CSL Capital Management: Patriot Proppants (B)

Victoria  Ivashina; Yury  Kapko

Case | HBS Case Collection | July 2020

CSL Capital Management: Patriot Proppants (B)

Abstract

This two-part case series follows CSL Capital’s 2009 investment in the greenfield manufacturing company, Patriot Proppants. CSL, a recently established investment firm, employs a unique investment model, funding new ("greenfield") energy service businesses that serve Oil & Gas customers in the growing U.S. shale industry. Case (A) offers a perspective on CSL’s approach to deploying capital and the intricacies of the decision process as it relates to a potential investment in Patriot. Case (B) is shorter and focuses on an unsolicited offer from a strategic buyer, roughly one year after the initial deal closed. This case offers an opportunity to reflect on investment value-add for CSL, exit strategies, and fundraising issues.

Language: English

Format: Print

4 pages

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Citation:

Ivashina, Victoria, and Yury Kapko. "CSL Capital Management: Patriot Proppants (B) ." Harvard Business School Case 221-007, July 2020.

This two-part case series follows CSL Capital’s 2009 investment in the greenfield manufacturing company, Patriot Proppants. CSL, a recently established investment firm, employs a unique investment model, funding new ("green field") energy service businesses that serve Oil & Gas customers in the growing U.S. shale industry. This (A) case offers a perspective on CSL’s approach to deploying capital and the intricacies of the decision process as it relates to potential investment in Patriot. This case also offers insights into fundraising issues, asset-backed lending and co-investments. Specifically, in addition to evaluating the investment opportunity, CSL must decide which co-investment partner to take on, should it advance with the investment. Students are presented with an opportunity to closely evaluate the terms of the co-investment proposals, particularly given that they came separately from strategic and financial co-investors with divergent objectives.

The case discusses the strategy of Pantheon, a UK-based fund of funds investing in private equity. Client demands and preferences had changed in the aftermath of the 2008 global financial crisis and Pantheon had to adapt its business model to accommodate requests for new asset classes and customized portfolios. The challenge was to keep an eye on the fee structure, as clients also put pressure on the costs. Pantheon had extended its offer into infrastructure, real assets, and private debt, and had found a way to offer customized portfolio solutions at an acceptable cost level, but the very long-term nature of private asset classes was making it difficult to assess the success of this strategic turnaround.

Foreign banks’ lending to firms in emerging market economies (EMEs) is large and denominated predominantly in U.S. dollars. This creates a direct connection between U.S. monetary policy and EME credit cycles. We estimate that over a typical U.S. monetary easing cycle, EME borrowers experience a 32-percentage-point greater increase in the volume of loans issued by foreign banks than do borrowers from developed markets, with a similarly large effect upon reversal of the U.S. monetary policy stance. This result is robust across different geographic regions and industries and holds for U.S. and non-U.S. lenders, including those with little direct exposure to the U.S. economy. Local EME lenders do not offset the foreign bank capital flows; thus, U.S. monetary policy affects credit conditions for EME firms. We show that the spillover is stronger in higher-yielding and more financially open markets and for firms with a higher reliance on foreign bank credit.

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CSL Capital Management: Patriot Proppants (B)

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