project & infrastructure finance awards
SPONSORS: MODEC, Inc., Mitsui, Mitsui OSK Lines, Marubeni Corp.
LOCATION: FPSO (floating production storage and offloading) on the Lula-Iracem oilfield in Brazil
FINANCING TYPE & SIZE: $1.1 billion 2034 6.75% senior secured notes
BANKS: Citibank, Mizuho Americas, SMBC Nikko Securities America, Inc., Morgan Stanley,
LAW FIRMS: Hinckley Allen, King & Spalding, Lennox Paton, Stibbe, Stocche Forbes Advogados, Tostes & Associados Advogados, White & Case LLP,
SUPPORT: KPMG, Wood Mackenzie, Japan Oil Engineering Co., Ltd., Marsh Ltd.
The restructuring of the financing tied to a single project that accounts for over 5% of Brazil’s daily oil output, kept the MV24 FPSO (floating, production, storage and offloading) unit in the spotlight last year.
What stood out for the $1.1 billion bond sale, which sold at par with a final yield at 6.75% and two times oversubscribed was the covenants governing the transaction.
The innovation of using a Rule 144A and Regulation S exemptions structure allowed the sponsors to refinance and reallocate construction bank loans from Japan’s export-import bank and project finance lenders into a more efficient use as funding for new development projects. This transaction turns out to be a debut of a new asset-class for institutional markets.
“I believe that our success can be replicated for other industries and will impact the wider industry,” Yuji Kozai, President and Chief Executive Officer of MODEC, said in written answers to questions from LatinFinance.
MODEC was carrying out 11 FPSO charter proposals simultaneously when this transaction was completed. The result was to allow MODEC to diversify its financing sources and allow for greater financial flexibility to build more FPSOs.
“I believe that the issuance of the project bond has actually enhanced MODEC’s financing stability by diversifying its financing sources for FPSO projects, as well as to secure financing flexibility for the future growth of MODEC,” Kozai said.
“In recent years, the number of FPSO charter projects simultaneously executed by MODEC is increasing and the scale of financing for these projects is also expanding. Main motivation for the issuance of the project bond was to respond to these changes in the business environment,” he added.
FPSO’s, of which there are thought to be about 200 built and operating around the world, are seen as critical for exploiting offshore oilfields. This new structure allows more investors to take part in the continuing growth and importance of the technology as they deploy to ever deeper waters as the only practical means for extracting oil efficiently.
In the case of the MV24 FPSO, because it was deemed so critical to monetizing the field, it was given a rating that was one level above both Petrobras and Brazil, which is the first ever case of an inaugural project bond rating above its direct contract counterparty. The asset is deployed in the pre-salt field, Lula-Iracema – Basin BMS-11, situated 240 miles off of Brazil’s coast.
“Brazil is a key country in the business strategy of MODEC and is about to enter a very promising period for the energy segment. The Brazilian market has been supporting MODEC by strengthening MODEC’s position in the global offshore oil and gas industry for nearly 20 years,” Kozai said, adding that he hopes the company’s operations in Brazil and more broadly in Latin America will help support the local oil and gas industry.
Fitch Ratings gave the project bonds a BB rating.
“The notes are fully amortizing and have a 15-year tenor, which is longer than other oil- and gas-related transactions (i.e. drilling rigs and shuttle tankers) because an FPSO's deployment period typically aligns to the production life of the underlying field. The transaction is backed by a 20-year charter agreement (15.3 years remaining) and, therefore, is not exposed to any refinancing risk,” Fitch said.
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