© 2016 The Texas Lawbook.
By Natalie Posgate
(Nov. 2) – Sean Wheeler has had a productive year so far. The Houston-based Latham & Watkins partner led or co-led 17 securities offerings for issuers or underwriters during the first nine months of 2016. His work ranges from Helix Energy Solutions’ $50 million at-the-market equity offering to Anadarko Petroleum’s $3 billion debt offering of a series of senior notes – both of which involved Wheeler representing the underwriters.
The Texas Lawbook conducted an in-depth Q&A with Wheeler to learn more about what has kept the Harvard Law School alumnus busy in 2016, what he anticipates will keep him busy in 2017 and his insights into the current state of the market for securities offerings involving energy companies.
Texas Lawbook: You have led or co-led 17 securities offerings in the first nine months of this year. For representing issuers and underwriters combined, you rank No. 1 for deal count out of 89 of Texas’ leading capital markets lawyers. What’s been keeping you busy?
Sean Wheeler: For 2016, many of the capital markets transactions have been follow-on equity and debt offerings by energy companies seeking to either improve their balance sheets or fund opportunistic acquisitions of other businesses. Until very recently, we were not seeing much new issue activity, though that has recently changed with the Extraction and Mammoth initial public offerings. As commodity prices have stabilized and improved, and as the prospects for further improvement appear to be strengthening, we’re starting to see E&P companies in attractive basins move up their IPO timing in hopes of taking advantage of what is now a very strong market for high quality operators in the best areas.
TLB: How busy have you (as well as your Latham colleagues) been this year compared to previous years?
SW: The first quarter of 2016 was slow – not just in the energy space but for all capital markets activity. Starting in the second quarter of 2016, we started to see more clients take advantage of improving market conditions and the activity has steadily increased over the course of the year. At this point, we’re very busy with a number of IPOs, most of which involve E&P companies going public as C-corps. This is quite different from prior years where the bulk of the new issue activity consisted of master limited partnerships tapping the IPO market. With the exception of Noble Midstream, the MLP IPO market has been relatively dormant since the middle of 2015 and I would expect it to continue to lag for another six months.
MLPs, as an asset class, are steadily improving, getting their balance sheets in order and regaining investor confidence. Though there isn’t a lot of IPO activity at the moment, a number of companies are looking toward 2017 for a possible IPO filing.
TLB: What do you anticipate for the rest of 2016 as well as next year?
SW: For the remainder of 2016, I expect to see more of what we’ve seen in Q3 2016. There will likely be a couple of energy IPOs actually price, a number of companies make filings to initiate the IPO process and a reasonable amount of follow-on offering activity prior to the December slowdown. The focus for the remainder of 2016 will be on getting the house in order in hopes of taking advantage of opportunities in 2017. The general consensus is that everyone is ready for 2016 to be over and that 2017 will be much brighter for energy companies – both in terms of capital markets transactions and M&A activity.
TLB: In addition to leading the most offerings, you also handled the Anadarko offering of senior notes worth $3 billion for the underwriters back in March, which is the largest securities offering in our database for 2016 so far. How does that compare to the highest deal value you’ve seen? (Do we see even larger offering sizes in healthier years in the CapM world)?
SW: The size of a capital markets transaction is driven mainly by the needs of the issuer. Anadarko is a large, well-managed company with a lot of great opportunities and so its capital markets offerings are almost by definition larger. It’s possible that there will be larger offerings (and the recent $17.5 billion bond sale by Saudi Aramco is an example). Most offerings are smaller (but not small), and they generally present the same and, perhaps, more difficult issues. The challenges don’t normally result from the size of the offering but from the complexity of the security being offered and disclosure issues, if any, with the issuer.
TLB: In the first nine months of this year, you have been on the issuer’s side for 6 offerings and the underwriter’s side for 11 offerings. Any reason underwriter representation has been more prevalent? Is this ratio pretty standard for you, or does it fluctuate year to year because of various factors?
SW: The ratio of issuer to underwriter representations varies based on a lot of factors – which clients are in need of capital, where the relationships are, etc. My practice is usually fairly evenly split between issuer and underwriter representation.
TLB: What has been the most interesting offering that you’ve worked on this year?
SW: The Extraction bond deal and the subsequent initial public offering were very interesting; the company is growing rapidly, has a great story and did a number of acquisitions that needed to be disclosed in the offering documents. The most challenging transactions involved Weatherford – they did a complex mandatory exchangeable notes offering earlier this year and a first-time high-yield bond offering, both of which were highly complex and very interesting from a legal perspective.
TLB: The Extraction IPO is one of three we’ve seen involving a U.S. energy company to actually price and close this year after filing an S-1. How is the outlook looking for energy IPOs over the next six to 12 months?
SW: The outlook for energy IPOs is quite bright, notwithstanding that oil prices continue to remain in the $45-$50 range. Investors had reduced their energy exposure in line with the commodity price collapse and now they are looking to gain exposure to the sector in hopes of benefiting from overall improving fundamentals in the space driven by cost reductions and improving commodity prices. I would expect to see at least six energy IPOs in the next nine months, perhaps more. That doesn’t include a dozen or two companies that will be working on their potential IPO during that time, thereby setting themselves up for a potential IPO later in 2017 or early 2018.
TLB: How have recent energy IPOs priced compared to expectations? How does that affect the IPO pipeline?
SW: Recent energy IPOs have been well received, with the Noble Midstream and Extraction IPOs doing very well in after-market trading as well. That obviously gives people more confidence in the sector and encourages more companies to pursue an IPO.
TLB: What have you noticed this year with your clients on the M&A side?
SW: M&A was quiet for the first three or four months of the year but it has accelerated dramatically over the past four months. We’re incredibly busy on a number of M&A projects. As you know, we recently represented Rice in its acquisition of Vantage Energy (which was also on a parallel IPO path), Silver Run in its acquisition of Centennial Resources (which was also on a parallel IPO path), Stone Energy in the sale of its Appalachian assets to Tug Hill, Veritas Energy Partners in its joint venture with Double Eagle and a number of other deals. I expect 2017 to be a fantastic year for M&A, with the IPO market steadily improving over the course of 2017 as well.
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