Wednesday, March 3, 2010

International Petroleum Investments Abu Dhabi Refinances US$2.5 Billion Loan


Gulf News reports that IPIC has refinanced a US$2.5 billion loan maturing this June with a three year term loan of the same amount.

The original loan was part of a US$5 billion financing announced 4 August 2009.  Two tranches each of US$2.5 billion.  Tranche A was a one-year facility designed to be refinanced with a capital markets issue.  At the time the market reported that pricing was 250 basis points for the first six months, then 350 basis points for the next six months.  And if extended beyond that date, 400 basis points.  Tranche B was a two year term loan, which at the time was reported to carry a 350 basis points margin.  Each lender had the right to agree a one year extension on its portion of the loan.

According to Gulf News the new loan is at 150 basis points margin with commitment fees of 150 basis points for commitments of US$200 million with lower fees for lower amounts.  

As described this doesn't sound like a traditional "commitment fee" but more an upfront underwriting/participation fee.  A one time "up front" flat fee.  Such a fee would vary directly with the size of the lenders' underwriting in the loan and final take.     

A traditional commitment fee (on undrawn balances) would be the same percentage for each lender but applied to the respective undrawn amounts of their commitments during some period, e.g., semi-annually usually.

Assuming a US$200 million take and that this is a underwriting/participation fee, a bank making a US$200 million commitment to the loan and holding that amount as a final "take" would have an asset with an effective margin of 202 basis points per annum - or 52 basis points over the stated margin.

Taking this story at face value, it shows that:
  1. Unlike Dubai, Abu Dhabi has access to the market and to term funds.  It has raised a three year loan to refinance a maturing one year loan.  
  2. The margin on the new loan appears to be much lower than on the previous loan.  Without knowing the front end fees on both loans, it's not possible to calculate the exact differential, but it appears to be substantially less on the refinancing - perhaps as much as 200 or more basis points.
  3. Capital markets are not offering an alternative for a take-out or not offering as attractive pricing as the loan market.  So IPIC has refinanced in the bank market.

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