Taking advantage of debt financing and other investment ... · PDF fileTaking advantage of...
Transcript of Taking advantage of debt financing and other investment ... · PDF fileTaking advantage of...
What opportunities are there for you today?
Taking advantage of debt financing and other investment options
Amsterdam, 28 January 2014 Bert van der Toorn Managing Director, Head of Oil and Gas, Europe and CIS
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Agenda
1. Market trends
2. Financing options (in view of market trends)
3. Structuring your financing package
4. Some case studies
5. Going forwards
6. Questions?
7. Disclaimer
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Project finance volumes (2013 vs 2012)
Source: Dealogic Project Finance Review, Full Year 2013 Final Results, January 2014
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Debt structures globally
Source: Dealogic Project Finance Review, Full Year 2013 Final Results, January 2014
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Debt structures in the oil and gas sector
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10000
20000
30000
40000
50000
60000
70000
2009 2010 2011 2012 2013
Bond (US$m)Loan (US$m)
Source: Based on PFI Financial Leagues Tables
Volume of loans and bonds in the oil and gas sector
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Europe: Impact of alternate financing on loan demand
Source: European Central Bank, The Euro Area Bank Lending Survey, 3rd Quarter of 2013, October 2013
Positive impact on loan demand
Negative impact on loan demand
Changes in demand for loans to enterprises (Net % of banks reporting positive contribution to demand)
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Summary
• Volumes slowly increasing globally
• Generally: Loan vs bond vs equity mix is changing
• Specifically: increase in bonds (decrease in loans) in oil and gas sector
• Credit standards loosening very slowly
• Demand for bank loans has declined due to alternative finance but less than before
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Direct: Investing in loans • Institutional side regulation (Solvency II for insurers, IAS 19 pension funds)
• (Higher rated) loans attractive under Solvency II
• Loans as an attractive asset class :
A. Depth of market B. Floating-rate yield
C. High recovery rates
In the case of Infrastructure loans:
D. Higher yields
E. Long maturities
Unattractive features:
A. Revolving / Undrawn Facilities
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Structured solutions: Debt vs Bonds
Some recent activity: Sabine Pass; Sakhalin 2 LNG; OGE; Nord Stream; Castor; South Stream?
Debt Bonds Shorter maturity, refinancing risk Long maturity
Floating rate finance Fixed rate funds
Prepayment flexibility Focus on long-term yield
Relationship lenders Bondholders passive – hard to organise
More flexibility: client driven mentality Difficult to modify terms
Heavily negotiated covenant package with closer monitoring
Lighter covenants: less discretion
Default: typically work out Default: trade out not work out
Less market risk: committed funding and drawdown, when required
One closing: no drawdowns
Ratings not normally required or obtained Ratings are vital
No public disclosure required Public, listing, no confidentiality agreement
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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
US
EuropeBank loans (excl. Mortgages) Outstanding corporate bonds
United States Europe
• c.80% debt from the public market • 80% of corporate financing from bank
loans
• Increase in direct investments in the form of loans and private placements
• Banks originate credit and hold until maturity.
• Limited share of syndicated loans
• US banks :‘Originate-to-Distribute’ model • Regulatory pressure on banks to shorten their balance sheets
Structured solutions: US vs Europe
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• Pursue infrastructure targets
• New investment platform :
1. A Note and B Loan Banks seeking longer term
2. A Notes Investors seeking high credit instruments
3. B Loan Banks seeking shorter term
• Regulatory climate
• Availability of finance
PEBBLE financing structure
Background Purpose Benefit
• Procuring Authority
• Sponsors
• A Note Investors
• B Loan Lenders
• Stimulate capital market participation
First PEBBLE-backed financing closed in September 2013:
€300 million (US$405.6m) Zaanstad Prison building in the Netherlands.
Structured solutions: Innovative ways to flavour the market
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EIB Project Bond Credit Enhancement (PBCE) Initiative
In the form of either: (1) PBCE facility; or (2) contingent letter of credit
• Provide subordinated instruments* to eligible projects
• Enhance credit rating of Senior Bonds
• Appetite of institutional investors
• Sources of finance and minimise funding costs
• Capital market investment
• Regulatory climate
• Low credit ratings
• Drop in credit enhancing mechanisms
Background Purpose Benefit
First project bond under the PBCE initiative closed in July 2013: €1.4 billion (US$1.85bn) project bond issue for
the Castor underground gas storage project in Spain
Structured solutions: Innovative ways to flavour the market
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Structured solutions: Innovative ways to flavour the market
ECA BOND Wrapped bond
(ECA or monoline insurer)
ECA-backed bond
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Other interested investors and their perspectives Characteristics Pension funds/ sovereign wealth Infrastructure funds Private equity funds
Investment horizon
• Long-term investors, typically 10-30 years
• Medium-term investors, with holding periods
ranging from 7-13 years
• Short to medium holding period of 3-7 years
Investment level • Diverse, both on holding and asset level
• Diverse, both on holding and asset level
• Typically aim to invest on holding level
Corporate governance
requirements • Limited to medium • High • Medium
Minority vs. Majority
• Typically a minority stake with a passive role
• Majority, aim to obtain control
• Diverse, both minority as well as majority, dependent
on fund
Return requirements
• No cash yield requirement
• IRR of 8-13% • IRR of 20-30%
• Yearly cash yield requirement
• IRR of 13-20%
Attractions
• Long-term investment horizon
• Experienced minority investors
• Control not key
• Attracted by storage market
• Long(er) investment horizon (7-13 years on average)
• Experienced minority investors
• Control not key
• Large number of Oil & Gas oriented PE sponsors with
sufficient capital Supportive of buy & build strategy
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Summary
• Institutional investor interest
• Bonds have their advantages but…
• ….structured solutions are needed
• Equity investor interests
In the context of market trends :
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3. Structuring your financing package
1. Company
2. Purpose
3. The business
4. Other lender considerations
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• Seeking further leverage? • Expansion? • Acquisition finance?
Who are you and what are you looking for?
The company and purpose
• Refinery facility conversion?
1. Existing storage company?
2. Greenfield storage company?
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tell me about your business…
The business
1. Structure • Ownership / shareholding and assets • Contractual relationships and rights
2. Environment • Location and environmental concerns
• Supply and demand / competition (and
monopolies)
3. Operations & financials • Rating
• EBITDA / opex & capex
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Impact
Construction & Completion
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Post-Completion/ Operations & Maintenance
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Cash Flow Volatility/ Force Majeure
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Due Diligence
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Lender considerations Factor
• Legal, Technical, Market, Environmental and Insurance Due Diligence
• Sponsor support
• Lump-Sum EPC Contract
• Technology; Operations and Maintenance
• Accounts / Cash Flow / DSRA / Security / Distributions / Ratio-testing
• No market or margin risk on capacity
• Limited merchant risk
• Structure
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“Who are you and what would you like?”
“Tell me about your business”
The financing package
The right package - Size - Tenor - Structure - Covenants - Security
Bank debt
Other debt
Bonds
PEBBLE structure
EIB PBCE structure
Infrastructure funds
Private equity funds
Pension funds / sovereign wealth
Other creative structure?
You
Market
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Sea Tank 510 Liquid Bulk Storage Terminal Structured Finance
ING's role • ING acted as
Mandated Lead Arranger, Technical Bank and Account Bank for the financing
• ING acted as Hedge Coordinator
Financing details Debt:Equity: +/-80:20 Size and structure: US$240 million Tenor: 9 year Financial Covenants: Customary Security: Customary
Natural Resources
Belgium 2011
Undisclosed EUR 165 mn Project Financing
Bookrunner , MLA, Technical Bank and Hedging Coordinator Natural Resources
Belgium 2011 Belgium 2011
SEA-Tank 510 EUR 165mm
Project Financing
Bookrunner, MLA, Technical Bank and Hedging Coordinator
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Vopak Terminal Eemshaven BV Structured Finance
ING's role • ING acted as
Documentation Bank during the structuring process
• ING acted as Mandated Lead Arranger, Facility Agent, Security Agent and Account Bank for the financing
• ING acted as Hedge Coordinator
Financing details Debt:Equity: 87:13 Size and structure: $121million (in aggr): term loans and smaller facilities Tenor: 17 years for term loans and shorter for small facilities Security: Customary
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Vopak Horizon Fujairah Limited Structured Finance ING's role
• ING acted as Mandated Lead Arranger
• ING acted as Swap Provider and Hedge Coordinator
Financing details Size and structure: US$130 million Tenor: 8 years Security: Customary
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Structured Finance
Financing details Size and structure: US$350 high yield bond / US$396 facility Tenor: bond: 10 years / facility: 7 years Financial Covenants: Customary Security: Customary
LBC Tank Terminals ING’s role • ING acted as
Mandated Lead Arranger and Bookrunner in the Syndicated Credit Facilty
• ING acted as bookrunner in the HY Bond
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Structured Finance
ING's role • ING acted as
Mandated Lead Arranger
• ING acted as Swap Provider
Financing details Size and structure: €420m Tenor: 7 years
Macqpisto oil product storage
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Structured Finance
ING's role ING acted as Mandated Lead Arranger
Financing details Size and structure:€ 196mln Tenor: 5 years
Oystercatcher
Natural Resources
Luxembourg 03/13
3i – OystercatcherEUR 195mTerm Loan and Revolving Credit Facility
Mandated Lead Arranger
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What could we see?
• Changing credit standards
• Institutional investors
• Bonds
• Structured solutions
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Disclaimer
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