Ann: US$85 Million Received in Funding for New York Battery Plant, page-246

Further to my prev post I'm replying to on the funding.

Given there was some noise on the rate, for those who want a better understanding of said rate and market, Edison have just initiated coverage in March of RCOI.

In its report the analyst has provided a bit more info around RCOI for its potential investors as well as explaining about the current credit mkt conditions.

I underlined that the "average" YTM rate is 12.5% which indicates imo our facility is just that....average...not too low (given risk profile)...but also not excessive (high risk) it would appear, in a wider view.

Some may find it a worthwhile read in relation to our funding. Couple of quick excerpts and link to report.

https://www.edisongroup.com/publication/niche-energy-infrastructure-lending-2/29031/

	Initiation of coverage

	Investment companies

	11 March 2021

Riverstone Credit Opportunities Income (RCOI) is a closed-end fund that invests in mid-market energy company credit mostly via direct loans. Broadly across the sector, the lending includes infrastructure and infrastructure services across conventional and recently renewable energy sources. Energy lending is a specialist niche and RCOI benefits from being part of Riverstone, a leading energy-focused US investment company that has raised $41bn in capital since 2000.The average RCOI loan YTM is 12.5% and despite the pandemic and low oil prices, there have been no portfolio losses. The NAV has been resilient (12% total return since IPO in May 2019), but energy sector and oil price concerns, coupled with low share liquidity, have led to a 20% NAV discount and a dividend of 8.3%.

The analyst’s view

Middle market energy companies are typically too small to issue liquid bonds, banks have been retreating, while most non-bank direct lenders do not have the required resources and sector knowledge for the extremely technical credit analysis. However, the sector has significant capital needs and recovery rates are often higher due to being asset based. This allows for attractive risk-adjusted returns. The Riverstone connection allows RCOI access
expertise, business relationships and a deal pipeline. No base management fee helps aligns interests with shareholders. Significant US energy infrastructure spending is expected in coming years, especially in renewables helped by government stimulus plans.

A niche energy lending opportunity

However, the mid-market energy companies have found that their size hampers their access to credit markets. As credit markets have grown, they have been increasingly less interested in smaller and less liquid names. In addition to this, since the financial crisis in 2007–08, banks have been cutting back their lending to several segments to de-risk their portfolios and this has included middle-market energy.

Non-bank direct lending is increasingly stepping in and filling the gaps left by banks and credit markets. However, non-direct lenders usually do not have the resources and experience to deal with the non-conforming characteristics of energy lending that require extremely technical credit analysis (due to the high cyclicality) and sector knowledge. As a result, the energy segment is extraordinarily underrepresented in direct non-bank lending. In 2018, while the energy sector represented 26% of bank lending for mid-market US companies, it did not even account for 1% of the non-bank market according to Refinitiv Loan Connector.

The mid-market energy companies nevertheless have significant capital needs. This has created a business opportunity for non-bank lenders such as RCOI with access to specialist teams and the deep sector knowledge to take advantage of the favourable credit supply and demand dynamics.