Lime Rock runs process to deliver liquidity to LPs in 2006 fund

Lime Rock Partners, an oil-and-gas-focused firm, is working on a liquidity process for its fourth fund, which has most of its value wrapped up in one investment called CrownRock, according to three people with knowledge of the process.

The process is another example of a GP seeking to deliver liquidity to LPs in an older fund whose value is wrapped up in a single or concentrated set of assets.

The firm, based in Houston and Connecticut, has lined up investors including HarbourVest Partners as part of the deal, two sources said. Evercore is adviser on the deal, sources said.

The process involves moving assets, most of which is CrownRock, out of Fund IV and into a special-purpose vehicle with a term of about five years, sources said. Fund IV expires this year, one of the sources said.

Existing LPs can choose to roll into the new vehicle or cash out of their stakes in Fund IV, locking in already-strong gains. LP interests in the fund are priced strongly, one of the sources said.

Fund IV, which closed on about $750 million in 2006, was generating a 15 percent net internal rate of return and a 2.8x net multiple as of Sept. 30, 2017, performance information from California Public Employees’ Retirement System shows.

Fund IV still had about $2.3 billion of gross net asset value as of March 2018, according to Lime Rock’s most recent Form ADV.

CrownRock is a joint venture between the firm and CrownQuest to develop oil and gas properties in the Permian Basin, according to Lime Rock’s website. Lime Rock first invested in CrownRock in 2007.

The transaction represents a realization event for Fund IV LPs, one of the sources said. Lime Rock has communicated with the fund’s investors about options for the fund as it approaches the end of its contractual life, the source said.

Lime Rock, meanwhile, is in the market with Fund VIII, targeting $1 billion, a Form D filing late last year says.

Generally, funds from 2006 and 2007 with remaining value are good candidates for secondary processes, as they live beyond their 10-year terms and into their extension periods.

LPs in older funds also occasionally pressure GPs to find ways to help them cash out of their interests.

In this case, much of the deal focuses on one asset, which is a dynamic that secondary professionals are seeing more these days. Single-asset or concentrated-asset deals are becoming more common, though sources have mixed opinions on whether such deals represent a trend.

Hellman & Friedman is working on a process for a single asset, cloud-based human-resources software provider Kronos Inc, out of its sixth fund, which closed on $8.4 billion in 2007.

Similar to what Lime Rock is trying to do, Hellman wants to move Kronos into a special-purpose vehicle, giving Fund VI LPs the option to cash out of their interests in the company or roll their exposure to Kronos into the SPV, Buyouts has reported.

“Every GP is trying to figure out how to play this space to their advantage and to their LPs’ advantage,” said a secondary-market professional. “How can I be LP-friendly if I’m a GP and use the secondary market to help generate liquidity?”

Action Item: Check out Lime Rock’s Form ADV here: https://bit.ly/2EwYTAh

An oil pump operates in the Permian Basin near Midland, Texas, on May 3, 2017. Photo courtesy Reuters/Ernest Scheyder