Värde Partners closes Houston office as US shale bets go awry

18 December 2020

Värde Partners has shuttered its Houston office as part of a strategic decision to pull back from investing in the perennially distressed US oil patch, sources familiar with the matter told Debtwire.

 

In an emailed statement to Debtwire today, Värde acknowledged the decision. “Given the deep, long-term structural changes to the shale business in North America, we closed our Houston office earlier this year and decided to forgo having a dedicated team in this sector,” the statement said. “We regularly reassess where we allocate resources as we pursue attractive risk adjusted returns for our investors and will continue to manage the existing book to maximize value for our investors.”

 

Markus Specks, who previously led the firm’s energy business, resigned in June to join Peridot Acquisition Corp, a SPAC backed by Carnelian Energy Capital. Other junior employees on the team were encouraged to seek other job opportunities, according to three buysiders.

 

The wind-down comes just three years after Värde set up shop in Houston – its 14th location worldwide and the first in the Lone Star state – to strengthen its industry ties. At the time, Specks saw the energy sector as a key contributor to the firm's long-term growth goals.

 

While the global investment firm lacks a dedicated energy fund, it still holds investments in the sector scattered across various vehicles, the buysiders said.

 

It has invested nearly USD 1bn in structured and asset-level energy solutions in the last three years, according to an 2019 announcement.

 

The firm was hit hard by losses in its investment in Lilis Energy, which filed for bankruptcy in June with USD 90m in revolver debt and a restructuring support agreement (RSA). Värde owned all of Lilis’s prepetition preferred stock and USD 27.5m in junior tranche debt, and had contemplated a take-private deal.

 

However, it did not pursue the equity infusion as per the RSA, and prompted Lilis to focus on a sale process instead. The debtor wound up selling itself to Ameredev Texas for USD 46.6m. Under a global settlement, Värde would receive a USD 3.75m cash payment, plus 5% of any sale proceeds in excess of USD 45m.

 

Another investment gone wrong is MDC Texas, which has been struggling to raise capital and find a buyer since it filed for Chapter 11 over a year ago, in November 2019.

 

Värde, which holds a slice of MDC’s USD 410m term loan, signaled it isn’t interested in putting more money into the company, a banker and fourth buysider said.

 

The firm played a more active role in Weatherford International’s 2019 case. It had 8.3% of the Weatherford prepetition unsecured notes, and was part of an ad hoc bondholder group that drove restructuring talks before the oilfield servicer filed for Chapter 11.

 

In situations outside of bankruptcy, Värde is a lender to Milestone Environmental, an Intervale Capital-backed oilfield water disposal servicer, the first and fourth buysiders said. The firm refinanced Milestone’s Riverstone-led line of credit in 2019, one of the sources noted.

 

Värde also provided a USD 155m term loan facility to Bison Oil & Gas last year, with proceeds used to pay down the DJ basin operator's debt and fund an equity distribution.

 

Investors are increasingly spooked by the region, given the regulatory risks and torrent of restructuring activity, such as Extraction Oil & Gas and HighPoint Resources.

 

Värde is expected to avoid making any new investments tied to North American shale going forward, according to the buysiders, a banker, advisor and a seventh source.

 

The sentiment echoes that of other lending institutions, including Societe Generale, ABN AMRO Bank, and East West Bank, which are looking to offload their holdings due to increasing impairments and ESG pressures.

 

While Värde received reverse inquiry from distressed players to help manage its energy portfolio, the firm is not entertaining those offers, the seventh source said.

 

Overall, energy investments are a small part of Värde, which manages around USD 15bn of assets across the globe, the same source and two buysiders said. Its 13th flagship fund, which raised nearly USD 2.5bn in commitments last year, delivered 9.7% IRR as of 30 September, according to Minnesota State Board of Investment, public filings show.

 

by Rachel Butt and Catherine Perloff