrator will provide accounting services.
Oaktree and Sixth Street intend to grow the energy loan joint venture twofold, to approximately $6 billion of total commitments.
The new joint venture will target acquisitions of other loan books from commercial banks, both domestic and foreign. An acquisition of a $500 million loan book is already in the works from another European bank exiting energy lending, the source said. ABN Amro said it would withdraw from lending to the North American oil and gas sector via the loan portfolio sale.
The Oaktree-Sixth Street joint venture plans to consider secondary loan market purchases on an opportunistic basis, and some of the acquired loans in the portfolio may be sold in the secondary market, such as when other banks want to enter a certain syndicate. But individual loan transactions are not the primary goal of the partnership, which will focus on buying entire portfolios, the source said.
Oaktree and Sixth Street are both signatories of the UN-backed Principles for Responsible Investment designed to promote incorporating environmental, social and governance factors into investing. The new Oaktree-Sixth Street energy joint venture fits into the ESG goals of both firms, the source said. The majority of the loans in the newly purchased portfolio are in natural gas, although it also includes oil loans.
"Helping to improve environmental standards of energy companies is important to us. As we work with companies and lenders to improve their energy efficiency, natural gas is an important transition fuel to replace coal. Although not a permanent solution, natural gas is a significant improvement of the global environmental footprint of the industrialized world," said the source.
Last year, accounts managed by Oaktree acquired $497 million of energy loans from Hancock Whitney Corp.. The loans included reserve-based, midstream and nondrilling service credits. Hancock Whitney expected to receive sale proceeds of $257.5 million.
