Shrugging off the lull
Israel's Delek Drilling fought its way past fears that it would struggle to find a buyer base and potential questions over its timing to bring home one of the biggest corporate deals of the year from the Emerging EMEA region when it raised US$2.25bn in August for its Leviathan gas project.
The transaction, split across three, five, seven and 10-year senior secured tranches, helped Delek fund the development of Leviathan, one of the largest natural gas fields in the eastern Mediterranean.
Delek, which has a 45.34% stake in the Leviathan field, faces over US$2bn of maturities in the next six to 12 months. A successful outcome was, therefore, important to take down those imposing debts.
Yet that had looked far from certain at the outset given the currency, ratings and location of the asset meant it did not look a natural fit for any particular investor base.
But the asset quality drove interest from a broad church of accounts, as did the transaction’s first-lien secured nature and a cash waterfall and covenant package tailored to the asset.
“It was marketed by US high-yield, US investment-grade, Asia, European high-yield, European investment-grade and emerging market teams, so you had many different sales teams and syndicate desks focused on delivering a very complicated trade,” said Marc Lewell, head of APAC/EMEA syndicate at JP Morgan, which was lead left and a global coordinator alongside HSBC.
“If it was just an EM or dollar high-yield deal, it would have struggled or priced significantly wider.”
Demand came from an array of US and European high-yield accounts, Israeli investors, Asian infrastructure funds and dedicated EM buyers.
The issuer split the fundraising across four bonds, rated Ba3/BB–/BB, selling a US$500m three-year note at 5.75%, a US$600m five-year at 6.125%, a US$600m seven-year at 6.50% and a US$550m 10-year at 6.75%.
The three-year note came 12.5bp inside initial price thoughts, while the five-year and seven-year tranches came 25bp inside initial levels and the 10-year note 50bp tighter.
The timing of the trade had raised eyebrows given the market was heading into the summer lull. Nor had Delek experienced an easy year, with natural gas and oil prices under intense pressure in the first half. But news in July that Chevron planned to buy Noble Energy, which operates the Leviathan field, in a US$5bn deal was helpful.
The Leviathan project, which has an operating life of more than 30 years and which Delek values at US$10.5bn, started producing gas in 2019 and supplies Israel, Egypt and Jordan.
BNP Paribas and Goldman Sachs were joint books.
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