Ric Abel, Prudential Capital’s 25-year veteran, recently moved to a new team within the energy finance group focused on risk investments in power, midstream and upstream where Abel will work primarily on power investments. He walks Private Debt Investor through the details of his new post and Prudential’s approach to energy investing.
Q: What was the thinking behind your job switch?
We have 22 closed investments in mezzanine and equity transactions worth $700 million with four cash-outs, so the portfolio has grown to a critical mass and we thought it made sense to have a dedicated team focused on that.
Q: What kind of transaction volume are you looking at going forward?
We would like to do seven to nine deals per year in energy finance, split between drilling and production, midstream and power, with half going to oil and gas and half to power.
Q: How have your returns been so far?
For the deals we’ve cashed out of, we’ve had very lucrative returns. Given the shakeup in the market, some of the oil related investments are being managed very closely and very carefully. But we’re optimistic about the performance and expect to achieve target returns.
The industry at large is actively realigning the expense side of the equation. We continue to believe in the management teams we’ve invested in: that their properties and wells are in the right places and we’ll continue to make money profitably using our active hedging program.
Q: What’s your approach to the capital structure?
We’ll sometimes do debt and equity in the same deal. Some of the players that we’d do a mezzanine equity deal with, we’d also do a debt deal with. In my area, it’s more of the mezzanine-structured equity, using a little bit of debt culture background to try to structure against the downside. We focus very hard on not having air balls. And we give up some of the upside, in exchange for getting a preferred return of some kind.
Q: What are your preferences as far as geographies and types of companies?
Our energy group as a whole is mostly focused on the US and Canada and companies in drilling and production, midstream [processing, storage, transport and marketing] oil and gas and power.
Q: Has your investment strategy in the space changed since oil prices collapsed?
It hasn’t changed. We still do $10 million to $50 million deals with the same industry focus. We feel like we have a big platform, with dedicated oil and gas and power groups and are more focused on the middle-market. There are big platforms raising big deals and you have small funds doing small deals, whereas we’re a bigger platform focusing on the smaller end of the market.
Q: With all the money being raised for new energy funds, do you find there is too much competition out there?
There is competition all the time, but there is a lot of dead-end equity in the market. We work very hard to form relationships with these companies and continue to be optimistic about our ability to find our share.