SocGen sought O&G portfolio selldown, but pricing disconnect stymied trades

Societe Generale recently attempted to auction off a portfolio of more than USD 1bn in oil & gas revolving credit exposure, but found muted buyer interest at the mid-90s price point it was seeking. The sizeable book of loans on offer featured more than 30 credits, according to five buysiders familiar with the matter. 

 

Offloading the portfolio would have put the French bank one step closer to its stated goal of reducing its exposure to the oil and gas sector by 10% between now and 2025. On top of that, it aims to become a leader in sustainable finance and the energy transition fields, according to an announcement on 28 October.

 

To that end, the firm has decided to stop the financing of onshore oil and gas extraction in the US.

 

Though SocGen wants out of the energy loans, it may have set too high a bar for exit this time around, sources noted.  

 

“They were trying to [sell] them at 95 cents on the dollar or par,” one of the sources said.

 

While several non-bank lenders expressed interest in placing a bid, the auction process was deemed unconstructive because of a wide bid-ask gap, sources said. 

 

As part of the attempted selldown process, SocGen contacted some potential bidders itself, while the portfolio was also offered by secondary trading desks, sources said.

 

Sizeable portfolio sales from major energy lenders have been few and far between this year, sources added. The last chunky deal was in July, when Hancock Whitney agreed to sell USD 497m of energy loans to Oaktree Capital Management for USD 257.5m, or roughly 52 cents on the dollar.   

 

“Most banks are trying to reduce their energy exposure, and it's not a good time to sell without [incurring] substantial losses,” a lender said.The lack of growth prospects has chilled M&A valuations, especially in bankruptcy 363 sales, and led to low recoveries for an increasing amount of revolver lenders.

 

As of 3Q20, oil and gas loans accounted for 2% of SocGen’s corporate portfolio, with roughly 60% being investment grade and only around 0.1% being US reserve based finance.

 

 

Source: SocGen’s 3Q20 presentation

 

Other foreign banks also took a more conservative lending approach as they face diminishing prospects of getting repaid or refinanced.

 

Natixis, for one, considered downsizing its energy lending team and turning down new deals, while Credit Agricole floated the idea of selling existing loans on a case-by-case basis, as reported. 

 

SocGen declined comment.

 

by Rachel Butt and Catherine Perloff