CCMP Taps Back Into Energy Market

Target: Chaparral Energy Inc.

Price: $345 million

Sponsor: CCMP Capital Advisors LLC

Seller: Chaparral Energy Inc.

Financial Adviser: Sponsor: RBC Richardson Barr; Seller: Capital One Southcoast, Morgan Stanley Global Wealth Management Group

Legal Adviser: Sponsor: Latham & Watkins; Seller: McAfee & Taft

CCMP Capital Advisors LLC on April 12 did its first energy deal in more than five years, investing $345 million of equity for a 37 percent stake in Chaparral Energy Inc., an Oklahoma City-based oil exploration and production company.

Mark and Charles Fischer, brothers who founded Chaparral Energy in 1998, were looking for an equity partner that could help them reduce debt the company took on to help finance a number of acquisitions and other development projects, said Chris Behrens, a managing director at CCMP Capital. Since its inception in 1988, the company has expanded its operations from Oklahoma to include parts of Arkansas, Louisiana, Texas and the Rocky Mountain region.

By reducing the company’s debt, Chaparral will have more flexibility to expand its operations, particularly with enhanced oil recovery, a longer-term, more capital intensive form of oil extraction that Behrens said has growth potential. Concurrent with CCMP Capital’s investment, Chaparral entered into a four-year, $450 million senior secured credit facility led by J.P. Morgan Securities Inc. Upon closing of the deal, the outstanding balance of the credit facility was $175 million with remaining availability of $275 million.

CCMP Capital made the investment out of its second fund, a $3.4 billion pool of capital it closed in 2007. That fund is about 60 percent invested. Though the firm typically takes controlling stakes in its investments, Behrens said it has succeeded with a number of minority-stake investments over the years.

The investment marks the first energy deal for the New York-based shop since September 2004, when it made its initial investment in Noble Environmental Power LLC, an Essex, Conn.-based company that generates electricity from wind. CCMP Capital sold a number of energy concerns in 2006 and 2007, and then largely avoided the sector because of differences in price between it and sellers. “We’ve been net sellers over last three to four years,” said Behrens. “We haven’t found the right risk-return opportunity.”

That’s changed over the past year as prices for oil and gas have stabilized. The firm in September 2009 hired Karl Kurz, the former COO of Anadarko Petroleum Corp., to join Behrens as co-head of CCMP Capital’s energy team. The firm is looking at a number of other deals in the sector, particularly carve-out opportunities from large energy companies. “We’re real excited,” Behrens said. “There are some larger corporations looking to divest and rationalize their portfolio.”

The firm may also be looking to exit Noble Environmental. In May 2007, the company hired Goldman Sachs to explore strategic alternatives. Behrens said that the company “continues to explore various alternatives to fund its growth.”

CCMP Capital has been especially active so far in 2010, announcing the initial public offering of one company, Generac Holdings Inc., which manufactures backup power generation products for residential and commercial use, and making three investments. Before Chaparral Energy, its most recent investment came March 8, when the firm agreed to buy Infogroup, an Omaha-based company that provides marketing data, for $635 million.