Taking advantage of debt financing and other investment options What opportunities are there for you today? Amsterdam, 28 January 2014 Bert van der Toorn Managing Director, Head of Oil and Gas, Europe and CIS
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 1
Key elements O&G Market Project Finance Market Finance Package 2
1. Market trends 3
Project finance volumes (2013 vs 2012) Source: Dealogic Project Finance Review, Full Year 2013 Final Results, January 2014 4
Debt structures globally Source: Dealogic Project Finance Review, Full Year 2013 Final Results, January 2014 5
Debt structures in the oil and gas sector Volume of loans and bonds in the oil and gas sector 70000 60000 50000 40000 30000 Bond (US$m) Loan (US$m) 20000 10000 0 2009 2010 2011 2012 2013 Source: Based on PFI Financial Leagues Tables 6
Europe: Impact of alternate financing on loan demand Changes in demand for loans to enterprises (Net % of banks reporting positive contribution to demand) Positive impact on loan demand Negative impact on loan demand Source: European Central Bank, The Euro Area Bank Lending Survey, 3rd Quarter of 2013, October 2013 7
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 8
2. Financing options (in view of market trends)? 9
Institutional investors Need to find alternative investments Direct Structured solutions 10
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 11
Structured solutions: Debt vs Bonds Some recent activity: Sabine Pass; Sakhalin 2 LNG; OGE; Nord Stream; Castor; South Stream? Debt Shorter maturity, refinancing risk Floating rate finance Prepayment flexibility Relationship lenders More flexibility: client driven mentality Heavily negotiated covenant package with closer monitoring Default: typically work out Less market risk: committed funding and drawdown, when required Ratings not normally required or obtained No public disclosure required Bonds Long maturity Fixed rate funds Focus on long-term yield Bondholders passive hard to organise Difficult to modify terms Lighter covenants: less discretion Default: trade out not work out One closing: no drawdowns Ratings are vital Public, listing, no confidentiality agreement 12
Structured solutions: US vs Europe Europe US Bank loans (excl. Mortgages) Outstanding corporate bonds 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% United States c.80% debt from the public market Europe 80% of corporate financing from bank loans Increase in direct investments in the form of loans and private placements US banks : Originate-to-Distribute model Banks originate credit and hold until maturity. Limited share of syndicated loans Regulatory pressure on banks to shorten their balance sheets 13
Structured solutions: Innovative ways to flavour the market PEBBLE financing structure Background Purpose Benefit Regulatory climate Availability of finance 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 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. 14
Structured solutions: Innovative ways to flavour the market EIB Project Bond Credit Enhancement (PBCE) Initiative Background Purpose Benefit Regulatory climate Low credit ratings Drop in credit enhancing mechanisms 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 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 In the form of either: (1) PBCE facility; or (2) contingent letter of credit 15
Structured solutions: Innovative ways to flavour the market ECA BOND Wrapped bond (ECA or monoline insurer) ECA-backed bond 16
Other interested investors and their perspectives Characteristics Pension funds/ sovereign wealth Infrastructure funds Private equity funds 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 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 Medium High Minority vs. Majority Typically a minority stake with a passive role Diverse, both minority as well as majority, dependent on fund Majority, aim to obtain control Return requirements No cash yield requirement IRR of 8-13% Yearly cash yield requirement IRR of 13-20% IRR of 20-30% 17
Summary In the context of market trends : Institutional investor interest Bonds have their advantages but.structured solutions are needed Equity investor interests 18
3. Structuring your financing package 1. Company 2. Purpose 3. The business 4. Other lender considerations 19
The company and purpose Who are you and what are you looking for? 1. Existing storage company? Seeking further leverage? Expansion? Acquisition finance? Refinery facility conversion? 2. Greenfield storage company? 20
The business tell me about your 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 21
Lender considerations 1 Factor Due Diligence Impact Legal, Technical, Market, Environmental and Insurance Due Diligence 2 Construction & Completion 3 Post-Completion/ Operations & Maintenance 4 Cash Flow Volatility/ Force Majeure 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 22
The financing package You Market Who are you and what would you like? Tell me about your business 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? 23
4. Some case studies* *Based on publicly available information 24
Sea Tank 510 Liquid Bulk Storage Terminal Structured Finance Belgium 2011 Undisclosed SEA-Tank 510 EUR EUR 165 mn 165mm Project Financing Project Financing ING's role ING acted as Mandated Lead Arranger, Technical Bank and Account Bank for the financing ING acted as Hedge Coordinator Bookrunner,, MLA, MLA, Technical Technical Bank and Bank Hedging and Coordinator Hedging Coordinator Natural Resources Financing details Debt:Equity: +/-80:20 Size and structure: US$240 million Tenor: 9 year Financial Covenants: Customary Security: Customary 25
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 26
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 27
LBC Tank Terminals Structured Finance ING s role ING acted as Mandated Lead Arranger and Bookrunner in the Syndicated Credit Facilty ING acted as bookrunner in the HY Bond 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 28
Macqpisto oil product storage 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 29
Oystercatcher Structured Finance Luxembourg 03/13 3i Oystercatcher EUR 195m Term Loan and Revolving Credit Facility ING's role ING acted as Mandated Lead Arranger Mandated Lead Arranger Natural Resources Financing details Size and structure: 196mln Tenor: 5 years 30
5. Going forwards 31
What could we see? Changing credit standards Institutional investors Bonds Structured solutions 32
6. Questions????? 33
7. Disclaimer 34
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