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Monday, 20 November 2017

Latin America Loan: Trafigura's US$350m asset-backed loan

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Small but significant

What Trafigura’s US$350m senior secured asset-backed facility lacked in size, it made up for in an innovative hybrid structure that overcame multiple challenges faced by a commodities company seeking long-term money to improve logistics along Colombia’s Magdalena River.

The loan stood out for its complexity and the leads’ ability to syndicate among a whole new set of lenders at a time when investors were having second thoughts about committing funding in emerging market oil exporting countries such as Colombia.

Looking for the longest tenor possible to fund fluvial equipment such as barges, Trafigura was unable to lean on its deep pool of around 130 relationship lenders. Not only were they unaccustomed to lending beyond three years, but many had already reached their limits on Trafigura exposure.

“We didn’t want to compete against that capacity,” said Kristie Pellecchia, head of syndications for Latin America and US corporates at SMBC, which was joint bookrunner alongside Credit Agricole. “We felt there was a lot of liquidity in the regional market as well as in Asia.”

Those issues hit home when Trafigura announced in July a US$1.68bn refinancing of its Asian revolver – just days after SMBC and Credit Agricole had launched general syndication on the asset-backed deal.

The US$350m transaction comprised five and seven-year tranches, striking a balance between the tenors required by Trafigura and investor needs.

The leads had to come up with a structure that mitigated some of the risks of having tenors that were shorter than the 20-year lease agreement entered into between the Trafigura subsidiary and the assets being financed.

The solution was a hybrid loan that incorporated the features of straight corporate loans such as a guarantee from the parent as well as project finance structures such as a pre-payment mechanism with a cash sweep.

“You had a corporate guarantee for the full seven years but also structural enhancements that are typical of a more project finance-type deal,” said Rose Mary Perez, director of the LatAm loan syndication group at Credit Agricole.

Other such features included an equity cure in the event of a cash shortfall from the borrower, which is using revenues from the lease payments.

The deal paid 265bp and 315bp over Libor on the five and seven-year tranches, respectively. That compares with the approximately 110bp over Libor that Dutch parent and guarantor Trafigura Beheer typically pays on a three-year loan.

“The price levels reflected how people looked at an asset-driven transaction,” said Jaime Frontera, head of the Latin America loans syndication group at Credit Agricole.”It was a good balance between Trafigura’s needs and our ability to sell it.”

The bookrunners spread their net far and wide to lure 10 more banks, many of which were new lenders for Trafigura.

* Typical cost of funding corrected in paragraph 11.

To see the digital version of the IFR Americas Review of the Year, please click here .

To purchase printed copies or a PDF of this report, please email gloria.balbastro@tr.com .

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